Just because the economics of Venture investing in semiconductor startups (usually) don't make any more sense, that doesn't mean that IC technology, applications, and product ubiquity aren't advancing (often, still, into uncharted waters).
Especially when you consider the cost vs return potential offered by web/mobile app development, it becomes virtually impossible to justify investing in a semi venture that will take a) $50mil to develop a new product (minimum), b) another $100mil to deploy it, while getting the next product generation developed, and c) doing all this before the opportunity window closes, due to one, or more, of the better-capitalized behemoths in the industry notice what you're doing and (if it seems successful) get a competing product to the next technology node before you can.
There **are** niche opportunities out there. But finding a profitable one with a big-exit potential, that simultaneously can be developed without spending $200mil, is like looking for that needle in a pile of needles.
If, on the other hand, most Venture Capital investors weren't so reluctant to embrace an IP business model, there might be more opportunitiy to develop & deploy vlauable technologies, and let the startup's customers bear the cost and risk of Silicon development.
Actually it is not true that innovation (or VC funding) is not happening in chip industry. The innovation (or funding) is shifting from one domain of chip industry (digital SoC) to another domian of chip industry (power electronics, RF, MEMS etc).
There are substantial little scope of innovation in digital or mixed signal SoC targeted for communication and consumer market. Those markets are saturated by big players. Investment requirement for SoCs targeted for those market is very high making it not attractive to VCs.
But there are new upcoming market like automotive, medical etc where need of SoC is there. The difference is that the technology which dominates those market are different like RF, MEMS, power electronics etc. The investment for those SoCs (and even for fabs) are low. The 21st century will belong to RF and MEMS in semiconductor industry
IMO, a silicon company that keeps the details of how to program its chips proprietary so that it's the only software source is not in a position to complain about how much it "must" spend to develop that software. IMO they should release the programming details so that the FaiF open source community can do its magic. Cypress almost does this with PSoC: almost all the register bits needed to program it are in public documents, though a key part is closed. Broadcom documents are usually completely closed.
Interesting observations about how semiconductor companies are investing more and more in software development, which they have to give a way for free in order to sell chips, yet at the same time VCs have all moved on to web companies...whose only real product is software.
Yes, this may be different model. Since pioneers of this industry have earn good money, they themselves may be investing in new innovation. They may not need VCs as much as new technology. Also fabless model makes it possible to innovation in any part of world like China, India or east european countries.