Roundabout: Semi-Industry Deconsolidation, IBM, Intel, Apple, Death of the PC

Until a bit of the dust settles on Wall Street I've decided that it is best to cruise the modern InterTubes for stories about the chip industry. Here are a few that I have been pondering:

Over on the EE Times website Mentor Graphics CEO Wally Rhines writes a piece about the deconsolidation in the chip industry:

Semiconductor Industry, Deconsolidation

Figure 1 shows that semiconductor revenue based upon foundry wafers grew to about 20% of total semiconductor sales by the year 2000 and then remained flat for most of the next decade. The 20% share of revenue assumes that fabless semiconductor companies sell their foundry-produced products at about a 2X multiple of their foundry cost. This 20% share has recently begun to grow again. Exceptionally large capital investments by foundries in 2010 and 2011 will inevitably increase the share of semiconductor wafers sourced from foundries.

I think it is important to recognize that this most relevant to the fabless chip houses and not those that have manufacturing facilities - foundry or IDM. Much of the consolidation in the semiconductor food chain has taken place in the capital equipment business and its supply chain.

This story was linked to another, longer article Wally released over a year ago: Is Semiconductor Industry Consolidation Inevitable?

Most interesting to me was this observation on Page 2:

Looking back across the past six decades, TI (Texas Instruments) is the only company that has remained in the top ten throughout semiconductor history. When consolidation does occur, it is mostly among those companies that fail to adapt to the next level of emerging technology.

Never under-estimate the big Texan.

While I was reviewing this I was thinking about some of the comments made by the Gartner analysts during Semicon West - see this article I wrote last month for a few of their thoughts:

When Getting Bigger Makes You Smaller

I'm torn. On the one hand I understand the opportunities the fabless semiconductor companies have and the ways they can leverage foundry technology. At the same time I believe the cost of designing a device, getting wafers processed and getting a product in to the market with enough volume to be recover these non-recurring engineering costs - much less make money - will be more challenging as the manufacturing side moves to more advanced technologies.

I also tend to agree with the Gartner folks that the cost of processing silicon at the most advanced levels will pare down the number of companies that can actually finance and build a wafer fab.

I'm open to opinions on this front....

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In other stories of the week, the PC has died several times:

Mark Dean, IBM CTO for IBM Middle East and Africa writes that they are leading the way in the post PC era. Every article I've read is quoting this line:

But, while PCs will continue to be much-used devices, they’re no longer at the leading edge of computing. They’re going the way of the vacuum tube, typewriter, vinyl records, CRT and incandescent light bulbs.

Intel, obviously, takes issue with this: Intel CFO says view unshake by US debt downgrade

Families buying their first PCs in emerging markets, the source of half of Intel's sales, are unlikely to put off their purchases because of troubles in the United States, CFO Stacy Smith said in an interview with Reuters on Monday.

We'll see if demand really does hold up. I have my doubts. Several stories from Taiwan are noting weak demand (but optimism for the latter part of this year and next):

Compal sees drop in July revenues and notebook shipments

Acer unlikely to increase notebook orders until September

Are companies optimistic because they believe Ultrabooks will save the day? Intel is putting some skin on the line. Yesterday they created a $300 million development fund:

Celebrating 30 years of innovation, the PC is the ultimate Darwinian device and Intel is striving to again reinvent mobile computing,” said Mooly Eden, vice president and general manager of Intel’s PC Client Group. “In 2003, the combination of Intel’s Centrino technology with built-in WiFi, paired with Intel Capital’s $300 million in venture investments and other industry enabling efforts, ushered in the shift from desktop PCs to anytime, anywhere mobile computing. Our announcement today is about Intel mobilizing significant investments to achieve the next historic shift in computing.

There are three key phases in Intel’s strategy to accelerate its vision for this new category. The company’s efforts begin to unfold this year with Intel’s latest 2nd Generation Intel® Core^TM processors. This family of products will enable thin, light and beautiful designs that are less than 21mm (0.8 inch) thick, and at mainstream prices. Systems based on these chips will be available for the 2011 winter holiday shopping season.

One thing is for sure, Intel will not go down without a fight. A few folks believe Apple has them in their plans:

Apple Roadmaps Intel to 14nm

Intel will not win the tablet market with any of the various Atom chips rolling out at 32nm, 22nm and even 14nm. They are too late to a game that Apple owns 90% of today and will so in the future. All of these ultra low power atom versions are like the Saturn test rocket developments that preceded the Apollo 11 Moon Landing. They are necessary test chips where engineers at Intel try out new circuit designs and architectural tradeoffs in tuning power vs performance in preparation for a set of chips co-architected with Apple and appearing in 14nm.

Lots of speculation here...

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I suppose I could post 150 links to stories that talk about the market cap gyrations between Apple and Exxon. Either that or I could tell you to calm down and quit worrying about the market action. Nah.....

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Last but not least, from the humor side, a P.S to a comment on a "Buy stocks, sell bonds" post by Felix Salmon:

p.s. after the titanic hit the iceberg, on a relative basis, the stern was where you wanted to be.

Hang in there!