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RCollett
asicman78
Falling IC development productivity means lost engineering jobs
Ron Collett
11/30/2010 6:41 PM EST
Bad news: Steadily declining IC development productivity means more job losses for engineers employed in first-world economies—e.g. U.S. and Europe. Those lost jobs are going to second-world economies because labor costs are much lower. Moreover, the trend is accelerating as chip design complexity outpaces gains in productivity. Don’t shoot the messenger for the message.
IC development productivity isn’t keeping pace with rising design complexity. The solution has been to increase team size—throw more resources at projects. Once that decision is made, the question quickly turns to choosing the geographical location to hire the new resources? Second-world economies that have a good base of technical professionals seem to be the logical choice, at least from the perspective of executive management.
It’s not that engineers in those countries are more productive than their counterparts in North America or Europe. Rather, it’s that they are significantly less expensive—four to eight times less expensive.
I expect the pace of job migration will quicken during the next few years because IC design complexity is non-linearly outpacing increases in productivity. There’s a triple effect happening here—team sizes are growing, off-shore development sites are maturing, and the financial cost of off-shore labor remains low. That’s all bad news for engineers in first-world economies.
If productivity kept pace with rising complexity, team size would be remaining constant. Off-shoring would nonetheless occur, because of the cost advantage. But it would happen at a slower rate—that was the situation 10 to 20 years ago. However, as off-shore development sites matured, and the cost and effectiveness of inter-site communications technology steadily improved, off-shoring became increasingly viable—and effective
Off-shoring of development was a competitive advantage for first movers. But today, it is rapidly losing that edge, because nearly all companies do it. So in most cases, it’s now a necessity in order to compete. If you’re paying four to eight times more for your resources, your cost structure is uncompetitive—even if your productivity is, say, twice as high.
Ronald Collett is president and CEO of Numetrics Management Systems Inc.
IC development productivity isn’t keeping pace with rising design complexity. The solution has been to increase team size—throw more resources at projects. Once that decision is made, the question quickly turns to choosing the geographical location to hire the new resources? Second-world economies that have a good base of technical professionals seem to be the logical choice, at least from the perspective of executive management.
It’s not that engineers in those countries are more productive than their counterparts in North America or Europe. Rather, it’s that they are significantly less expensive—four to eight times less expensive.
I expect the pace of job migration will quicken during the next few years because IC design complexity is non-linearly outpacing increases in productivity. There’s a triple effect happening here—team sizes are growing, off-shore development sites are maturing, and the financial cost of off-shore labor remains low. That’s all bad news for engineers in first-world economies.
If productivity kept pace with rising complexity, team size would be remaining constant. Off-shoring would nonetheless occur, because of the cost advantage. But it would happen at a slower rate—that was the situation 10 to 20 years ago. However, as off-shore development sites matured, and the cost and effectiveness of inter-site communications technology steadily improved, off-shoring became increasingly viable—and effective
Off-shoring of development was a competitive advantage for first movers. But today, it is rapidly losing that edge, because nearly all companies do it. So in most cases, it’s now a necessity in order to compete. If you’re paying four to eight times more for your resources, your cost structure is uncompetitive—even if your productivity is, say, twice as high.
Ronald Collett is president and CEO of Numetrics Management Systems Inc.
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iniewski
12/1/2010 10:56 AM EST
Ron, agree, this has been unfortunate trend for a while (unfortunate for those in North America, others might think the opposite ;-)...interesting question that follows is: should we stop educating and producing IC designers? Kris
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RCollett
12/2/2010 8:59 PM EST
Kris,
I hope not, but it begs the question: can a strong case be made for recommending to someone entering university to pursue a career in electrical engineering?
Rgds,
Ron
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asicman78
12/2/2010 11:39 AM EST
I also agree, and as a 30-year old FPGA/ASIC engineer I wrestle everyday whether there is a future for me in this industry. In the 10-years I have been a professional engineer the whole time the sword of outsourcing has been hanging over my head.
It is illogical to blame the companies who are just trying to compete and grow. It would be malicious to blame the engineers in India, China or wherever as they are just trying to better their lives.
But as us young Engineers here in the U.S and Europe look toward the next 20 years, is the consensus now that we should start looking to transition into another industry?
If IC development leaves the U.S for good, doesn't all the jobs that support those efforts leave as well. Semi Apps Engineers, EDA Apps Engineers, EDA developers, Test and Measurement, Verification, etc. At one point even moving project and product management closer to the developing teams makes sense.
I've always wanted to an engineer but I am slowly coming to the realization that I may not have the opportunity to stay one
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RCollett
12/2/2010 8:59 PM EST
@asicman78,
From my perspective, it is unimaginable that all of the IC/ASIC engineering work will be off-shored. It's axiomatic that skills that cannot be found off-shore will remain on-shore, and this includes both technical and management, including remote management of the off-shore team. I think that gaining skills in managing off-shore teams will find increasing demand in the coming years.
Thanks for your comment.
Ron
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asicman
12/3/2010 3:33 PM EST
@Ron,
I agree that not all IC engineering work will be offshored. Of course companies could always address this by using H1-B engineers here in the US, increasing competition for jobs for native engineers and driving down salaries.
The sad thing is that no one will want to study engineering, I sure as heck would not recommend it to a high school student. What would you say? Go work your butt off in school, if you find a job you will make some good money but be prepared to work for 10-15 companies before you retire, and all the while the industry is consolidating R&D and Manufacturing overseas so you may end out in the cold. No, you may make less money doing something else but the peace of mind a different career will bring would more than make up for it.
As far as your recommendation, I am afraid to say that there will probably not be a management job for every displaced US engineer.
I love being an engineer, and I will try to stay one as long as I can, but I am not kidding myself about future.
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RCollett
12/6/2010 3:51 PM EST
asicman,
Naturally there won't be a management job for each engineer. Agreed.
However, I strongly believe that there will continue to be very substantial engineering opportunities in the U.S. The key I think is to offer significantly greater value-add than counterparts in the low-cost regions. This includes technical skills and management skills. In other words, I think that the focus for today's U.S-based engineer is to achieve differentiation by climbing further up the value chain.
Ron
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Joel.Amzallag_#2
12/4/2010 7:06 PM EST
As a EE and father of high-school kids I am definitely trying as hard as I can to dissuade my kids to be engineers. The know-how is already there, the jobs to support IC development is already there and the marketing is starting to move as well.
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RCollett
12/6/2010 4:01 PM EST
Joel,
I can fully understand your point.
On the other hand, I firmly believe that getting a technical degree will put your kids in a far better career position in the long term -- e.g. math, science or engineering. I believe the problem-solving skills and intellectual acumuen gained through a technical degree are universally recognized by employers.
Rgds,
Ron
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VincePG
12/5/2010 3:28 AM EST
20 years ago, EEs commanded the top salaries coming out of University. Now look what Yahoo recommends to the University bound: Actuary, Accountant, Medical Technical and Dental Hygienist. Software Engineer is still on the list, but it's way down there. The 21st century is about technology and the US is training accountants and insurance agents. The middleclass is collapsing and the wealth is concentrated at the very top, while our public universities are starving. Something is terribly broken in this country.
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iniewski
12/6/2010 4:08 PM EST
Ron: I disagree. Law or medical degree would be obviously much better. But today biz management pr marketing would beat technical degree by far. You need to like doing engineering to pursue this career. Following your passion is probably the best bet anyways, regardless of material compensation to be achieved in future years...Kris
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RCollett
12/6/2010 8:05 PM EST
Kris,
I strongly agree that one must pursue their passion. But there is also the need to pick a career that ensures longterm employment and a decent salary. Naturaly, there has to be a balance. However, IMO, attention to "ensuring" longterm employment and good salary has never been more important than it is today. That's because of the inexorable trend toward globalization. IMO a technical undergraduate degree followed by whatever graduate degree one chooses is the best possible combination, and one that increases the likelihood of long term employment and good compensation. No guarantees of course, just higher probability.
You mention that law/medical degrees would be better than engineering, but those are graduate degrees. Why not an undergraduate in engineering followed by either law or medicine? (BTW, that's what I did -- undergraduate EE and then law.)
As for business management, PR or marketing, which are all fine professions, I likewise believe an undergraduate technical degree followed by an MBA in one of these disciplines is the right way to go.
In sum, my hypothesis is this: (1) For new engineers entering the U.S. workforce, they should enter with a master degree. Why would I hire a EE new grad (undergraduate) when I could get one overseas for a fraction of the cost? (2)In order for the U.S. workforce to climb up the value chain, we need a lot more college graduates that have technical degrees, who then pursue Masters Degrees in whatever disclipline their passion leads them.
Ron
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Code Monkey
12/6/2010 4:10 PM EST
If my kids want to be EEs, I'd advise them to learn Mandarin or Vietnamese because that's what they'll be speaking on the job.
Or, I can wait and see of the government stops selling us up the river.
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RCollett
12/6/2010 8:17 PM EST
Code Monkey,
IMO, an EE (Masters) with fluency in Vietnamese or Mandarin (and English of course) would be quite valuable - throw in an MBA degree and I think you've got a very marketable combination.
In other words, for the U.S. to remain competitive, it must increase the skills and knowledge of the its workforce. The U.S. has the best and and largest number of graduate programs in the world. We must leverage this. We need to be graduating students from these programs that upon graduation will reside and remain in the U.S. A government policy that encourages this would be quite worthwhile. Thanks for your comment.
Rgds,
Ron
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RCollett
12/6/2010 4:12 PM EST
Vince,
I certainly wouldn't argue that things are broken in the U.S., but I think that the problem is that the U.S. needs to adapt to the new global playing field -- e.g. that there is a tremendous amount of low-cost, competent engineering talent available at low-cost throughout the world. In order for the U.S. to compete and keep its population employed, the U.S. workforce must climb higher up the value-add chain. That entails a number of actions, one of which is far more technical training of our workforce, both in numbers of people and skill level.
Thanks for your comment.
Ron
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mixed-signal
12/7/2010 9:57 AM EST
As frustrating as the performance of US companies and management has been over the last 10 or 15 years, electrical engineering is as engaging and fascinating field as ever. I understand the motivation to dissuade others from the field, but I can't embrace it. Technology is too important and too rewarding to work with to give up on it.
The US still has huge advantages in education and skills in many areas, and there are many startups and smaller companies each year demonstrating this.
Things have changed, though, in terms of what matters most:
- IC design skills, digital or analog at least, are widely available. If you're going to be only a circuit designer you'll have a tough time competing. The competition is global, so you have to be on top of your game and do high quality work.
- RF design skills are still in relatively short supply.
- Robotics, connected systems (e.g. sensor networks), and biomedical devices are all seeing more investment and growth now than just "IC design."
- The end product and system are more important than IC design, which is just one means to the ends. - Having a combination of skills that cover system or product design and IC / circuit design seems to be a better bet.
I for one would like to see the tone change away from "IC design design in the US is going away" to one more entrepreneurial, focused on the opportunities we have for exciting product development in mixed systems of RF, communications, embedded controllers, sensors, software, etc. Anyone capable of doing detailed IC design is probably capable of excelling in these related areas, as well, and positioned to make good design choices and trade-offs.
Things don't remain the same forever, and the larger, older companies keep trying to do the same old thing with management that doesn't care about the technology anymore (just numbers).
So, let's get on with it and focus on where the opportunities are so we can keep doing exciting and innovative work.
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RCollett
12/7/2010 3:57 PM EST
@mixed-signal,
Great points.
In addition, I think that the EE curriculum at the undergraduate level should include a mandatory overview course on "Business Practices" -- it would provide a brief introduction to key topics, including finance, market strategy (e.g. segmentation), corporate structures (C, S, etc.), venture capital financiing, etc. I have no doubt that it would pay significant dividends to the individual, the industry, and the U.S. economy.
Thanks for your comments.
Rgds,
Ron
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asicman
12/8/2010 2:41 PM EST
My plan and what I would advice to any 20-30 year old engineer and/or students looking into getting an engineer degree don't and if you are in the industry then do your best to get out.
Just like the name of this blog ROI, the return on investment is just not worth. I urge them to be like the businesses that are sending the work overseas, try to get a much out of your money as you can. Killing yourself getting an engineering degree, taking on those loans, just to know that you have to do the same for grad school on another field just doesn't seem right. Your 50-100K in the hole by the time you are done and the prospects and not everything they are cracked up to be.
You think all these other fields have it better? You think companies are not out there thinking how to ship these jobs overseas as well? Why have a manager here when the workers are over there? Why base the company here when 90% of the employees are in Asia? You think we will end up a country of CEOs, CTOs, corporate lawyers, etc.
The best advise I would give is to minimize your exposure to debt, in the end you will probably be happier with a 40K/yr job that will allow you to get some sleep at night. Do your engineering as hobby. The idea of a nation of MBAs is a joke.
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RCollett
12/8/2010 8:03 PM EST
@asicman,
I believe dissuading someone who has the aptitude to earn an engineering or science degree from pursuing that path does that person a disservice. Not that many people have the intellectual capacity and stamina needed for it, and therefore, those that do have the ability will have an edge in the job market. Granted, they may need to pursue a graduate degree of some kind, as an undergraduate degree may not be enough, but those are the stakes that will be needed to compete in the world that's emerging.
I certainly respect and understand your points, such as the high cost of getting a college education, which is a big problem that needs to be solved. However, your point about a $40K/year job doesn't resonate with me. I don't see too many people that can sleep well at night when they can't make financial ends meet.
Lastly, not sure who is suggesting that the U.S. will or should be a nation of MBA's. My point was that giving engineers a little bit of business training would be very helpful on numerous fronts.
Rgds,
Ron
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asicman78
12/12/2010 1:36 AM EST
@Ron
So what do you tell engineers that are in their 30's, 40's, and 50's with only a B.S.?
"Sorry about getting laid off? Don't worry about the mortgage, rent, and finding a new job because even though you may have 10+ years of experience you don't have a M.S or M.B.A"
How are we supposed to live, support our families, and accomplish this?
I have an exercise to anyone reading this.
1. Log on to linkedin.com and check out the profiles of engineers. I will guarantee you that you will find that less than half of them have had a job that's lasted longer than 5 years at anyone given company within the last 10-15 years.
My point: Engineers are now commodities and like commodities we are used up and discarded when no longer needed. On top of the fact that foreign prices on these commodities are cheaper.
2. Log on the career website for any mid to large size company (Xilinx, Intel, Qualcomm, Broadcom, etc) count the number of engineering positions open in the continental U.S. Now run the same search but instead of the U.S. punch in their sites in China, India, etc. Finally, compare the numbers.
My point: I don't have to dissuade people from becoming engineers, this will.
In the end Engineer is a tough and challenging career and one that I love, sadly it is no longer rewarding. Unless your niche is RF or Biomedical there is not going to be much work out there.
I have been lucky and haven't had any long periods of unemployment in my short career, but I know this won't last. There is nothing fueling engineering in the U.S. Defense money is going away, consumer has been on its way for the last 10 years. Biomedical won't sustain on its own and neither will energy.
I wish I had the resources to go back to school get an M.S or an M.B.A. Maybe others will get lucky and survive, but as for me, you can chuck me up as one of the casualties of this brave new world.
And please if you see me at your local intersection with my cardboard sign, please drop me a dollar.
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RCollett
12/22/2010 3:50 PM EST
@asicman78:
What I would tell engineers in their 30's: gain experience by working in several different countries who's engineering labor costs are likely to remain low.
Engineers in their 30's or 40's: go back to school for either additional training or in a field of science/engineering requiring skills not likely to be easily off-shored.
Engineers in their 50's: Stay in the field as long as possible, save as much money as possible, and develop your post-engineering career plan.
Thanks for your comment.
Ron
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