Adaptation In A Volatile Era

2018 has been a volatile year by almost any measure, and the global electronics industry was at the center of the action. Soaring memory prices and tech stock valuations drove eye-popping growth in the first half, with Samsung solidifying its position as the world’s largest chipmaker and Apple briefly topping $1 trillion of market capitalization. Fast forward to the second half of the year and we muddled through falling stock prices, fears of a looming trade war, and a GPU inventory glut.

The “crypto hangover” described by Nvidia CEO Jensen Huang is an apt metaphor: After a night of celebration, we woke up in a stupor—rubbing our eyes and struggling to comprehend our surroundings.

To help clear our heads, we need to step back and look at the bigger picture. When the ground feels unstable, it is often a sign of seismic activity below the surface. Our industry is in the midst of a tectonic shift from the age of mobile computing to a new phase of growth that will be driven by a range of emerging applications such as IoT, artificial intelligence, and 5G connectivity. The number of connected devices will explode into the trillions, which will drive equally explosive growth in data traffic across worldwide networks.

Each level of the electronics supply chain is striving to adapt to the challenges and opportunities presented by this coming era of “connected intelligence.” Systems builders are adapting by developing infrastructure and devices designed to manage, analyze and act on this data—both in the cloud and at the edge. Chip designers are shifting their focus from general-purpose computing to domain-specific computing, where a uniquely defined architecture can dramatically increase performance and reduce power for a highly specialized application such as machine learning. And manufacturers are adapting to the impending demise of Moore’s Law. It is no secret that transistor scaling—the engine that has fueled the industry for nearly 50 years—is running out of gas.

So how can silicon foundries adapt?
At its core, Moore’s Law is an economic model. It is about delivering increased capabilities at decreased cost. Like all useful business maxims, it hinges on the ability to provide value. In the semiconductor industry, we have trained ourselves to believe that value creation only comes through transistor scaling. But in fact there are many ways to achieve the net effect of Moore’s Law, and they do not all require billions of dollars in annual R&D and capital expenditures.

In a data-centric world, power efficiency is a fundamental metric. Power consumed per bit must be minimized to further enable data-rate growth within a constrained power envelope. As we approach the limits defined by physics, shrinking transistors is no longer the best way to reduce power. The transition to domain-specific architectures in the data center and at the edge opens up new architectural possibilities, which can be supported at the manufacturing level through new materials, transistor enhancements and advances in packaging.

At GlobalFoundries, we have been altering our course to adapt to the realities of this new era. I have laid out the rationale for our recent strategy change in multiple forums, so I will not rehash it here. I encourage you to watch this video interview with Dan Hutcheson of VLSI Research for additional context. While there has been a great deal of attention on our decision to refocus investment away from the leading edge, this “pivot” was just one piece of a larger transformation that is underway at the company.

As we continue this transformation in 2019 and beyond, we will make significant investments in R&D to enhance our existing technology platforms with an array of differentiated features. By adding a feature such as high-voltage operation to a more mature node, it transforms from a commodity-like process to a true value-added technology for clients. This is nothing new—our fabs in Singapore have been operating this way for years, and they have great margins to show for it. We are going to replicate this model across our portfolio, including our most advanced technologies. Our development teams have already shown that, through a combination of architectural, memory and packaging innovations on our 12nm platform, they can deliver almost double the improvement in power consumption compared to traditional node migration.

But these differentiated features will not be developed in isolation. They can only deliver real value if they are designed in partnership with innovative clients who are positioned to take advantage of high-growth markets. We are forming deep partnerships with a new breed of clients, engaging at multiple levels from silicon to systems. Synaptics is a great example. They have adopted our 22FDX technology as the sole platform for their next-generation voice and multimedia processing products for the IoT market. You can hear more from Synaptics CEO Rick Bergmann in this video of his keynote at our GTC 2018 conference earlier this year.

To be truly relevant, we need more than differentiated offerings. We have placed a new emphasis on financial performance and we will continue to accelerate this focus in 2019 and beyond. Our decision to shift investment away from the leading edge has freed up a tremendous amount of resources, and we will look for additional ways to improve our cost structure. Expect to see more changes to our technology portfolio as we double down on the most differentiated offerings, and anticipate refinements to our fab footprint as we look to optimize our capacity profile.

GF will celebrate its 10th anniversary in March of 2019. Much has changed in our business and the broader industry over the past decade, but one thing remains the same: semiconductors are critical components of the global technology revolution. In 2018, the semiconductor sector is estimated by some analysts to surpass $500 billion. While impressive, this number significantly underestimates our industry’s contribution to the $2 trillion electronics ecosystem. As we grapple with a rapidly changing market and fundamental shifts in enabling technologies, we must collectively commit to capturing more of the value we create to keep driving innovation into the future.