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Join the Growing Club of DIY Analog IC Design

I originally wanted to title this blog, “What defines a semiconductor company anymore?” It is no longer clear to me because more and more system companies, big and small, are taking the plunge, and becoming a member of the Do-It-Yourself (DIY) club. My email inbox certainly seems to suggest this trend is picking up.

Don't take my word for this though. Look at what is being said by the companies that play in this arena.

Last week I listened to TI's investor conference call, where they projected an 8 percent sequential drop in revenue for their next quarter. TI, the market leader in analog semiconductors, played down the projection, but what amazed me more was that their R&D investment as a percentage of sales is ~11 percent, whereas TI's competitors Maxim, Analog Devices, and Linear Technology are investing, respectively, ~22 percent, ~19 percent, and ~18 percent during these trying times. One of the analysts on the call questioned TI's logic behind lowered R&D investment at a time when sales are falling.

To get some more insight into this gloomy fourth-quarter outlook, I read TI's most recent annual report. Buried in that report they disclosed a developing industry trend whereby certain “…large customers are increasingly developing their own custom chips.” This made me wonder what is going on with Cadence.

Cadence sells what is arguably the premier set of analog IC design tools for the IC industry. Design tool sales give insight into the direction of R&D investment for integrated circuit design, since for every IC design engineer a company hires, they need another IC design software license.

In Cadence's quarterly conference call last week, Cadence's CEO Lip-Bu Tan expressed optimism for his company, claiming that he is seeing “…tremendous growing in the system companies going vertical.” Bear in mind, Cadence sells not only design tools but also analog IC intellectual property (IP).

Then we have Cirrus Logic, a high-performance analog semiconductor company with 82 percent of its 2013 sales designed into Apple products. Heck, Apple should just buy the company and either spin off or sell to TI the other 18 percent of Cirrus' business. In one year, Apple would probably be at break-even having saved the entire Cirrus markup.

This brings me back to the question, “What (or who) is a semiconductor company anymore?”

When I started designing analog ICs the analog companies manufactured their own wafers. They generally wrote their own design tools. They designed all of their circuit IP.

Today, just about any company selling an IC with an embedded processor is buying the IP from ARM Holdings. In short, any company with R&D funds can develop their own IC. Even those companies starting out in their garage! So what is left anymore that defines a semiconductor company?

Well, in a primarily analog IC company, at best only two things: product marketing managers who decide what products to design and the large pool of engineers who design those products.

So what's wrong with this picture?

For one, marketing managers spend their time trying to predict what their customers, the system companies, want to buy. Put another way, the very companies Cadence and TI claim are increasingly designing their own ICs — the vertically integrated system companies — know exactly what is required for future semiconductor devices.

It is often said that only 10 percent of the product portfolio on an analog semiconductor company's website actually turns into long-term profitable sales. The rest of the products are presumably failed predictions. Doesn't that mean that 90 percent of a semiconductor company's R&D is wasted on wrong predictions? This sounds like the venture capital business model.

And then we have the design engineering pool that is available to any company that pays competitively while offering a technically challenging and positive work environment. That compensation part is a lot less burdensome for a system company whose revenue is based upon the much higher valued, top-level system product. Apple, for example, spends only ~2 percent of its revenue on R&D.

While changes in an old industry do not happen overnight, I am seeing this design shift more and more. If the tool companies and independent IP providers had their way, they would help all system companies develop their own unique IC products. This is setting up a horserace between the traditional IC companies that now envision a future where they sell embedded processors, analog, and software; and the system companies that have traditionally purchased those same pieces, but from multiple providers.

This scenario reminds me of playing [American] flag football where one team, the IC companies, would be the skins and the other team, the system companies, would be the shirts (since shirts cover skins). Who do you think will win? And at what point should a system company decide to embark on building their own integrated IP?

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28 comments on “Join the Growing Club of DIY Analog IC Design

  1. D Feucht
    October 30, 2013

    Scott,

    We seem to be viewing the semiconductor industry in much the same way and from different angles. My recommendation a few articles ago was that semi companies ought to expand their domain in the direction that you refer to as system companies. Semiconductor companies have the resources to acquire expertise in the application of ICs, and could proceed to develop end-user markets themselves.

    One customer base for semiconductor companies that should, however, not be underestimated, though it is somewhat nebulous, are all those little users of ICs who are certainly in no position to think of designing them. In a growing economy (and at an earlier stage of civilization) there are many new startup efforts with limited resources but having ideas to promote in the market. Now that the developed world, and in particular the US, is in shut-down mode, that customer base – if it is to be found at ll – will be in the developing world.

  2. fasmicro
    October 31, 2013

    >> When I started designing analog ICs the analog companies manufactured their own wafers. They generally wrote their own design tools. They designed all of their circuit IP.

    I am very lucky that I was not in the industry then. These are truly differentiated jobs. I prefer this era where we have specificilization by companies. I think it makes it easier for people to have focus and make better products. Imagine having to be fixing bugs in Cadence because your colleague made it and you cannot easily vent your frustration.

  3. Scott Elder
    October 31, 2013

    “One customer base for semiconductor companies that should, however, not be underestimated, though it is somewhat nebulous, are all those little users of ICs who are certainly in no position to think of designing them.”

     You are absolutely right.  And I think that is where things are headed now that the 21st century computing revolution is nearly over (i.e. a few people (winners) making all of the basic computing products for the next decade).  Its back to basics.  The bread and butter analog.
     
    The ride up was great, but now that all of the pieces are in place for any company to design their own chips and outsource the manufacturing (including competitors like a fabless Dialog), those once high margin industries aren't coming back.  That's the difference this time around.  I think we are finally seeing the financial impact of the “fabless revolution” in analog.   This makes me wonder if the analog semiconductor industry will ever see sustained high margin growth as in the past without moving their products to the next higher level in the product “food chain”.  
     
    It will be interesting to see how all of this shakes out.

     

  4. Scott Elder
    October 31, 2013

    @fasmicro,

    < >

    The problem is that a company loses leverage once everything they do is openly available from many providers.  Case and point:  Apple Computer.  They do EVERYTHING.  Analog chips, digital chips, software, hardware, computers, phones, cloud computing, store front shops, etc.  As a result, they are one of the largest (and last year the largest) companies in the world.

    So for an individual working in the industry, I get your point.  But as a business that needs to continually grow it is a different story.

    Patents don't protect anything anymore.  Rapid innovation and knowing what to sell: that's what is important.

  5. SunitaT
    October 31, 2013

    they projected an 8 percent sequential drop in revenue for their next quarter. 

    @Scott, thanks for the post. Do you think this trend will continue in future too considering the fact that large customers are increasingly developing their own custom chips. And do think TI should plan to build its own products since market for chips is shrinking.

  6. SunitaT
    October 31, 2013

    Semiconductor companies have the resources to acquire expertise in the application of ICs, and could proceed to develop end-user markets themselves.

    @D Feucht, I totally agree with your opinion. Any particular reason why semiconductor companies are not thinking beyond IC's ?

  7. SunitaT
    October 31, 2013

    Patents don't protect anything anymore.

    @Scott, true patents don't protect anything anymore but patents definitely slows donw the innovation and development pace. Many startup companies start with great idea but many times they overlook the patent related issues.

  8. SunitaT
    October 31, 2013

    “…large customers are increasingly developing their own custom chips.”

    This is good news for VLSI engineers because now they have more opportunies because more and more companies are building their own custome chips. Earlier semiconductor jobs were limited some big semiconduct companies.

  9. yalanand
    October 31, 2013

    @Scott, thanks for the post. Its true that DIY club is growing and infact Google-owned phone firm Motorola has announced a new project to let users customise their smartphone components.

  10. Scott Elder
    November 1, 2013

    < >

    No crystal ball here.  But I do think that certain classes of products are more safe than others.  I think the key is to find products that have high volume….but just not too high.  And then a company needs to be constantly innovating new, hard products.  Not just another buck or boost or 12 bit ADC.

    At the end of the day though, I think the real answer lies in moving up the food chain.  Become an IoT system provider.  After all, those devices are going to be effectively single chip products anyway.

  11. eafpres
    November 1, 2013

    @Scott–I think much of the problem with the “mop up all the little guys” strategy is that for large traditional semiconductor companies like those you mentioned, their shareholders rightfully expect them to win the big volume sockets.  If all the serious high-volume chips are designed by the end use firm and made in whatever fab is appropriate at the time, then it means the former business model is going away and rather than assume the semiconductor firms must shrink what they really need is a new business model.  This scenario is what Adrian Slywotzky talked about in his book “Value Migration: How to Think Several Moves Ahead of the Competition”.  In Mr. Slywotzky's parlance, the traditional semiconductor firms are seeing “value outflow”.  Where there is outflow there is corresponding inflow somewhere else.  You might argue this is flowing the likes of Apple, but certainly they didn't start out to be a semiconductor company, per-se.

  12. Netcrawl
    November 1, 2013

    Its a good start for some companies, giving them more business opportunities nad enhance their competitive stakes. An possibly extend the company's reach.  

  13. Netcrawl
    November 1, 2013

    @SunitaT I think mergers and acquisitions would still play a key role in today's business, this is probably the easiest and fastest way to gain new market and technology, it also widen the company's reach. Building your own technology or chips could be a daunting task  and expensive because you need to start from the scratch and its a long journey.

  14. samicksha
    November 5, 2013

    The DIY concept is amazing with depth knowldge and learning hidden beside, but at the same time i find this little tricky and risky in terms of making your design live and work for you…

  15. fasmicro
    November 9, 2013

    Great point @Scott. They have what they call “core competence”. For Apple, I think the key for them is industrial design. I like to remind people that Apple is not contributing anything to technical community in design. But hey, they are teaching everyone how to do ergonomistic design – making things look nice and great. That does not mean they design better circuits or file patents. Most of their patents are artworks on how to hold a mobile design and how to trim the body. I am not sure there is any technical paper we crave that was published from Apple. So though they do everything – analog, digital, etc, it is at the ornamental level. But markets like that!

  16. goafrit2
    November 9, 2013

    It will be good if we have an analog company that is as trendy as Google for our industry. You kow these web companies seem flashy and get all these attentions which make them cool

  17. goafrit2
    November 9, 2013

    Patents may not protect your market share. But market can protect your business. The fact is this a judge can shut you down if you do not have the right coverage in your business. Patents will not protect your business must be seen within the contructs that you must innovate to compete. But patent is still a tool in this market

  18. goafrit2
    November 9, 2013

    >> 
    This is good news for VLSI engineers because now they have more opportunies because more and more companies are building their own custome chips.

    That makes a lot of sense. If you have volueme, VLIS or ASIC is the best way to compete in the market as the cost will come down and you will be positioned to get innovation by making those minor changes that seperate you apart.

  19. goafrit2
    November 9, 2013

    >> The ride up was great, but now that all of the pieces are in place for any company to design their own chips and outsource the manufacturing 

    You are correct. I have noted that the worst thing that ever happened to Intel was not AMD but TSMC because it gave rise to this evolution that fabless IP models can florish. Cost of fabs used to be a key competitive weapon, but with IP based model which ARM is leading in the world, we are having more democracy and choices. It is good for the industry and everyone should take advantage of it

  20. goafrit2
    November 9, 2013

    @SunitaT, sure globally it will be more opportunities for VLSI engineers. However, it all depends where you live. In US, the opportunity is not truly there as these firms continue to outsource. That is good for the global business of course. India in the next 30 years will have the highest concentration of knowledge base in this industry and will drive this sector because they are doing more of the design. China will have the best knowledge-how on factory business and that will be good for them. The position of US is being eroded daily as they outsource opportunities for younger generation to learn and grow in the business.

  21. SunitaT
    November 30, 2013

    India in the next 30 years will have the highest concentration of knowledge base in this industry and will drive this sector because they are doing more of the design. 

    @goafrit2, but most of the work i.e outsourced to India is either layout design or verification work and many companies hesitate to outsource the design part of it.

  22. SunitaT
    November 30, 2013

    It will be good if we have an analog company that is as trendy as Google for our industry.

    @goafrit2, I agree with you. I think the way Qualcomm is growing its business, I wont be surprised if it becomes Google for our industry. 

  23. SunitaT
    November 30, 2013

    Patents may not protect your market share.

    @goafrit2, true patents may not protect market share but patents can definitely help companies to get monetory benefits. For example in case of Apple-Samsung patent battle Apple got  huge monetory benefits from Samsung because Samsung violated Apples patents.

  24. SunitaT
    November 30, 2013

     I like to remind people that Apple is not contributing anything to technical community in design. 

    @fasmicro, very true. All Apple has done is use existing blocks and build end prodcut. They have put a lot of effort to make it look good and user friendly. But I dont think this will help them in future because companies like Samsung have already working on technically more advanced flexible display screens.

  25. fasmicro
    December 9, 2013

    >> @goafrit2, but most of the work i.e outsourced to India is either layout design or verification work and many companies hesitate to outsource the design part of it.

    That is true. Most times, you will need a lot of understanding of circuits to verify it. Both are related. Yet, India is doing a lot of digital designs. Analog is still shaping up but India is up to speed in digital design.

  26. fasmicro
    December 9, 2013

    >> Qualcomm is growing its business, I wont be surprised if it becomes Google for our industry. 

    I think Qualcomm is a really good company especially in US. It qualifies for anything you can think of in the industry. 

  27. fasmicro
    December 9, 2013

    >> For example in case of Apple-Samsung patent battle Apple got  huge monetory benefits from Samsung because Samsung violated Apples patents.

    That does not really count – the money Samsung paid Apple is less that what it makes in 7 days. So, we need to put this in perspective. The key to filing patents is to prevent a competitor from selling a product which competes with you. Samsung might have made billions in that window but with the lawsuit, that did not a happen. Not sure if that settlement coverred Apple legal fees.

  28. fasmicro
    December 9, 2013

    >>  But I dont think this will help them in future because companies like Samsung have already working on technically more advanced flexible display screens.

    I is also well documented that Samsung has not pioneered any new sector. It waits for others to do the dirty work and then it will use its cash base to dominate.

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