Travelling On The Silicon Road

Read this insightful analysis of the woes of the semicon industry and surviving in a period of “profitless prosperity” by Steve Newberry, president and CEO of Lam Research, as reported by Bob Haavind, Editorial Director, Solid State Technology.

I summarize his main points here:

In the interview to EETimes’ Rick Merritt, Infineon’s CEO, Ziebart mentioned that semiconductor companies need to shift their focus from building fabs to building systems, and they must engage with customers at deep technical levels if they are to survive the current wave of consolidation.

“The major thing giving semiconductor makers a competitive advantage has evaporated. Today everyone has access to the same process technology at roughly the same time. This access used to be what differentiated the best from the worst semiconductor companies, but now it has evaporated, What’s replacing process technology as a differentiator is systems know how, and it must be specific to a market area”, he said.

This has initiated several comments on the blogosphere. Let me add my two penny’ worth to that:

In the past, the process technology was the competitive edge. Later the escalating costs (& risks) involved with building new fabs & developing new processes left one with little option but to pool in resources and consolidate (to compete with the rising prominence of  original pure-play foundries); giving rise to alliance like Crolles and later the Common Platform Alliance. IDMs shared their resources for the basic process and individually derived some spin-offs for differentiation & niche. This competitive edge was further complemented and later more or less replaced with strong IP portfolio which has grown over the years from a block to platform to “platform plus services”.

Moving to system level is a natural progression in this path.

Yes, the differentiator has moved from process technology; but it is due to access to the process techno. This access has become cost prohibitive for any single semiconductor company (perhaps leaving aside a couple with really deep pockets) and hence the scramble to find an alternate place in the value chain to survive.

A point to be noted here is to follow how the foundries have also evolved over this period –  from pure play to design support to building an IP portfolio to……. “systems know how”???

There are 2 different markets for the handsets: feature-rich 3G phones and ultra low-cost (ULC) phones. The former is predominantly the developed countries and the developing countries form the latter.

According to ABI Research, “The developed markets’ high saturation rates mean that over 80 percent of new mobile phone subscribers in the next five years will come from emerging markets.”

These ULC handsets have changed the dynamics of business.

Using commoditized technology (read “multiple providers”), has given handset makers a wide array of vendors to choose from e.g. Nokia has moved from relying exclusively on TI for baseband chips to partnerships with STMicro, Broadcom and Infineon – thus providing it design flexibility as well as price negotiating power.

A fine example of a low cost phone is Tianyu 8811 which has achieved low costs by using proven, mature technology and adopting a minimalist approach. For a tear down on this product, I suggest to read Jeff Brown’s article 

The recently unveiled $2500 car (named Nano) from India’s Tata is a prime example of achieving low costs with minimalist approach

As cited by C. K. Prahalad, professor of corporate strategy at the University of Michigan Business School, a huge market awaits at The Bottom of the Pyramid.  

Amidst the bleak forecasts for the semicon industry for 2008 including the projected decline by 10% in capital spending, a sector expected to post strong growth this year is the used semiconductor equipment market. According to a report from Semiconductor Partners in conjunction with Semicon Research, Used semiconductor equipment market is expected to reach $8 billion in 2009

 “As leading edge digital memory and logic manufacturers build 300mm fabs for process technologies of 65nm or less, this will obsolete their 200mm fabs at 130nm or 90nm and some of their 300mm fabs at 90nm,” noted Morry Marshall, Partner – Strategic Technologies at Semiconductor Partners. “Analog and mixed signal manufacturers will have a need for these fabs to meet for expansion to satisfy the growing analog, mixed signal and RF markets.  This creates an opportunity for companies that finance, resell or refurbish used equipment.”

IDMs have re-aligned their fab strategies and are going towards fabless or fablite. Plus the ASP declines have catalysed foundries towards the 300mm wafer path, thus giving a boost to the 200mm used equipment market; in particular  from foundries in Asia. While on foundries in Asia, Chartered has been on the speculation radar

There is an interesting article on ARM vs. Intel competing in the lucrative evolving product category placed in the gap between the smart phone and the laptop computer.

Intel looks set to invade the low power handhelds – a traditional domain of ARM. And its strategy to this effect involves offering X86 processors with leading performance while reducing the power consumption and footprint. ARM meanwhile continues to come up with various processor architectures and cores optimized for its customers’ needs and semiconductor manufacturing capabilities of its licensees.

The question is: Will future mobile handhelds run on an X86 or ARM instruction set architecture?

I summarize here a few points for both parties:

Advantage ARM:

• The ARM processor was built for mobility from the ground up
• ARM’s strategy looks to be targeted more on “needs of its customers” vs. Intel’s “what it can do with technology”
• ARM works along with partners to develop an ecosystem where various entities contribute by building the system with ARM’s core while retaining their differentiating features; vs. Intel’s strategy of setting out a standard, defining the platform architecture and letting others build upon that. The latter has worked for PC and laptop market but may not get the same success in the volatile, different features for different people consumer market.
• ARM’s TrustZone technology which gives an ARM CPU a secure state

Advantage Intel:

• It is big & its pockets are deep
• It has the silicon manufacturing edge
• It can help OEMs with their branding & marketing
• Apple may be leading the way in this market and Intel can buy its way back into telephone silicon

The coming months will tell how flat the world has become…… 

Read this interesting commentary by EDN’s Ron Wilson on Verigy’s acquisition of Inovys. While relating the ATE vendor’s acquisition as more towards acquiring Inovys’ failure localizing software, Ron has brought about an interesting emerging industry aspect

With “Time to entitled yield” becoming a critical metric especially for 65nm and below, it is doubtful if the existing distributed manufacturing model used between fabless companies and their foundry partners will suffice.  A closer loop is required which will cross the existing collaboration and contractual working relationships.And this leads to Ron’s observation – will we gradually see re-integration of design, test and failure analysis functions into real IDMs? 

Over the last couple of years, we have seen IDMs going towards fablite and fabless models, and the emerging dominance of the original pure play foundries. I say “original” as lately these foundries are paving their way into newer territories like climbing up the design support value chain by increasing their IP portfolio, collaborating with EDA vendors for providing yield related data/information to the designers and reference design flows,  and others – just short of coming up with their own ASSPs. 

So will we see the re-emergence of real IDMs albeit in the form of a morphed foundry??

Over the last few years, we have been seeing IDMs outsourcing their digital production needs to the foundries. Now looks like, a similar path may be taken by the big analog IDMs too – or at least “their interest level in outsourcing has dramatically increased”, as per Thomas Hartung, VP of Sales & marketing for X-Fab.

Read a couple of interesting articles which highlight this potential move; here are few points from them which I’d like to share:

For years, analog IDMs have manufactured the bulk of their products in-house, shipping only a small percentage to foundries, for a number of reasons.

-    Many analog products do not require leading-edge fabs or processes. -    Most analog ICs have relatively small die sizes and wafer volumes are hence low as compared to their digital counterparts ; this does not work well with outside foundries-    Analog products generally have longer life cycles and can be made cheaply in older fabs for several years.

An interesting and “down to basics” take on tomorrow’s semicon industry was provided by Jean-Philippe Dauvin,  chief economist emeritus at STMicroelectronics at SAME (Sophia Antipolis forum on Microelectronics).

He cited the development of low cost products, the consumerization of the market, the intensification of rivalries due to the number of competitors, the lack of strategic innovation from the semiconductor industry and the intensification of customers’ bargaining power as the reasons behind the low expected growth rate of 4.4 percent in 2010.
 

A statement that I especially liked in his reported address is “We are in a business that addresses the end-user, but we cannot understand the customer. Our obsession is silicon but the final customer cares about the usage not the fabs”.
 

This is so true. While it is essential for the industry to work on tools, fabs, methodologies etc., in our rush to new technos, we often lose sight of the basic tenet: Nobody actually wants we do – they want what it will do for them

Continuing to beef up its engineering capabilities through global acquisitions (the last one being acquiring the Oki design centre in Singapore), Wipro is set to acquire the radio access related R&D activities from Nokia Siemens design centre in Berlin. Nearly 60 staff members from the design centre will be transferred to Wipro.

While adding to Wipro’s R&D capabilities in 3G, it once again provides Wipro a presence enhancing platform in a foreign market – Europe in this case.

Fuelling the ambition to become a leading provider of chip design services and IPs i.e. in addition to the top post of pure play foundry, TSMC has acquired Ottawa’s memory IP start-up, Emerging Memories Technologies Inc. (EMT).  

EMT, a start-up with a relatively small group of memory technologists (and headed by 39 year old Sreedhar Natarajan) specializes in the design and licensing of leading-edge embedded memory technology in both bulk CMOS and SOI and was launched in 2004 when the memory design biz of Atmos Semiconductor was taken by Mosys. Many employees at Mosys moved to EMT – and now will move to TSMC.

As I noted in an earlier post on a similar topic in May this year - call it as seismic changes or consolidation, the chip manufacturing world is going through some upheaval.

So an Indian company has placed its foothold in the Singapore semicon design space….

Wipro Technologies has signed an agreement with Oki Electric Industry Co. Ltd. of Japan to acquire Oki Techno Center Singapore(OTCS), a wholly-owned subsidiary focused on wireless design and intellectual property. The all-cash transaction is expected to conclude within a year. Wipro will establish a dedicated development center to offer wireless semiconductor and embedded software design services to Oki.

OTCS has RF and baseband design capabilities, and the 40-member company has revenues of nearly 9M S$. It caters to Oki’s in-house requirements for semiconductor designs for its wireless communications equipment business.

To Oki, the deal has provided a global partner to improve its efficiency in semiconductor design through outsourcing.

Wipro has been expanding its chip design services portfolio. With digital expertise already existing, it has been adding analog and RF skills. It’s acquisition of Austria’s Newlogic in 2005 brought in expertise & IPs in Bluetooth and WLAN technos. Wipro-NewLogic with 61% market share has more than three times the share of its nearest competitor in Wireless LAN. Gartner also rates Wipro-NewLogic as the number one worldwide supplier of Bluetooth based on Design IP revenue commanding 59% market share in 2006. This OTCS acquisition helps in ZigBee, UWB and RFID related technologies.  

……..And it has also provided Wipro access into the Japanese market for outsourced semiconductor designs– a geography where Wipro already has a strong presence in the IT services space.

Read an interesting story by EDN executive Ron Wilson about technology fitting serendipitously in developing countries.
 

NXP’s NFC (Near Field Communications) technology, the underlying technology of its contactless SmartCard MIFARE product was primarily targeted for subway ticketing and the like.
 

And it has found a market in rural India – in a high tech village banking scheme!
 

India has several villages which do not have a local bankbranch – the meager cash flow does not provide adequate return on capital to justify establishing a branch. Enter NXP – a trained villager with a cell phone handset with NFC and fingerprint scan capability acts as a lone banker. Authorization and authentication is provided by the swiping the client villager’s smart card and swiping his finger. Transaction takes place by dialing the central bank through the handset and records are updated on the smart card.
 

Everyone benefits – The village gets banking and NXP gets the market!
 

Do read the complete article

LSI Corp. has signed a definitive agreement to sell its mobility products business to Infineon Technologies for $450 million in cash, plus a performance-based payment of up to $50 million payable in Q1 2009. The sale does not include any production facilities. And about 700 LSI employees will join Infineon.
 

LSI’s mobile business involves mainly mobile radio baseband processors and platforms. While this signals a fabless step from LSI as well as a move towards shedding all its non core biz (LSI’s focus is storage & networking), it signals a larger move of consolidation in mobile communications and for Infineon specifically, this marks it’s strengthening hold in communications biz and its position at important mobile phone makers. It follows its recent acquisition of TI’s DSL CPE unit. 

There has been a recent commentary that this decision from Infineon is not technology driven; rather it is to tap on LSI’s customers for its baseband chips.  Now LSI’s top customer here is Samsung and although Samsung is a big client, it has also been losing share as 3G sales have increased; so this doesn’t sound entirely conclusive.

Also Nokia, which has a third of the world’s mobile phone market,  had recently announced that it would outsource all of its chip manufacturing to Infineon, Texas Instruments, Broadcom and STMicroelect ronics. This acquisition will strengthen Infineon’s position which is also recovering from the major setback of having insolvent BenQ Mobile as its largest customer.

The Semiconductor Industry Association (SIA) has downgraded its forecast for 2007 global microchip sales growth to 1.8%. 

Forecasts are always tricky. The uncertainty is compounded with the rapidly changing market conditions. However such a big change i.e. 10% forecasted in Feb this year down to 1.8% 3-4 months down the line is quite dramatic.

Reasons cited for this forecast change: rapid price attrition in three key market segments – microprocessors, DRAMs and NAND flash memories. Incidentally, another news item, “Intel plans 50% price cut for Core 2 Quad chips” was reported on the same day.

Does provide fodder for thinking………………….