Specialization, customer focus required to keep Canadian semiconductor sector healthy

The Canadian semiconductor industry needs to think past computational performance and move towards addressing consumer needs while aggressively pursuing niche, high-margin applications. These and other insights into the state of Canada's semiconductor sector highlighted discussions at the 12th Annual ITAC Executive Forum on Microelectronics, held November 30th in Toronto.

The primacy of the customer, whether setting government policy or company-level R&D programs, was a dominant theme of several presentations from company executives. The parameters of the debate were established in a keynote address by Dirk Meyer, president of AMD (Advanced Micro Devices), Sunnyvale CA and purchaser of ATI Technologies Inc, Markham ON, for U$5.4 billion (R$, July 28/06).

Meyer noted that, other than Intel Corp and Dell Inc, profit margins of the major industry players are barely breakeven, indicating "a sick industry".

"The single minded focus that we've had as a microprocessor industry is on more performance (but) R&D expenses have been growing faster than revenues," said Meyer. "That is not going to continue. It's getting harder and harder to put more transistors on a chip … it's time to re-orient around the customer (and) start innovating around some other axioms other than performance."

Meyers said the industry needs to move beyond driving performance only through the CPU and move to special purpose processing hardware, like graphics processing and network controllers.

In response, AMD has opened up its platform, encouraging other companies to innovate on its platform. It is also exploring new opportunities to develop special-purpose hardware, an approach also being pursued by IBM Corp.

ATI ACQUISITION EXPANDS INNOVATION POTENTIAL

The acquisition of ATI gives AMD a powerful new lever for pursing customer-driven approaches to innovation. The graphic chips maker is heavily oriented towards the graphics, gaming and entertainment industries — two areas where customers are driving leading-edge technology development.

"Our approach is to increase the number of platforms, sell silicon into the platforms and keep margins high," said Meyer.

In addition to providing new opportunities for growth, the ATI acquisition enhances AMD's ability to innovate in dimensions that wouldn't be possible through arm's length partnerships, as well as offering OEM customers the choice of a processor company that has a huge portfolio of capabilities.

AMD now has 2,500 employees in Toronto and a core management team that remained constant through the transition in ownership. "We want to grow the employee base ... We like Toronto and its potential," said Meyer. "We bought people and we need to keep them pumped and motivated. Joe Orton (former ATI president and CEO, now AMD executive VP) and I are focused on this and operationalizing the vision."

Even on the fab side of the Canadian semiconductor business, specialization and customer feedback are essential to driving growth.

Ray Leduc, director, Bromont Manufacturing for IBM, operates one of Canada's few remaining chip fabrication facilities. It recently won a global mandate to handle all of IBM's high-end assembly and testing requirements and is heavily involved in manufacturing chips for the games industry.

"There are no more pure plays. Everyone has a fabless strategy," he said. "You need to be flexible to weather the cycles in silicon. The cycles are getting shorter, which means you suffer less but more often."

Dr Douglas Barber also reinforced the need to listen to customer needs as part of a country or company's innovation strategy. Drawing on research he has conducted into business innovation trends, Barber said the current focus on commercialization is "the wrong model" which will lead to further declines in productivity and decent into the "Valley of Death" between technology development and commercialization.

"We have not been able to succeed in the knowledge-based economy like other nations have been able to do," he said. "We need the customer feedback loop into technology development and R&D. It's all about people and focusing on customer needs."

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