III. Writing exercises:

Exercise 1. Complete the sentences with the suggested words:

though; has; very; for; recent; curve; massively.

With the flattening of the industry revenue______ since 1995 (______ it peaked ______ in the year 2000), the industry ______ had to face the ______ real spectre of saturated demand______ the computers and cell phones that have been its most ______ drivers.

Exercise 2. Fill in the table with words and expressions from the text:

	parts	systems	processes
Example: technology leaders are looking for			“boosters” that wring incremental performance out of current technologies.
researchers are also exploring
some companies are resorting
they ball into two categories

Exercise 3. Compose a story on one of the topics (up to 100 words):

“Semiconductor Industry”

“Solid-State Circuits Conference”

“Semiconductor Manufacturers”

Lesson 5

Read the text: The Wireless Communication Market

Nothing demonstrates that better than the PC. Virtually all of the intellectual property of a PC resides in the chips inside. PC makers-led by Dell, which made a virtue of a necessity-have been forced to abdicate the creation of value around product functionality in favor of creating value around assembly, distribution and marketing.

What happened in PCs is about to happen in cell phones. A host of semiconductor manufacturers is readying standard chip sets, even single-chip phones, that could be assembled as phones with value creation beyond that relegated to assembly, distribution and marketing. If control over the architecture and domain knowledge in cell phones shifts to the semiconductor manufacturers, then handset makers like Nokia may be doomed. As articulated by Cypress founder and CEO T.J. Rodgers, this may a fundamental law: "If I can make it, you're hurting, because I have control over the silicon."

That, in itself, may not appear to be bad for the semiconductor industry. The problem has to do with the peculiarities of the consumer market. Today and in the near future, the industry is looking to the personal consumer electronics market as the high-volume engine. That means that, as it absorbs more and more of the value in consumer electronics products, the industry is getting closer to the individual consumer. And consumer markets are notoriously low-margin markets.

"The consumer market is not the place to expect high margins, " says Ulrich Shumacher, CEO of Infineon. "When growth rates were 30 or 40 percent per year, everybody was a winner. Now, the wireless communication market is in the process of being commoditized."

But that's nothing new to LSI's Corrigan. "The consumer was always the ultimate driver," he says. "Today the boundary between the consumer and the chip is getting transparent."

The problem is that the semiconductor industry does not have a stellar track record in serving the consumer directly. In previous generations, the industry migrated up the value chain by manufacturing watches, videogames and calculators, only to realize that it should not have been in those businesses.

While LSI Logic does not make a fully packaged DVD player, it does create almost all of the functional value. But given the highly efficient distribution mechanisms in place for consumer electronics, the time-to-commoditization for a new product has shortened dramatically. For an $80 DVD player, which is generally reckoned as a price point for an impulse buy, the margins on the chips inside are severe.

The consumer's heart

Though it's clear that the semiconductor industry is getting closer to the individual consumer, it's not all clear that it really understands the dynamics of taste and style that create perceived value in the consumer business. "We [the semiconductor industry] don't understand the mass market yet," ST's Dauvin says flatly. "We have to shift from selling applications to selling usage. For example, personalized casual electronics may need a different approach than optimizing the price/performance ratio." The exception may be Japan, whose semiconductor makers, beleaguered of late, are hoping that their expertise in consumer electronics will enable them to regain their prominence.

The only solution, from the semiconductor industry's point of view, is to make manufacturing more efficient. But that requires high-volume-standard, not custom-products. One way the industry intends to do that is to move from "pure components to platforms," says STMicroelectronics chairman Pasquale Pistorio. The platforms-say, for handsets-would be high-volume standard semiconductors that could be customized through software. Platforms would be available through a number of sources. Semiconductor makers would accrue manufacturing economies, and handset manufacturers would differentiate through software-supplied not by Microsoft, but by the semiconductor maker.