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Envisioning A New Path for Chips

By Jim Hogan and Peter L. Levin

About 15 years ago, not long after the Clinton Administration had suffered a devastating mid-term election defeat, the White House called a series of meetings with some titans of the automobile industry and their suppliers. The basic agenda was to build a consensus of action and care about the impending double whammy of climate change and soaring energy prices. Word was out that the Japanese were investing billions of dollars in safe, reliable, consumer-oriented hybrids with the then-unthinkable efficiency of better than forty miles per gallon, and many inside the administration (including one of the authors of this article) were concerned that the collective US response was a ho-Hummer third shift on the SUV line.

These conversations occurred prior to $4/gallon gasoline prices, prior to 9/11, and prior to the self-inflicted scandal and distraction of presidential impropriety. And the big three kept rolling on, paying lip service and little more to the tectonic repositioning that occurred in Asia. Today General Motors survives by a thread and only because of government loans while Chrysler is owned by FIAT, the UAW, and the American taxpayer; their future is uncertain at best, along with most of the rest of the automobile industry that so obtusely denied, delayed, and obfuscated. Some might respond that even Toyota lost money recently – fair enough – but they are in much better shape than any domestic manufacturer. The mighty have fallen, so quickly and so far, by poor reaction (and weak detection) of the macroeconomic forces that eventually crushed them.

Intel in the era of Detroit’s domination, preceding the proliferation of the microprocessor, was just another small company in Silicon Valley. Were Intel to have stubbornly resisted the now-obvious trends of CMOS and commodity memory, hardly anyone would have noticed or cared. Even today, a hypothetical case study of missed semiconductor opportunity would just be another footnote in the accumulating pantheon of smart guys making a sequence of dumb decisions with somebody else’s money. “Shame on them and a pox on the managers that enabled them” the Street would have cried, as the stock sank to pennies. That particular story is happier at the moment, thank goodness, but the lesson endures: adapt or die.

We can debate the harsh implications of Darwinian selection, but not the truth of it. It is not necessarily the best technology wins. It is good-enough technology, with the right business model, at the right time. Everything else is extinct.

These days of cataclysm and angst are a stark reminder of two facts, one inescapable, the other undeniable. Although we like to romanticize the semiconductor industry as “the cutting edge” of high technology growth in the United States and abroad, the more prosaic truth is that chip design is a mature segment subject to all the same macroeconomic turbulence as airplanes and cars, and chip manufacture has become a low-margin highly-commoditized business. “Chip companies” are decreasingly likely to find much differentiation or profit in semiconductor manufacturing anymore. Time to fold the tents and go get a therapist or a beer? Hardly. But the winners will self-select based on their ability to understand and adapt to the behavior of their consumers. The dinosaurs, the ones that ramp production for tactical expedience but neglect the clear signs of trouble, will die.
Indeed, this “behavioral” understanding is the differentiating Intellectual Property (IP), and semiconductors are the monetizing mechanism of delivery of this IP. Integrated circuits are going to become more prevalent, more ubiquitous, and even more important to economic growth in the years to come. Perhaps the only aspect of semiconductor technology that may start to slow is the relentless process of miniaturization, though even here we have a long way to go before declaring Moore’s law dead.

But the life-changing and life-saving applications will continue to multiply, and are limited only by our imaginations and “Big Three” auto think. While global competition will continue to drive fundamental advances in size, power, and performance at the hardware level, there are two overarching trends that next-generation semiconductor companies will ride to profit, or ignore at grave peril.

The first one is merely psychological, bordering on the cardinal sin of pride: the ossified, mistaken, and probably well-regretted aphorism that “real men have fabs”. This was complete and utter nonsense then, and they have pills for this dysfunction (or recreation) now. Indeed, it may have even been partially true twenty years ago. Today, however, real men, and women, don’t peg their ego or self-worth and business identity on anything except fundamental questions about the rationality, coherence, and profitability of their investments. Put more succinctly: they don’t let their ego interfere with their greed. For some, this may include a manufacturing facility. For most, it cannot, and it will not.

We’d go so far as to say that this is true for any asset – not just the foundry – that doesn’t perform. This is the notion of not just Fab-lite but Asset-Lite. Only retain and maintain those core competencies that differentiate you. Everything else is a jump ball.

The real money, and where the US remains particularly well positioned and strong, is in the design of the chips and the software applications that they support and then integrating them in a System On Chip (SoC)

Most of the semiconductor “industry” needs manufacturing about as much as Steven King needs a printing press. Their role has changed dramatically, as has their position in the value chain. We shouldn’t lament the shift, we should embrace the promotion. We get to focus on what we do best, which is think of new stuff and how to make money from it.

To use another automotive theme: most consumers are oblivious about the engine or power train in their car; what they really care is the safety and comfort of the driving experience. In our case, we need a quiet, secure and rock solid mobile office that we live in for 2 hours a day. Of course, we differentiate the market too: for some it may be a statement of environmental responsibility (like a Prius), for others it is just transportation at the very lowest cost possible (like India’s Tata Motors Nano). In the end the engine(s) are under the hood, or seat and we haven’t cracked one open in years.

We’re similarly agnostic if there is an Intel Atom or an ARM11 running the software on our PDA; in fact, we don’t even know who wrote the software and whether it runs on a Microsoft OS or a Linux from Windriver. What we do care about is reliability, convenience, cost and battery life. One of us splurges on seamless continental interoperability, the other one occasionally regrets his stinginess (half this piece is being written in Germany, where a smart phone doesn’t feel so smart at the moment).

The point is: semiconductor hardware has been relegated to second tier status, and will slip even further as software continues to dominate. But there are some silver linings of innovation on that dark cloud of obsolescence.

The fundamental shift in the centrality chip production happened when customers began to favor time-to-market over functionality and convenient customization over obsessive optimization. We’re not going to pretend to know exactly when in the last ten years the inflection occurred – it probably around the time we figured out “multiple use” of heterogeneous processors for specific tasks – but those two decision points are the real discriminants in the production economics of the semiconductor industry.

Interestingly, they are utterly scale independent. The paradigm is just as true at the design level as it is at the system level. This is going to be a pleasant surprise to some, and a career abrasion to others. The classic example is well the beaten drum of abstraction, the single-word history of the EDA industry. And yes, we’re ideological believers in the (one true?) path that effectively enables marketers and sales guys – in other words, people who speak to and extract cash from customers – to get ever closer to the specification and design of the platforms they are incentivized to sell. Abstraction, in the mildly twisted words (but not meaning) of Christensen, means that “less-skilled people can produce good-enough products.” Exactly.

In Analog design this has been the dogma since the beginning: there are no absolutes, only good enough. Somehow the digital world lulled us to sleep on that one, and great occasionally become the enemy of good.
The second word in the history will be integration, as in the “integrate” in Integrated Circuits. And this is where life in semiconductors will start to get very interesting again. If EDA was effectively born of automated design rules based on the heuristic (and well guessed) results from the proprietary machines on the manufacturing floor, the future of the semiconductor industry will lie in the still-green fields of locally optimized components and processes that can be quickly and reliably woven together through agreed-upon and conforming interfaces. We want to minimize wasted time at intermediate test points, everywhere, and maximize reuse and configurability on the devices, and between them.

That capability – of better design-to-process integration – is going to be the third factor that separates the macho men with fabs from the happy people with money. As the foundries focus on differentiation in reliability, yield, compliance, and turn-around, Jeffrey Macher and his team point out that production-based learning will decline in economic significance. It’ll matter a lot to the folks making the stuff, but not so much to the less-skilled – really less-specialized – people who specify and, to a certain extent, design it. Consequently, the future means smaller runs on highly reconfigurable lines that can literally turn on a dime, because that’s about all they’re going to get for all that capacity.

Authentic integration doesn’t mean kitchen-sink like functionality on a single device. There was a time and place for that. For many years, the dominant players essentially dictated schedule, availability, capability, and to a certain extent price. Today, we see tighter coupling between customer-driven specifications and the market’s ability to rapidly respond with slightly-less capable platforms that sensibly sacrifice some performance in favor of quick delivery and low cost.

Interestingly enough, this will drive EDA to be integrated into enterprise functions like ERP that can tunnel through and even inform corporate leadership whether or not there is capacity to build a certain product. (What it can’t say is whether the company can in fact design it.) The point is that in the next decade these capabilities will enable transparency, which will inform delivery, which will improve productivity.

This reconfiguration and virtualization of the semiconductor supply chain is already happening, and is a welcome harbinger of the many good things to come. Importantly, it relieves some of the destructive pressure on getting to the smallest nodes as quickly as possible, and allows for rationalization of the market, much broader innovation, and better proliferation as prices come down and device utility goes up.

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