(Summary: For semiconductor companies, differentiation has shifted from manufacturing to improving productivity in new-product development. That realization is the easy part; getting there requires help.)
Iâ€™m always impressed with the level of optimism I find at semiconductor industry events around the world. There may be pockets of gloom about the state of the semiconductor industry, but executives certainly donâ€™t share it. Yes, itâ€™s not the same industry it was 10 years ago, but, no, itâ€™s not doomed. Far from it: The dynamics are just different.
That was my message when I presented last week at Malcolm Pennâ€™s International Electronics Forum in Geneva. Hereâ€™s why the dynamics are different:
- The industry head count has shrunk 30 percent this decade
- Industry consolidation has picked up pace
- Cost-cutting is rampant
- Thereâ€™s more pressure than ever on design teams to get great products out the door on time and on budget
Hereâ€™s how the dynamics are different: Differentiation has shifted as industry disaggregation has reached an end state. There was a time when a semiconductor company differentiated itself through manufacturing and process technology (or way back when, through making its own steppers!) No longer.
So whereâ€™s the differentiation? Itâ€™s not in cost-cutting. Everyoneâ€™s doing that.
Differentiation has shifted to the heart of the semiconductor companyâ€™s value proposition: its new-product development.
Electronics Weeklyâ€™s David Manners, in his coverage of IEF last week (â€śWhatâ€™s the Answers to the Chip Industryâ€™s Problems? Ask IEFâ€ť), touched on how profound this can be. He quoted Alain Dutheil, CEO of ST-Ericsson, as saying 85 percent of his 8,000 employees are in R&D.
The other part of the story, which weâ€™ve blogged about, is that most SOC projects slip schedule and most IC teams tend to underestimate their product R&D costs.
That brings me back to our IEF presentation (â€śRaising the Bar on Semiconductor R&D Management, Execution, and ROIâ€ť), which we created in partnership with PRTM, one of the worldâ€™s premier operational strategy consulting firms (with deep ties to the IC industry).
Our three take-aways were:
- The bar is being significantly raised on semiconductor R&D management, execution, and achieving ROI
- Companies must continuously progress through the stages of maturity to thrive (functional, project, portfolio, and cross-enterprise excellence)
- Fact-based planning is a critical foundation for ongoing NPD success
Anyone can cut costs in challenging times but winning companies find news ways to differentiate themselves, and they are the companies that come out of recessions stronger than their competition.