Analysis: Chip design outsourcers must embrace IP

Design services companies have been providing a valuable service to electronic system OEMs and semiconductor vendors for years. But the reasons for outsourcing electronic design are changing.

Before the market crash of 2001 the primary reason centered on shortages of engineers. We found this consistently in surveys and discussions with vendors. When vendors had insufficient internal resources for a project–normally during periods of high market growth–they would use outsourcing services. The economics of the industry changed in 2001, probably permanently. The main driver today is cost. Vendors will now primarily outsource design activities as a part of a cost reduction program.

While these changes were happening in industry economics another change was taking place that was no doubt linked. Consumer markets were starting to dominate worldwide semiconductor applications. Cell phones, digital audio players and flat panel TV sets for example, were developing into big markets and will grow fast through the remainder of this decade. In these important applications more of the system content is going into fewer chips. The concept of system on chip (SoC) is certainly real and many electronic equipment products will ultimately comprise one complex chip that represents over 90 per cent of system value. How can outsourcing firms operate in this new world of the SoC?

The most valuable SoC markets are cell phone handsets, storage (particularly hard disk drives), games consoles and flat panel TVs. These are the largest applications in a SoC market that will reach $55 billion in 2006.

Most SoC applications share a number of characteristics:

Very fast time to market requirements
Relatively short product lifetime
Very high unit volume

The risks associated with developing these devices are huge and only the most trusted of organizations will be invited to participate. This trust takes time to develop. Service organizations must be prepared to start with small projects and gradually extend the scope over several years.