Electronic Design

Is There Such A Thing As Too Much Competition?

Whether you go into a hardware store, a clothing store, or a consumer electronics store, any single store will offer a variety of similar products. The wide range of choices lets consumers make purchase decisions based on a range of factors, including cost, perceived durability, appearance, and features. In the OEM electronics industry, the same scenario often exists when designers can select from basically the same components or systems provided by several to dozens of vendors.

But how many suppliers of similar products are enough to offer a broad and adequate selection of features or enough competition before prices drop so much that some vendors are driven from the business? We have seen this scenario repeat itself again and again, especially in the capital-intensive automotive and semiconductor industries.

In the automotive industry, during the first half of the 20th century, nearly three dozen U.S.-based automobile manufacturers battled for a share of the market. Today, basically three megamanufacturers exist in the U.S. (and perhaps about eight worldwide), along with a few moderate-size suppliers of trucks and other vehicles.

The electronics industry provides similar examples. For instance, in the 1980s, great DRAM wars took place between almost two dozen, mostly U.S. and Japanese, semiconductor vendors. In this era, memory standards allowed DRAMs to be drop-in replacements for each other. That made the memory battle even fiercer because most vendors could only differentiate the product via price.

A few vendors created superset features, some of which became mainstream features and spearheaded the creation of the next-generation DRAM. Although demand kept increasing and more companies from Korea and Taiwan entered the fray, low margins (and sometimes negative margins), caused by the tough competition, forced many makers to either consolidate with other companies, or withdraw or license their technology. That has now left just one U.S. company, one European supplier, and a handful of Asian manufacturers.

Other product areas, such as commodity SRAMs and gate arrays, have also seen similar vendor attrition as margins shrank because too many vendors were creating an oversupply. More recently, competition among the dozen or so programmable logic suppliers has whittled down the number of manufacturers by almost 50% as the larger companies purchased the PLD divisions from those looking to exit the business.

Consolidation takes place when too many vendors are fighting to obtain a share of a limited market. We're starting to see this specter appear again in emerging product areas like switch fabrics and network processors. Perhaps these arenas will be the next battlegrounds. Already each has attracted several dozen companies, and not all will garner enough market share to survive.

Do we fare better or worse from such cutthroat competition? Time will tell if it helps or hurts the industry.

TAGS: Automotive
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