Where Is The Real Value?

After 2001, all we heard about was disintermediation. Now the signs seem to be pointing to consolidation or re-consolidation.

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If customers aren’t willing to pay for EDA or ESL tools, then something is clearly missing from the equation. It’s not that there isn’t value in the tools. Clearly, you can’t get the job of creating a system on chip done without them. But the real value has shifted.

 

These shifts have occurred at various points throughout the history of semiconductors. The big question is whether they’re going to happen more frequently now that the industry is global, chip development is more complicated and market windows are shrinking.

 

Smaller shifts tend to play into the hands of smaller companies. They can create tools more quickly to deal with new challenges in development, but they don’t have the mass to guarantee continuity. Bigger and more frequent shifts leave customers running for cover of safety, which in the chip industry is roughly the equivalent of investors buying U.S. Savings Bonds even though the interest is low.

 

It’s impossible to tell when you’re in the middle of a shift which way the wind is blowing, but the longer the recession lasts and the harder it is to get to 22nm production, the more likely that the big guys will begin buying more pieces to cement their place in history. While all we heard about in the year 2001 was disintermediation—basically splitting apart big companies into their viable components—the current downturn may push things entirely the other way.

 

What do you think? Are we headed for consolidation? And if so, what does the new consolidated company look like?