Core technologies thrive on innovation and engineering know-how. Innovation and engineering know-how are seldom successfully acquired. They must be cultivated as part of a company's culture and engineering spirit. This industry was founded on technical innovation. At ADI we have never lost sight of our most valuable asset-talented engineers. They are not only the technologists who invent the next big thing but also the ones who devise the critical enhancements that we need to sustain a core technology for decades.

I've watched seven semiconductor cycles and I've been ultimately responsible for managing ADI through the last three. What has caused this last cycle to be more severe and prolonged than past cycles, I believe, is that so much of the industry is made up of me-too parts trying to sell into a few super-sockets (those killer apps, again), technologically indistinguishable and left to compete on little more than price and delivery. The laws of supply-and-demand prevail in this environment, and prices rise and fall with capacity utilization.

In addition, the industry has been shifting and converging for several years. The engineering challenges have shifted from data processing to include real-time signal processing. And the killer app is not a class of equipment but rather key functions like Internet connectivity, wireless portability and multimedia converging in all types of consumer, industrial, communications and computer products.

Core technology engineered by the brightest people in the industry is, in my opinion, the critical requirement for consistent and long-term results in the highly cyclical semiconductor industry. And companies with core technology positions in signal processing will be the winners in the next decade. The highest performance technologies for data conversion, signal conditioning and signal amplification are becoming increasingly important to more and more applications.

Twenty years ago, high-performance analog, mixed-signal and DSP ICs were a small part of the industry and served primarily aerospace and scientific instrumentation. But today applications as diverse as digital cameras, wireless networks and medical imaging rely on these core technologies.

Within five years, signal-processing ICs could account for 20 to 25 percent of the semiconductor industry, up from about 15 percent today. And with continued cultivation of core technologies that serve a breadth of applications, it will be a 25 percent portion of the industry that provides truly innovative and differentiated solutions that solve customers' toughest engineering challenges.