Just because it’s a natural progression doesn’t mean it will progress smoothly.
Consolidation has begun again in the electronics industry, but so far the majority of it is happening at the customer level.
While this is a sign that the economy has bottomed out and credit is beginning to flow—as unevenly as it always does when a downturn bottoms out—it’s creating a rather disturbing trend. Fewer customers mean fewer designs, even though the complexity of the designs is significantly higher.
Broadcom’s bid for Emulex is a case in point. Oracle’s bid for Sun is another. And that’s just the opening salvos for companies with cash in the bank. With stock prices low, they’re going to snap up acquisitions the way real estate speculators have been snapping up foreclosed property.
Customers are always in the position of strength when it comes to negotiating for designs, and that position is even stronger when there are fewer of them. Witness the pressure put on capital equipment makers by the shrinking number of companies with fabs. Even if they sell the same amount of equipment, the margins of equipment makers has been sliding.
The problem at the SoC level is that the complexity is so great that just to recoup system-engineering costs in the design will require enormous volume, as well as some new approaches that rely on modeling, statistical timing and, to a large extent, probability. And while that will open the door for new tools for these models, the overall effect will be to shut the door on many startups because the cost of entry is too high.
In the short term, this is probably not unexpected. But if new markets don’t open up at the same rate as consolidation on the customer and tools level, the entire supply chain will be thrown into imbalance. Gaps may be fun for a few companies when demand exceeds supply, but they tend to create havoc in the market, fueling wider swings both up and down and, at least in the past, inventory imbalances.
Consolidation may be a way of thinning out the competition, but that doesn’t mean it has to progress smoothly.
What do you think?
–Ed Sperling
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