There is an excellent post by Paul McLlelan Crushing fixed costs that describes very elegantly semiconductor economics as it relates to operating and capital costs of doing business. He notes that…
“There is a trend that the current downturn is only going to accelerate: to turn fixed costs into variable costs. Often this is what is behind outsourcing of some capability.”
While the main thrust of the discussion was driving the conclusion that semiconductor design outsourcing will accelerate, I would look in a different direction for greater savings - the data centers within semiconductor vendors. This actually ties together a perhaps unintentional thread of Paul’s. He discusses Amazon and Cloud Computing as an example of a trend to increase capital efficiencies in other industries.
On this blog I have argued that these two threads should be combined. Specifically, in a gradual move of “well-matched” parts of the EDA flow to a SaaS (Software-as-a-Service) model, semiconductor vendors are able to take a very large capital expense and turn it into a pay-as-you-use operational expense. This will enable companies to redeploy savings to functions that drive forward their value proposition and differentiation. ie more designers designing better chips faster.
Back in the 90’s there was the start of the move to the “Fabless” Semiconductor company (that was ridiculed in the 80’s and up until Broadcom started showing success). Using this current economic environment as a catalyst, I predict that in the next decade we’ll see a move to the “CAD-less” semiconductor company.
Intel Data Center Utilization and Growth
As an illustration of the imperative, the above chart was presented by Intel at the Intel Developer’s Conference a while back. It has been calculated that the Net Present Value of this data center is somewhere between $200 million and $300 million.
The move to the cloud will not be a step function, as the hurdles are many, but a gradual transition. And just as Broadcom showed the way in the 90’s, the company to best take advantage of the opportunity may not be one of the current leaders in the industry. Someone from the middle of the pack or a cash-strapped startup could use this new business structure as a competitive advantage to take the lead.
For those companies looking to discuss how Xuropa can help facilitate this transition, please contact me.
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