When it comes to designing new products, the consumer electronics (CE) and semiconductor sectors of the industry are going to have to get their acts together—literally, according to a joint study by the Consumer Electronics Association, the Global Semiconductor Alliance, and KPMG LLP, an audit, tax, and advisory firm.
According to the study, “The Consumer Electronics Boom,” CE producers are designing and developing their products much faster than IC suppliers can design the chips that drive them. The growing reliance on CE products and the need for shorter development cycles are requiring semiconductor suppliers to work more closely with CE producers to improve design processes and bring products to market more quickly.
A survey of CE and IC manufacturers by KPMG indicates that about two-thirds of IC respondents currently derive about 60% of their revenue from supplies for consumer products. In five years, this group expects about 80% of its revenue to come from consumer products—a 33% jump. About a third of IC respondents currently derive about 40% or more of their revenue from consumer products. In five years, this group expects that revenue will grow to almost 50%, about a 25% jump.
KPMG surveyed more than 350 executives in the IC and CE sectors—from C-level to engineers—whose companies produce components for game systems, phones, cameras, computers, home audio systems, portable audio and video equipment, and other CE products (see the table). Most of the respondents were from North America, with some from Asia and Europe.
Two-thirds of the CE respondents said that IC content comprises 20% or more of average product cost. More than half of the CE respondents see IC content growing in their products over the next five years, while IC respondents expect the percent of CE product revenue to increase during the same period. About 42% of the CE OEMs said that IC content represents 20% to 40% of their average product cost while almost a quarter (24%) put that figure even higher.
The study suggests that CE manufacturers and IC vendors must now contend with three additional factors.
One is a lack of integration-consistent design methodology. (Interestingly, about two-thirds of CE respondents say their design methodology varies over time or that they don’t have a stated design methodology for design starts.) IC companies have a cost-intensive design methodology. Because of the lengthening design cycle, they take a risk by anticipating what the CE OEM or consumer may want. IC vendors also tend to be more “fixed” in design options—platforms, programmability, and freezing designs early—while CE OEMs are more “flexible” and see platforms and standard silicon as solutions.
Another issue is Moore’s Law versus what the study calls the long tail. Few consumer markets exhibit the traditional learning curve effects of pricing ICs ahead of anticipating volume. Additionally, the study points out, few consumer markets generate high enough volumes to drive down costs. Consumer markets also tend to have fixed price points that dictate what the market will bear in terms of products. As a result, the return on investment for products can be elusive.
Then there are profits and the value chain. If IC vendors cannot create a design cycle that is shorter than the one driving CE OEMs, the study suggests they will be following—as opposed to driving—innovation and likely will be at the tail end of profits, which will flow to others in the value chain.
Timeliness and cost are the number one and number two issues facing both CE and IC respondents. Faced with pressure to fulfill consumer demand, especially during the holiday buying season, both IC and CE producers cited getting the product to market on time as their most critical issue, with IC suppliers (41%) ranking it slightly ahead of CE producers (35%).
“I have asked 60 to 70 semiconductor CEOs and top executives if they had a magic wand and could fix or improve one problem, what would it be? More than 80% of them said ‘time,’” said Aart De Geus, chairman and CEO of Synopsys Inc. De Geus was one of several industry leaders quoted in the study based on comments they made during a panel at the 2008 Consumer Electronics Show in January in Las Vegas.
Three Designs A Year
Today, the typical product development cycle for CE devices runs about six months shorter than the IC suppliers’ cycle to deliver the underlying circuitry for these products. According to the study, this gap is likely to widen as price competition and the pressure to be first to market to ensure profitability both increase. Design cycles could widen even further with greater feature integration and more expensive production processes.
CE and IC manufacturers both indicate they are starting three or more designs a year. They key, according to the study, is that the design cycle time for the CE manufacturers is at least six months shorter than that of IC manufacturers, making it highly likely that the CE manufacturer is limited by the number of design starts undertaken by IC manufacturers.
“Historically, the consumer market purchased lagging-edge technology,” says Rick Cassidy, president of TSMC North America. “This is no longer the case. Today, in some segments, consumers are demanding and purchasing the absolute most leading-edge technology.”
The bottom line, the study suggests, is that IC suppliers will have to develop products faster to better compete for CE business.