Michael Marks of Flextronics has some provocative views on the future of the semiconductor industry. While manufacturing has already largely moved offshore, he is arguing design is set to follow — with much higher cost savings:
Q: What will be the impact of the trend toward outsourced design in the electronics industry?
A: Design no longer is a competitive advantage. Design is a commodity. Yet design in big companies is just as inefficient as manufacturing and supply-chain management used to be. So brand companies might as well buy the designs for their products off the shelf.
A big electronics company may have 10,000 designers, but maybe only 50 are doing real architecture for new products. Some of them will go down to 300 engineers. It’s going to get ugly. The electronics manufacturing services [EMS] and the Taiwanese ODMs [original design manufacturers, meaning they design as well as assemble what they produce on a contract basis] will completely restructure design in the electronics world just as we did in manufacturing. We’ll have huge design centers in China, India, and Ukraine.
You can save 15% to 20% by moving manufacturing to a low-cost country. But with design, the drop can be much more dramatic.
Q: Can you offer an example of what is happening with specific products?
A: Take a cell-phone project. Inside a typical OEM, it costs $10 million to develop a low-end phone. We could do it for them for $3 million. It may cost them $30 million to $50 million for a high-end phone. It costs us $10 million.
My contention is that 10 years from now, a Motorola will keep key people, and the rest of the work will be done in a factory.
The driver for all this change? Relentless commoditization of electronics, most of which is increasingly becoming embedded in discrete components. As Marks points out, everything from routers to cellular basestations is either already in a chip or well on its way to being there. Once you’ve commoditized such core functionality, it only makes sense to embed design in manufacturing and move the lot offshore.