Moving Up The Food Chain

Companies find greater value in integrated systems and intellectual property than individual components.

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By Ed Sperling

It used to be considered axiomatic that chip companies would be rewarded for spectacular technology, reflected in the market value of their components and in their stock price. But with stock prices routinely getting hammered even before the downturn, many companies have begun to re-think their mission.

National Semiconductor, for one, is looking at creating modules rather than just chips in the future. Brian Halla, National’s chairman and CEO, said the perceived value is in the systems business, not semiconductors.

“When it comes to energy, 95 percent of the solution is from semiconductors,” Halla said. “It doesn’t make that much sense to sell chips. More and more it’s about module technology.”

This is a big shift for a company that made its reputation in having incredible numbers of components. And while the trend is not new, it is significant.

Stephan Ohr, an analyst at Gartner, said Texas Instruments got into this business years ago in power management when it bought a module maker in Chicago. “A lot of times, entrance into the business is through modules,” he said. “Then the question is how all the pieces get integrated.”

Ohr said the modular approach has become particularly attractive in such areas as voltage regulators. The best regulators are integrated modules that also can be more efficient, but the approach is also more expensive. That’s good for the companies selling the products, however, considering that average selling prices of some components in the future likely will not be high enough not enough to support the design and development of those components in places like North America, Europe and Japan.

That integration is becoming critical in all aspects of system-level design. A slimming down of design teams and companies, in general, coupled with tight market windows and growing complexity, mean that companies want far more integration than in the past—of everything from hardware to firmware, operating systems and applications. The latest semiconductor industry road map survey identifies this trend very clearly.

Successful IP vendors have been building off of this premise for years, because of the difficulty of getting individual blocks of intellectual property created by different companies to work well together. The problem is defining those blocks consistently enough so they can work in a plug-and-play fashion. Buying pre-integrated pieces is much more of a sure thing, which is reflected in the continued growth of the larger IP companies such as ARM, Virage Logic, Synopsys’ standard IP business and Denali’s verification IP, and the inability of smaller IP companies to make significant inroads.

While standards such as IP-XACT are supposed to ease the integration, the standard remains a leap of faith for companies that are extremely cautious about making wrong moves that could cost valuable time and potentially market windows for their products.