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Electronics Industry Responds to Macroeconomic Realities with Innovation

He that will not apply new remedies must expect new evils; for time is the greatest innovator. – Francis Bacon

In previous posts, I examined the high-tech industry in significant detail by picking a representative sample of leading systems, software, and semiconductor companies. Taken as a group, the selected firms serve the full range of technology markets – the first tier markets of the three C's (computer, consumer and communications) and mobile, as well as the second and third tier sectors of industrial, automotive, medical and mil/aero.

Source: random-ness.wikia.com

Source: random-ness.wikia.com

The examination revealed that macroeconomic factors emerging after 2007 were severely hampering growth across the industry. These factors were entirely outside of the sphere of high-tech, as they were caused by the ridiculously leveraged positions of large commercial banks and sovereign governments in nearly all of the developed and emerging national economies worldwide.

The 'cures' imposed by various governments and central banks for their economic woes were derived from existing economic orthodoxy and its standard models and theorems. However, in this instance, the debt problems proved so great that the remedies not only failed but actually locked the global economy into a 'liquidity trap.' As a consequence, national economies in most of the world are just limping along, with uncertainty and financial duress stifling the extension of credit for capital investment that would facilitate business expansion and growth.

The fallout from this moribund economic environment has included, among other things, an extended period of significantly higher than usual unemployment throughout most of the industrialized world. In the USA in particular, the growth in long term unemployed workers has resulted not only in a worker participation rate that is the lowest observed in the past 36 years but has also been exacerbated by job growth limited almost exclusively to work at or close to the legally mandated minimum wage. The resultant consumer distress has manifested itself as a weakening in disposable income, with negative effects that are still cascading thru the entire high-tech industry.

Ill fortune seldom comes alone. –  John Dryden

Concurrent to its buffeting by ill economic winds, high tech has also encountered a frightful technology obstacle – the demise of Moore's Law beyond 28nm. Without 3P gains of 20% to 30% for each successive process generation, additional chip features and benefits can no longer continue to be integrated without penalty. This constrains the enhancements, optimizations and improvements of all other technologies thru the high-tech value chain, including systems and software, in a kind of 'domino effect.'

Yet despite this one-two combination of blows to the industry, there are no 'Chicken Little' proclamations echoing across high-tech office cube farms. This is simply not the way that workers or management react to bad news in this business.

Victory belongs to the most persevering. –  Napoleon Bonaparte

To work as an engineer in high tech, you have to be an individualist by nature. You also have to be an optimist. Engineers are, by both inclination and training, disposed to critical analysis of an event or item and decomposing it into its constituents in order to find ways of improving upon the whole. They in fact proceed under the assumption that there is always a way of improving upon the original.

When confronted by severe market and technology challenges, high-tech engineers don't throw their hands in the air and yell “The Sky is Falling!” or dismiss the future prospects of their industry as a mature sector with no further room for growth. Stated differently: Wall Street orthodoxy cannot understand and doesn't apply to high tech. When the going gets tough, technology engineers simply get to work making new things and improving on old ones.

The end result has been a wave of new or refreshed interest and work on different process, memory and packaging technologies. In other words, the Silicon Valley response to the macroeconomic and technological Chimera has been to do what it does best – Innovate .

Tomorrow, I'll take a look at some of these innovations, and how they contribute to the industry.

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