[Paleopsych] EE Times: That sucking sound? It's your cell

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That sucking sound? It's your cell

    By Ron Wilson , EE Times
    July 23, 2004 (1:12 PM EDT)

    From maelstroms to black holes, whirlpools make compelling images. A
    powerful force draws all around it into a singularity. The swirling
    disk of motion masks the nature of its peril until it is too late,
    paradoxically increasing in force as it pulls in more victims.

    Now the semiconductor industry confronts a catastrophic vortex of its
    own: the cell phone handset.

    The force at the center of the handset business, the maw poised to
    suck in a good portion of the industry, is convergence -- the very
    phenomenon that has enabled incredible advances in system-on-chip
    integration, abetted by consumers' taste for all-in-one gadgets.

    The handset is rapidly consuming every other aspect of mobile consumer
    electronics: PDAs, cameras, GPS receivers, MP3 players, DVD players
    and game consoles. In the process, the SoC companies and
    intellectual-property (IP) providers that had planned to make a living
    in each of those areas will be drawn in -- for the most part, to their

    "This trend absolutely appears to be happening," said Ludo Deferm,
    vice president of business development at the Interuniversity
    Microelectronics Center, or IMEC (Leuven, Belgium). "Already, in
    Europe, you can see that all the kids have to have cameras on their
    cell phones. And chip architects are planning for the addition of
    other functions as rapidly as possible."

    Batman, without the belt
    Convergence is being driven by a simple consumer want: "Don't make me
    carry a bagful of toys when one will do." Two electronic gizmos in a
    package are better than one, as long as the form factor doesn't get
    out of control or the user interface become inscrutable. This is
    what's happening with second- or third-generation PDA/cell phone
    combinations, which are rapidly spreading through the ranks of
    professional users.

    Now the same force is drawing in less likely devices, the digital
    camera being the obvious example. Cameras have become a nearly
    ubiquitous handset feature in Japan and Europe; they're even catching
    on in North America. What started out as a novelty has turned into a
    serious competitor to standalone digital still cameras, with
    standalone-quality resolution and operating features coming by the
    Christmas shopping season.

    A similar pattern will occur in other areas. The driving force behind
    demand is not the added functionality of having the digital device
    connected to the cellular network, but the lures of novelty and
    convenience. It's about having your iPod, your Nikon, your Gameboy,
    your Palm and your movie previews all clipped to your belt, without
    your looking like Batman.

    Similar architectures
    If convergence is driven by consumer convenience, it is enabled by the
    similarity in architectures of the devices that are converging. In
    every case, the standalone device drawn into the black hole of
    convergence is, at heart, a system-on-chip with a control CPU, often a
    specialized DSP core, keyboard input and both graphic and audio

    The complexity of the various blocks changes from application to
    application -- for example, a game console has a complex
    graphics-rendering engine, a camera a complex image-compression
    processor. But the architectures are similar.

    This similarity, on the surface, should be great news for the
    advocates of reconfigurable-computing SoCs and programmable processor
    arrays. But it is not.

    In fact, the suppliers of reconfigurable arrays have watched in dismay
    as the similarities they could exploit have done nothing to slow the
    development of fixed-function, application-specific SoCs for each of
    the aforementioned applications. A considerable investment has been
    channeled into those developments, both by the venture community and
    by established IC vendors. The situation is similar to the network
    processor glut of 2000 or the 802.11 glut of last year. This time,
    however, the limiting factor for supplier opportunity is not a
    saturated market, but a maelstrom.

    One salient characteristic of the black hole -- until Stephen Hawking
    recently revised his views on the matter -- is that nothing comes out
    again, not even radiation. The notion holds up better when applied to
    the handset-chip business: Nothing has ever come out, not even
    profits. There are exceptions, but for most IC vendors, the handset
    business is a perfect black hole.

    The exceptions involve either a legally imposed monopoly or a genuine
    shortage of capacity that holds up prices. The former applies to ARM
    Ltd., with its iron grip on the ARM instruction-set architecture, and
    Qualcomm Corp., with its similarly fierce hold on the principles of
    CDMA. Those vendors have orbited the handset hole like giant
    satellites, drawing increasing kinetic energy from the accretion disk
    without actually being drawn in.

    The third notable exception is flash memory. As more features go into
    a handset, it requires disproportionately more flash. And global
    capacity for the types of flash chips used to store programs hasn't
    kept up with the combined increase in unit demand. So there has been
    some good money made in the flash business.

    Yet it is too early to tell whether the flash vendors will remain free
    of the black hole or be gradually pulled in, as DRAM makers were drawn
    into the PC market years ago.

    The vast majority of SoC vendors that target mobile consumer
    electronics -- and the library vendors, low-power design tool vendors
    and foundry operators that support them -- will find that they have no
    such ambiguous position. They will be drawn by the irresistibly
    attractive reality of the cellular industry: Handsets are free.

    This is the way it works. Every new handset generation comes with a
    compelling new set of features. Each is subsidized by service
    providers to get it on the market. But each feature set quickly
    triggers a market share war among service providers, causing them to
    offer the handset for bubble-pack pricing or to simply bundle it with
    a service contract and give it away. The only money for the service
    provider is in services -- not in hardware.

    The death spiral
    This exerts incredible pricing pressure on handset makers, both to
    innovate and to ruthlessly eliminate their own margins.

    Handset OEMs, in turn, negotiate the obliteration of profit margins
    from any of their suppliers that face competition -- and among SoC
    vendors and IP providers, that would be everyone. So the companies
    that developed the IP come up with nothing.

    "Perhaps the only people who stand to make money at the end of the day
    may be the service providers," IMEC's Deferm said.

    At the same time, the very cellular handsets that are bringing them
    nothing are destroying the SoC vendors' original markets. Free
    handsets with 2- to 3-megapixel cameras, good MP3 players, decent
    organizers and good videogames will decimate each of those standalone
    markets. The only survivors among mobile consumer devices will be
    high-end niches temporarily beyond the reach of the handset's
    electronics -- professional digital cameras, for example.

    The erosion of standalone digital devices will not be complete or
    instantaneous, said Jordan Selburn, principal analyst at iSuppli Corp.
    "If you ask whether it is in the numbers today, the answer is clearly
    no," Selburn said. "Take digital cameras as an example: The cameras in
    today's handsets resolve a few hundred kpixels -- that's not going to
    make anyone throw away their digital camera.

    "But we are seeing introductions this year of multimegapixel cameras.
    That may well make someone think twice about buying a low-end digital
    camera separately."

    Selburn sees a similar case for MP3 players. "The disk-based players
    like the iPod are not initially vulnerable," he said. "But the
    flash-based players would certainly be in question if there was a
    significant MP3 capability in the cell phone. And if you add
    network-based storage, so that users could download tunes or listen to
    them in real-time, that raises questions about the disk-based systems
    as well."

    Selburn cautioned that battery life would be an issue with all of
    these possibilities. But he also pointed out that the numbers involved
    are huge.

    "You have to think of the cell phone market on the scale of the human
    population of Earth," he said. "Maybe one-tenth of the people in the
    world could get a new handset this year." That puts annual volumes in
    the hundreds of millions of units.

    Tracing that back to the meaning for the semiconductor industry, if 10
    percent of those handset sales in 2005 displaced one mobile consumer
    device, each, that would be perhaps 50 million units of low-end
    cameras, flash MP3 players and midrange PDAs that wouldn't get sold.
    Estimating the silicon content of any one of those devices at between
    $15 and $25, that would suggest a loss to the semiconductor industry
    of around $1 billion per year in expected revenue.

    Just like a star drawn into the accretion disk of a black hole, the
    SoC provider that had in its sights a rapidly growing consumer device
    market has instead found itself torn from its intended market, rapidly
    stripped of its semiconductor product line, reduced to IP vendor
    status and then driven quickly to zero or negative margins.

    There's no escape, and there's no return. And unlike the myriad
    consumer devices that are being drawn into the black hole, there's no
    button to push when you don't like the picture and want to start over.

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