Posted on 09/28/2003 10:34:52 AM PDT by nwrep
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SAN JOSE, Calif. — A panel session at the Custom Integrated Circuits Conference here Tuesday (Sept. 23) debated the implications for U.S. design engineers of IC design outsourcing.
Panelists offered free-market platitudes, candid warnings, reassuring economic generalizations and some incisive observations that may help individual designers find a foothold on what promises to be a slippery slope for the profession in the coming years.
Rakesh Kumar, president of operations-outsourcing venture TCX Inc. (Poway, Calif.) said the U.S. has a long history of outsourcing its key industries, including the steel and automotive businesses. He noted that the electronics industry has followed suit, outsourcing the vast majority of packaging, assembly and test.
"Every industry has done this," Kumar said. "The only difference is at what point the outsourcing curve turns over — at 20 percent, 50 percent or 100 percent of the U.S. capacity." The question is not whether the U.S. will outsource chip design, but whether it will retain some design capability or send out everything, Kumar said.
Kumar posed three questions for the panel: Is chip design outsourcing inevitable? What role will it leave for the US? and What can an individual engineer do about it?
Ann Lee Saxenian, professor of political science at the University of California Berkeley and an author on the subject of economic globalization, documented a substantial flight of the electronics industry from the U.S. She said the U.S. share of the global semiconductor market would drop to 30 percent by 2010, while the Asia-Pacific share would rise to 35 percent and Japan's declined to 20 percent.
In contrast to the overall figures, she noted, 40 percent of all fabless semiconductor revenue flowed into Silicon Valley companies in 2002.
Saxenian described the redistribution of the industry not as outsourcing but as a new global division of labor. In this new order, a once monolithic industry is disaggregating, with individual tasks migrating to locations that can perform them most productively.
Seen in this light, she said, the U.S. would likely retain dominance in IC architectural design, in investment into the semiconductor industry and in design of chip manufacturing equipment and EDA tools.
Ed Ross, president of TSMC USA, charted the competitive landscape in the Chinese, Taiwan and U.S. semiconductor markets. Contrary to most U.S. executives, Ross said Taiwan and China have collectively become a hotbed of design activity. "There are about 350 design houses in Taiwan today, and 500 in mainland China," he said. "Many of these are small, but not all of them. And some are very sophisticated."
Right mix
China in particular had the right mix of advantages to prosper rapidly, he added. "The industry receives heavy government investment in China," Ross said, "and benefits from a very strong local market. But on the minus side, China currently suffers a critical lack of experienced managers, and their continued lack of effective legal protection for intellectual property could become a serious limitation."
On balance, Ross said, China would mature as a design community more rapidly than Taiwan "for one simple reason. They are importing a lot of managers from Taiwan who have already been through the experience." If there is a dark cloud looming over the Chinese industry, Ross said, it is that the huge fab building campaign could lead to global overcapacity by 2005 or 2006.
Werner Goertz, vice president at outsourcing megastore Wipro Technologies (Bangalore, India,) added a different perspective. On a macroeconomic scale, Goertz said design outsourcing was a nonissue. He showed data indicating that the total number of jobs projected to leave the U.S. from outsourcing by 2005 — about 3 million — would be only slightly larger than the number of jobs lost through normal operations in the U.S. in the boom year of 1997.
Further, Goertz said productivity increases from outsourcing enriched U.S.-based companies that outsourced design work. Hence, in a trickle-down view of engineering economics, the job loss benefited the U.S. engineers.
Geortz counseled engineers to effectively run for high ground, or move their careers away from basic design and into architectural design or design management — tasks least likely to be outsourced.
Behrooz Abdi, a vice president heavily involved in mixed-signal design at Motorola, said outsourcing is not just about lower salaries. He said the underlying problems were that productivity growth had outpaced demand, and that companies had lost their differentiation. This has forced faster time to market and lower development costs as a substitute for successful new products.
Abdi agreed that the best path for individual engineers and for companies was to innovate at the systems level rather than trying to differentiate themselves on the basis of chip or circuit design.
Gloomier view
Brian Fitzgerald, chief executive of the small design services house ChipWrights (Boston) was pessimistic.
"I think design outsourcing is necessary to a small company in order to compete," Fitzgerald said, "but in the long term I think it is bad for the country." Fitzgerald said he is continually approached by offshore design shops offering to work "three to five times cheaper than we can do it here.'' The more outsourcing, the more global competition is lowering engineering salaries and career opportunities in the U.S.
"One of my engineers comes to me and says he has to have a 10 percent raise. I know he's good, but I also know I could get maybe five times more work done for the same money I'm paying him now. So what am I going to do?" Fitzgerlad asked. ''The more we cut away at the incentives for people in the U.S. to take up engineering careers, the more we undermine out ability to innovate."
The panel's consensus was that IC design outsourcing is inevitable, and probably irreversible. The U.S. will be left with product specification for the domestic market, architectural design and investment from venture capital firms. All individual engineers can do in the face of a flood of outsourced design work is to flee to the relative safety of system architecture, or target highly individual analog or RF design talents.
They can also cling to the hope that the water stops rising, panlists said.
so your answer is that salaries for american engineers must fall to 1/10th their current level, because that is what the chinese earn. is that it? that's going to solve it? what american is going to send their kid for a 5 year college education to earn $15-20K per year? .
The answer is in not trading or competing with China and other evil regimes. In the long run this is suicide. It's like the Ford Motor Company building manufacturing plants in Nazi Germany.
Thanks for missing the point of my analogy. I'll make it crystal clear:
Engineers should get their butts out of their cubicles, and develop personalities, so they can adequately explain to non-techie people how to use the technology that gets developed. Yes, this means that they will be selling things rather than just tinkering around a lab bench coming up with crap that people either don't need, or can't understand.
Clear enough, now?
I disagree. Technology fields will be the economic survivors, although perhaps more in biological sciences than semiconductors and information technology. Your children should definitely learn Chinese.
Keep in mind that ten years ago we were telling everyone our kids should learn web design and Japanese. The future is exceedingly hard to predict, and the course of history can change on a dime. (9/11 was the most blatant example in the lifetime of most of us reading this today, but there are plenty of more subtle examples out there.)
Technology jobs are all that we have left other than the service industry. Once tech is gone we are finished.
Read the book, The Creature From Jeykl Island if you want your eyes to be opened.
Most speakers of Western European languages also speak English better than most high school students could ever hope to speak their languages. Therefore, having our student (yes, my children too) learn Spanish or French is a useless distraction.
This can be reversed? Does that mean we no longer have a concern for standards and we live and work in a 3rd world country? If we have standards then that is still a great expense over the wonderous technology of slave labor and sweatshops even if we have been conservative in maintaining those standards.
2) A lack of workers who have sufficient skills because of out lousy primary education system.
Considering the amount of money that goes into public education it is a terrible failure. It is by far one of the top problems in this country.
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