For the past five-plus decades, the overriding effect of Moore’s Law was to put more circuits on a single piece of silicon. While that’s still the case, the addition of multiple cores since 90nm also has meant more functions can be added to that chip, which creates a whole new business equation for makers of complex devices like smart phones. Instead of creating individual chips, a single chip takes the place of multiple chips and the number of components on a board shrinks dramatically.

The next phase, and we’re just beginning to witness this, is combining pieces that normally don’t go together very well. This has been true for several years at the bleeding edge of the SoC world, where companies like Broadcom and Qualcomm have been building more analog onto chips. It’s now beginning to invade the more mainstream chip world, such as industrial and medical electronics. Actel’s move to combine programmable analog with an ARM microcontroller subsystem is a case in point.

What is less clear is who ultimately will reap the benefit of all the incredibly difficult integration work that needs to be done to make all these parts work together. Clearly this is the hardest stuff, and it’s something most engineering teams are reluctant to get involved with. It’s the same rationale behind buying multiple blocks of integrated IP rather than single blocks and doing the integration yourself, which has played out well for companies like Virage Logic, Synopsys and Mentor Graphics.

Despite analyst predictions that independent IP vendors would disaggregate the market, the trend has gone the other way. It’s not that small IP development teams don’t produce great IP. It’s that the integration of that IP with other IP blocks and manufacturing processes is a lot more difficult than creating a single IP block.

From a business standpoint, this is a reflection of a new direction of consolidation. As markets shrink, consolidation occurs. But what has changed, rather suddenly and somewhat subtly, is the reason for this consolidation. It’s not based upon lack of business. It’s based upon complexity and the interaction of many pieces from multiple vendors. Moreover, rather than being confined to the edge of Moore’s Law, the problems felt at the most advanced geometries are now pervasive.

This is an interesting shift, and it should produce some interesting solutions over the next few years—not to mention some business upsets in unexpected places.

Consolidation has begun again in the electronics industry, but so far the majority of it is happening at the customer level.

While this is a sign that the economy has bottomed out and credit is beginning to flow—as unevenly as it always does when a downturn bottoms out—it’s creating a rather disturbing trend. Fewer customers mean fewer designs, even though the complexity of the designs is significantly higher.

Broadcom’s bid for Emulex is a case in point. Oracle’s bid for Sun is another. And that’s just the opening salvos for companies with cash in the bank. With stock prices low, they’re going to snap up acquisitions the way real estate speculators have been snapping up foreclosed property.

Customers are always in the position of strength when it comes to negotiating for designs, and that position is even stronger when there are fewer of them. Witness the pressure put on capital equipment makers by the shrinking number of companies with fabs. Even if they sell the same amount of equipment, the margins of equipment makers has been sliding.

The problem at the SoC level is that the complexity is so great that just to recoup system-engineering costs in the design will require enormous volume, as well as some new approaches that rely on modeling, statistical timing and, to a large extent, probability. And while that will open the door for new tools for these models, the overall effect will be to shut the door on many startups because the cost of entry is too high.

In the short term, this is probably not unexpected. But if new markets don’t open up at the same rate as consolidation on the customer and tools level, the entire supply chain will be thrown into imbalance. Gaps may be fun for a few companies when demand exceeds supply, but they tend to create havoc in the market, fueling wider swings both up and down and, at least in the past, inventory imbalances.

Consolidation may be a way of thinning out the competition, but that doesn’t mean it has to progress smoothly.

What do you think?

–Ed Sperling