The semiconductor industry has a history of evolution and revolution, both from a technological and a business point of view. Yet there is little agreement amongst industry leaders on how to forge a path forward in this moment in time.
Today, we continue a dialogue with semiconductor pundits and industry leaders quoted in a volume entitled Fabless: The Transformation of the Semiconductor Industry, by author Daniel Nenni and contributor Paul McLellan. My responses to these leaders are based on macroeconomic principals on the theory of mass capitalism that I've been exploring in my writing.
Today, the business landscape for semiconductor makers is changing. The industry's top CEOs are concerned with the blurring of traditional demarcations between supplier, partner, customer, and chip designers, Jodi Shelton, co-founder and president of Global Semiconductor Alliance told the book's authors. She added that further consolidation, not only in the semiconductor industry, but also within the related ecosystem of partners and customers, is also of note.
Certainly, CEOs should be concerned. It is to be noted that this consolidation hurts innovation and also affects consumer demand. Some consolidation goes against the principles of a free market economy. It should be noted that US capitalism needs major reforms toward a free market economy or else the US economy will see an early demise of Moore's law for this great industry.
Meanwhile, Grant Pierce, chief executive officer of Sonics, pointed to the difficulty of predicting market change in the face of device sizes that approach the atomic level. “He can predict that innovation will continue,” he said in the book. “Innovation will answer the call from market. The semiconductor industry is that good.”
It is true that all semiconductor industry professionals are concerned about the future of the semiconductor industry as it approaches the physical limits of Moore's law. Just like Pierce, I believe that innovation will answer the market's call.
However, for innovation to answer the call, there has to be a free market economy, which leads to a robust growth of small businesses. Only when there is a robust growth of small businesses can there be a growth of new start-ups that in turn leads to the birth of new ideas and innovations that better lives of human beings. For this innovation to answer the call from the market, the semiconductor industry should help transform the present US economy from crony capitalism to a free market economy. By doing so, the semiconductor industry would prove that it is “that good.”
Of course, a perennial concern for the industry is profits. Sanjiv Kaul, chief executive officer of Calypto Design Systems believes that the ability to generate a leadership position or even to remain relevant becomes questionable in the face of the capital-intensive nature of the business. He points to this reality as a factor in industry consolidation. He adds, “The interesting question is which companies will come out the winners in this round of battles for supremacy?”
There's no denying the capital-intensive nature of the business. However, the present colonization of the publicly traded companies by Wall Street has been responsible for the irrational distribution of profits resulting in increasing mergers and acquisitions (M&As), which kills innovation.
M&As invariably lead to larger and less efficient organizations. Many times these business deals result in layoffs, which depreciate consumer demand in the economy. To answer Kaul's question, I would say that no company would come out as a winner in this round of battles for supremacy, because supply and demand are like two wings of a bird and a one-winged bird cannot fly. To put an end to consolidation in the industry, the semiconductor industry has to undertake reforms to ensure a rational distribution of profits across the board and make its employees, rather than outside Wall Street investors, majority shareholders of the corporation.
Hossein Yassaie, chief executive officer of Imagination Technologies, meanwhile, calls for a laser focus on customer wants and needs and a mandate on engineering to fulfill those needs as solutions. Yassaie's statement points to an important fact of economics, which is unfortunately being ignored by the semiconductor industry at large. Consumer demand for products forces the industry to manufacture products to meet the demands of consumers. Hence, the supply of goods and the economic demand for them takes place with the cooperative action of producers and consumers.
An oversupply of goods and weak demand result in layoffs at the manufacturing facility. Consumer demand invariably drives the manufacturer to increase manufacturing levels. Good consumer demand acts as an engine of economic growth in a free market economy, and industry produces goods towards fulfilling those needs.
Chime in and let us know what you see driving the semiconductor industry in the comments section below.