Open source hardware and greater in-field programmability within standard chip designs could be vital to reinvigorating semiconductor revenue growth, argues a new report from the Global Semiconductor Alliance (GSA).
Charting a New Course for Semiconductors considers how companies should adapt their business models to trends such as accelerating design costs, consolidation and slow CAGR (4.4% for 2004-14 against 6.0% in global GDP).
It also addresses the inherent paradox within the Internet of Things, quoting the views of TECHnalysis Research's Bob O'Donnell: "'Right now, it's way overhyped, and I think we are going to see it come crashing to earth,' he says. O'Donnell also contends that what some people see as a huge, multi-billion dollar IoT market opportunity will more likely develop into a multitude of smaller niche-oriented markets."
GSA talks 'Features-as-a-Service'
The report suggests that one way the industry could unlock greater revenues is more in-field programmability, and by the inclusion of features within the core design that can be turned on or off for a fee. It quotes Anil Telikepalli, executive director and general manager for Maxim Integrated Products, on this 'Features as a Service' (FaaS) model.
"[Telikepalli] predicts the chip industry will eventurally turn to software industry pricing models, such as annual service fees, tiered monthly subscription fees entitling buyers to pre-determined quantities of chips, and micro-payment arrangements in which customers pay a small fee to unlock new on-demand features. 'While seemingly uncommon today,' he says, 'these models can provide value to customers while also bringing [a] consistent revenue stream to [chip] manufacturers.'"
The GSA report sees such a model addressing the pressure the IoT is applying for the $1 sensor. Such price targets make it hard to see the IoT producing healthy margins. If the market does fragment - as seems likely - it could be impossible to make any profit at all with designs aimed at each specific niche. It would then better to settle on a core functionality set for design and silicon manufacturing with a programmable area on the silicon that allowed it to be fine-tuned for its ultimate use.
The semiconductor industry does need to find a better way of extracting more value for itself as markets develop. The report notes McKinsey's gloomy observation that where it observed a 16% growth in microprocessor sales in the period to 2012, it saw the chip industry capture just 1.5% of the resulting value created. "The rest went to others in the value chain and consumers, mostly in the form of price declines."
Open-source hardware matures
The shift to fabless operation lowered the financial barrier to entering the semiconductor market for many design companies, by outsourcing not just foundry manufacturing but also assembly, test and more. The growth in sales of off-the-shelf IP has helped since, allowing companies to concentrate on differentiation in their own designs as they buy in standard features and functionality. But we still need more, the GSA argues.
Help could come by following what has happened in open-source software, particularly thanks to operating systems such as Linux and Android.
One trend is already helping, the move toward cheap, open-OS-based hardware platforms such as Arduino, Raspberry Pi, MinnowBoard and TinkerForge. These allow smaller, innovative teams to develop applications on models with an initial cost as low as $5.
"These devices give users a low-cost way to design simple computers, robots, thermostats and other devices - including IoT systems - by adding software, sensors, actuators and various peripheral devices," the report notes.
But it goes on to note that open-source instruction set architectures (ISAs) could further enable innovation on a budget. "Commercial chip vendors typically pay hefty, multi-million dollar license fees to use proprietary ISAs," the report notes. "However, such prices are often too high for academia and many small companies, critics say, leading to stifled competition and innovation, as well as more expensive chips."
The GSA cites the example of RISC-V, developed at the University of California - Berkeley, "which allows ultra-efficient processor designs up to 128-bit memory addressing". RISC-V is shipped under the Berkeley Software Distribution open-source license for all types of use.
The reports adds that RISC-V does not limit itself to the 'maker' community, as do arguably Arduino and its counterparts: "RISC-V was designed to scale for everything from mobile phones and low-power embedded systems to high-performance computer servers."
Quite what leading ISA owners make of that would make for interesting reading, but RISC-V is now attracting powerful backers, including the Indian government and companies such as Google, Hewlett Packard Enterprise, Lattice Semiconductor, Microsemi and Oracle. Those Valley players joined a RISC-V trade group at the end of last year.
"The success of open-source software... has set an important precedent for the semiconductor industry. Faced with prohibitively expensive development costs, companies may opt to avoid unnecessary toll collectors while placing more of an emphasis on open-source architecture as they create new service-centric revenue streams," the report says.
The GSA has put together a solid and very useful primer on techniques that could be used to control NREs and restore margins. It often captures the direction a number of major players are already taking.
Intel's acquisition of Altera has clearly raised the prospect of designs that integrate CPU and FPGA capabilities. STMicroelectronics, as a leading player in the sensor and MCU space, has also discussed the use of more programmable real estate within designs generally but specifically for the IoT given its broad cost demands.
Meanwhile, it is hard not to hear an echo of the late and much-missed Gary Smith's mantra, "It's the software, stupid", in what the GSA offers as one important strand of a new business model. And, it has another significant player in Maxim specifically quoted as seeing how it could play out in the near-future.
The report is available for open download, although it does require registration at the GSA's website (though not membership of the organization).