Visions Of The Future (Part 2): Look East, Electronics Industry, Look East

Sept. 16, 2008
Just when you think the party’s over for the electronics industry, along comes another prediction for a rosy growth-filled future. This one, however, came fueled by a compelling blizzard of statistics showing that the industry must look to the emerging, a

Just when you think the party’s over for the electronics industry, along comes another prediction for a rosy growth-filled future. This one, however, came fueled by a compelling blizzard of statistics showing that the industry must look to the emerging, and technology-hungry, societies of the Pacific Rim and Asia. So went a keynote address from Walden C. “Wally” Rhines, CEO of Mentor Graphics Corp., at last week’s EDA Tech Forum in Santa Clara.

Rhines’ talk began with musings about whether the electronics industry has matured and settled into a slow-growth mode. Has saturation indeed been reached? After all, the Consumer Electronics Assocation says 81% of U.S. households already have cell phones.

Citing the theories of early 20th century Russian economist Nikolai Kondratiev, who postulated that economies have long-term cycles of 50 to 60 years of booms followed by depressions (so-called “Kondratiev waves”), Rhines wondered if the electronics industry was entering a Kondratiev “winter,” a phase in which growth slows or even contracts.

Indeed, the trend in recent years for the industry has been stagnation. “We’re not in a downward cycle at present but we’re not an up cycle either,” said Rhines. Meanwhile, he said, the cost of design is growing exponentially, due largely to the growing cost of software development.

However, the steady decline in COT design starts has slowed, said Rhines, and has actually flattened. This would indicate a new emphasis on design. The reasons for this, Rhines said, are two-fold, and the result could be a reversal in the Kondratiev wave and the herald of a long cycle of growth.

The first driver behind the growth in design emphasis, said Rhines, is the rapid growth of Asian consumer markets. According to the Semiconductor Industry Association’s Q1 report, despite the slowdown in the U.S. economy, markets outside the U.S. show robust growth in demand for electronic products. Asia Pacific is now the largest market for PCs. Further, unit shipment of handsets in Asia will be over half a billion this year, more than three-times the U.S.

Why is this, Rhines asked? Simply put, China, India, Japan, Russia, Singapore, and Eastern Europe are becoming wealthier, better-educated societies with a lot more discretionary income than in the past. Defining “middle class” as earning between $15,000 and $55,000 per year, Rhines cited statistics showing that by 2020, the middle class will have risen from 20% to over 50% of the world’s population. The middle class in India will be ten times as large as it is today. “This means an enormous emergence of middle-class population capable of spending discretionary income,” said Rhines.

Ten years ago, said Rhines, India, was “almost a non-factor in electronics.” But the growth of consumption there has been phenomenal. By 2015 India could be consuming $300 billion worth of electronics, which is “about the size of the semiconductor industry today,” said Rhines. Meanwhile, over the next five years, there will be as many new cellphone subscribers in both India and China as there are total users in the U.S. today. So what will all of the above mean to the electronics industry, and, in particular, the design community? For one thing, Rhines quoted Genevieve Bell, an Intel anthropologist, who stresses that the U.S. must develop a non-U.S.-centric approach. According to Bell, “The rest of the world isn’t waiting to grow up and become just like us.” Thus, understanding local needs and cultures is becoming increasingly important to the industry.

Rhines’ second reason for a renewed emphasis on design is the ongoing consolidation in semiconductor manufacturing. “Semiconductor makers aren’t cutting R&D spending. They are differentiating in different ways,” said Rhines. “They’re doing it more with marketing and support and it’s changed the world we live in as consumers of semiconductor-based products.”

Rhines debunked claims by some observers of the electronic industry’s maturation and an increasing unwillingness to adopt new process technology. Citing statistics that show that the adoption rate of 65-nm processes over time has been just as rapid as was the adoption of the 90-nm node, Rhines asserted that designers are in fact not shying away from new technology.

Rather, said Rhines, today’s designers are working much more efficiently because of connectivity. “We’re able to take advantage of the new communications technologies to take on more complexity and difficulty while doing just as many designs as before,” he said.

Citing Metcalfe’s Law, which states that the value of a network is equal to the square of the number of users of the system, Rhines postulated “Wally’s Corollary” to Metcalfe’s Law: The magnitude of innovation is proportional to the square of the number of innovators. “We’ve dramatically grown the base of innovators because of all the new designers in the East and because we’re all interconnected,” said Rhines.

Thus, in Rhines’ view, the electronics industry has not reached maturity. Lots of opportunities for years of rapid growth remain in the emerging markets of the East.

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