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Wake Up, Semi Industry: System OEMs Might Not Need You

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rick merritt
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It's about time...
rick merritt   10/10/2013 4:50:12 AM
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...someone finally said this. Big OEM chip engineers aree increasingly telling their chip vendors (in Clint Eastwood's voice): "Go ahead, punk, take my socket!"

cd2012
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Re: It's about time...
cd2012   10/10/2013 8:44:34 AM
This might be true for a few value-added parts (CPUs for Apple or Windows), and I can see companies having people knowledgeable about chip design on their staff but I don't see them developing chips internally.  No system integrator wants to do chips themselves, but would rather let a few semi companies duke it out for low-margin sockets similar to how bums are paid to fight for alcohol or a few spare dollars.  Motorola (Freescale) and Philips (NXP) all sold off their semiconductor divisions.  Granted, those companies have been stinkers themselves, so maybe they aren't great examples.  To give a better example, Cisco outsources many of their networking chips to Broadcom.

Semiconductors are capital-intensive businesses and will only get more so with the complexity required for more advanced nodes.  Yes, the front-end design is not hard, but with complications like double-patterning, physical design has become more expensive and not a core competency for companies like Microsoft or Google, not to mention the added expense of CAD licenses.

That said, I wish this article were true.  Semi companies have been sh*tty to work for the past decade, and I'd rather be eating M&Ms and gourmet food at Google than having my free soda and vacation taken away as has been done at my current employer.

 

Truc Giang
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Welcome to share our pain.
Truc Giang   10/10/2013 12:24:44 PM
Welcome system OEMs to the cut throat semi industry. Now, they will actual design the chips that meet all of the unrealistic performances and in a ridiculous time frame. Then productize these chips at a rock bottom price but still meet all insdustry standards for quality and reliability. Wake up?? We already lived the nightmare for sometime.

docdivakar
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Re: Welcome to share our pain.
docdivakar   10/10/2013 3:34:15 PM
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@Truc Giang: You may have a valid point here but I would have to differ and digress on one point in your comments: rock bottom prices. This was true for Semi Chip vendors but not any more for OEMs. They 'package' the individual chip components into the end product -bet it an iPhone... Android phone... iWhatEver. That is a clear advantage OEMs have -a real product!

Another point is on the teardown and costing of this by industry experts -most often when they estimate the BoM cost, they are STILL applying the Semi Chip vendor's pricing model (whether it is fabless or IDM). I don't think this is accurate in the case of OEM's. Short of knowing what Apple's internal pricing model looks like, these are best guesses for all it is worth. So your point about cheap components need further exploration.

I would also argue that there are differences in the operating models of OEM's chip development-to-production path vs. that of a fabless company. It is worthwhile to have some one dig up more on this... Or, the OEMs could suffer the same nightmare you allude to!

MP Divakar

dick_freebird
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Wait and see
dick_freebird   10/10/2013 4:12:28 PM
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This article implies that only these big systems players buy

parts. But of course that's not true, there is a diverse base

of customers out there and only large volume or very high

value platforms can eat the cost of development. There is

plenty of churn and opportunity all the way down to piece-parts

if you care to look. But nobody writes breathless articles about

nuts and bolts.

 

Give this a few years worth or trying and see how the systems

houses fare when they've gotten full of overhead in the chip

design groups and come to understand the ongoing economics

of perpetual single-customer product development. You'll see the

make vs buy decision oscillate, like it always has.

rick merritt
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Re: Welcome to share our pain.
rick merritt   10/11/2013 5:32:13 AM
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@Truc: Funny and too true. Chip makers have not only been doing the work of understanding the process tech, market and chip design--they have even been doing system level reference designs and much of the software stack to hand to OEMs who basically need to just decide to brand and have it manufactured. I feel your pain!

JeffL_2
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More than one reason for this
JeffL_2   10/10/2013 3:28:28 PM
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It occurs to me that a "side benefit" of the system house submitting their own database directly to the foundry is it would seem to be a trivial matter for them to "use the opportunity" to not only hide their own IP, but also to conceal unlicensed IP from other sources because the IP theft would be very easy to conceal and VERY difficult to detect at the chip level. It doesn't even have to be deliberate, even a legit design's IP done directly to silicon would be very hard for the "patent trolls" to litigate over, or for a competitor to "rip off". So there are really multiple reasons for this dynamic, and most all of them are in favor of seeing it accelerate in the future. I hope nobody thinks I'm being too cynical?

resistion
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Repeating history
resistion   10/11/2013 11:18:15 AM
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Well let's think through this. Now that chipmaking is past its days, there is consolidation in this sector for sure. And people figuring out system-making is better, more profitable will lead to a proliferation of system-makers. This will help start off a cost reduction spiral ultimately leading to commoditization at the system level, fulfilling the expectation of Truc. But this time the evolution cycle time for this to happen will be much faster, with low-cost crowd funding replacing classical VC funding.

KurtShuler
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I kicked a hornet's nest
KurtShuler   10/11/2013 6:01:29 PM
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I should have guessed this article would cause some good discussion when my CEO read a draft and choked on his coffee!

This "OEMs making their own chips" trend seemed innocuous to me, and it's been very obvious to me and my company's sales team that this is occurring.

I think there is sufficient evidence in the marketplace to claim that some of the most innovative consumer product companies are "re-verticalizing", at least for their most important products that require differentiation. What I don't have a clear answer for is, "Why?"

I have a hypothesis that it is actually the software that is driving systems companies to design their own chips. When I was at TI, we offered operating system board support packages and driver software along with our OMAP phone chips. Software was not a core competence (buzzword alert!) of TI, and it took many years and lots of money to do it sufficiently well. TI were experts on the chip, but not on software.

When we look at a company like Google, Facebook or Microsoft, these companies are experts at software, but are looking to create innovative battery-operated devices. If they buy merchant silicon, they have to buy a chip that was designed for no particular OS, tool chain, application or form factor in mind. If they design their own chip, they have total control over all these things as well as exclusive access to the end product.

I don't think every OEM will choose to design their own chips, only the ones that can get an advantage through innovation (higher pricing) or significantly lower costs. I imagine the economic hurdle rate to design one's own chip is quite huge. Apple and Microsoft have determined that some of their product lines meet this hurdle rate, and Google and Facebook may have, too.

In any case, we're lucky to be in an industry that innovates not only with technology, but also with new business models. It keeps all of us from being replaced with computers ;-)

Kurt

Todd Bezenek
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Re: I kicked a hornet's nest
Todd Bezenek   10/14/2013 12:28:12 AM
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Your CEO probably choked on his coffee because he realized his company just spent several thousand dollars having its marketing VP write an article for EE Times.

Good article.  We have graduate students who spin up their own chips every day.  Sooner or later companies were going to realize they could do it too.

-Todd

KurtShuler
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Re: I kicked a hornet's nest
KurtShuler   10/14/2013 12:48:34 PM
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Todd,

There's no pay for play with EE Times. I don't advertise with them or pay any fees. I just love to write and love our industry. So they invited me to contribute on a monthly basis.

The coffee choking was probably due to the fact that almost all of my company's customers are semiconductor vendors rather than OEMs or systems houses. The customer base is changing though, hence this article.

I'm glad you liked the article. I need to think of a topic for next month. Any ideas?

Kurt

Todd Bezenek
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Re: I kicked a hornet's nest
Todd Bezenek   10/14/2013 5:25:57 PM
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Kurt,

Nice negative-to-positive turn-around.

For a future story, I am interested in seeing a discussion of why 70% of software projects fail or are plagued by endless bugs, but VLSI designs which share many similarities to large software projects can tape-out successfully.  What can the software guys learn from the hardware guys?

I recently heard David Patterson (computer architecture researcher) was teaching software engineering this year.  Perhaps the hardware guys are already starting to teach the software guys a thing or two. :-)

Do you have a blog post to add?

-Todd

KurtShuler
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Re: I kicked a hornet's nest
KurtShuler   10/14/2013 6:43:08 PM
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I like the idea. The smart-a$$ in me thinks the reason why software is so buggy compared to hardware is because the software folks always say, "Just ship it now! We can fix the bugs with a patch later." If the hardware folks tried this, it would be bad. (Understatement intended.)

Kurt

betajet
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Re: I kicked a hornet's nest
betajet   10/14/2013 8:14:42 PM
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When I design a hardware/software system -- typically using an FPGA for the hardware -- I have limited resources (logic cells) for hardware and plenty of memory for software.  Thus I put into hardware only what needs to be there because it has to have high performance and/or low latency.  Everything else goes into the software.  This keeps the hardware relatively simple, and throws the complexity into software.  Software is a cheap way to perform complex functions, but it's really hard to design for and test all the odd conditions that can occur, and recover from errors gracefully.

With an SRAM-based FPGA, I have the luxury of being able to fix hardware bugs in later releases of the software.  Even so, the hardware bugs rarely survive long and most releases are software updates and keep the same FPGA hardware.

Regarding software quality in general: it's pretty rare for any large program to work perfectly, and users have long ago set their expectations accordingly.

JG-2
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Not Buying It
JG-2   10/14/2013 6:00:21 PM
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Kurt,  it seems your background would make for a far more nuanced read of the situation. You cite Apple, Microsoft, and Google and draw conclusions from a small slice of the market.  Systems companies are going to spend $3 or $100 a part and buy from semis if they can avoid the millions, the time, and the risk of designing their own chips.  But yes, they will design their own if that is what they need to do to differentiate.   There is no new trend here.  No new threat to semi companies.   You have to look at each industry and the volumes and the differentiation strategies and the newness of their markets to determine where the integration (and integration expense/risk) will occur.  A wake up call is not needed  - the integration pendulum swings at different rates for different markets and there are hundreds of these markets, each with their own answer. 

Am I being overly dismissive of this story if I call it fluff with a hard-hitting tag line to get readers attention?  I guess it worked on me,  so at least the second part of that is true.

Jim Gobes

CEO - Intrinsix Corp.

KurtShuler
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Re: Not Buying It
KurtShuler   10/15/2013 1:33:57 PM
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Jim, my point was to bring awareness to this trend. I'm sorry if you thought it was false advertising of my views.

I thought I was nuanced in explaining that this is occurring with big companies who are in growing markets with high value semiconductor content, and have a need to differentiate. Right now this is happening in mobile and servers. Although these markets may be a small slice of semiconductor volume, then do encompass a huge amount of semiconductor industry monetary value. Semiconductor companies making SoCs for these markets need to keep an eye on this.

I will leave it to analysts like Will Strauss, Jim McGregor, and Nathan Brookwood and firms like Semico, Linley Group, Gartner and IHS iSuppli to research this and supply the next level of quantitative detail and facts. They get paid to do that. I was stating my observations in my little part of the industry.

Kurt

JG-2
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Re: Not Buying It
JG-2   10/15/2013 2:13:09 PM
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Hey Kurt - thanks for the reply.   Indeed we DO agree - for the small slice of high value and high volume semiconductors.   I think we can further agree that we can not determine the shape of the iceberg from the visible tip.  Trends at the top end do make a huge difference to semiconductor companies,  especially those over-exposed to a small number of sockets, but the majority of big names are well-diversified.  The decades long trend of disaggregation indeed has allowed more systems companies to conveniently re-aggregate (per your examples) but this is, in my opinion,  an exception that proves the rule rather than a industry-wide trend.   So I do agree with more of your article than I disagree,  Kurt, if you do not mind putting your conclusion and article title in the minority! Finally, I appreciate the willingness to put your views out there and in so doing to suffer the slings and arrows of...  different viewpoints.

Jim

KurtShuler
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Semico IMPACT keynote slides
KurtShuler   11/11/2013 2:56:44 PM
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Hi everyone,

Your excellent comments and questions inspired me to make this the topic of my keynote speech at Semico IMPACT on Wednesday. You can download the slides I used and read a review of my speech at http://www.semiwiki.com/forum/content/2920-can-intel-catch-samsung-can-anybody-catch-samsung.html

Thanks for all your help!

Kurt

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