[Paleopsych] EE Times: That sucking sound? It's your cell
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Fri Jul 30 14:55:44 UTC 2004
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
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.
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
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
Selburn cautioned that battery life would be an issue with all of
these possibilities. But he also pointed out that the numbers involved
"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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