Semiconductor Executives See Recovery
Dean Takahashi, 04.01.04, 12:02 PM ET
A trio of outspoken chip industry CEOs said they still have faith in Silicon Valley and its ability to innovate, but they also recognize the economic realities that are forcing them to create jobs in other countries.
Speaking at the electronicaUSA/Embedded Systems Conference in San Francisco, the chief executives said the chip industry is recovering from a three-year downturn, thanks to rising demand for a wide range of consumer goods.
"This recovery has just started," said Brian Halla, CEO of National Semiconductor (nyse: NSM - news - people ) in Santa Clara. "And it's different from any other recovery we have seen in the history of technology."
Halla said consumer appetite for high-definition televisions, cell phones, cameras and a lot of other devices is driving demand for chips that connect things together.
But tech jobs are being created in other locations besides Silicon Valley as countries like China and India develop skilled chip design engineers, and that's why local engineers may not be benefiting as much from this recovery.
The answer to this problem, said T.J. Rodgers, CEO of San Jose-based Cypress Semiconductor, isn't to require U.S. companies to stop taking advantage of offshoring to low-cost countries. Rather, he said U.S. companies and Silicon Valley engineers have to keep innovating ahead of rivals, and the United States has to invest more in education so it can produce the qualified workforce companies need.
Rodgers noted that Cypress (nyse: CY - news - people ) has an excellent team of chip designers in Bangalore, India, and that India is making gains because it graduates 290,000 engineers a year, vs. only 65,000 in the United States.
At the same time, Rodgers said, "Silicon Valley is the capital of the technology world and I don't see that changing. It's getting expensive and hard to do business here, and that is pushing jobs out of the valley. If Silicon Valley is to recover, we have to move up to the next step and do what others can't do."
Rodgers noted that he once tried to fight the offshoring trend by keeping a chip test and assembly facility in the United States in the 1990s. He said that the move put Cypress Semiconductor at risk and he eventually had to lay off all the U.S. workers at the facility. Cypress now has 2,000 workers in the United States and 2,000 overseas. With test and assembly in the Philippines and two chip wafer fabrication factories in the United States, Cypress is a much more stable company, Rodgers said.
"Productivity gains are important, right and moral," Rodgers said. "CEOs have an obligation" to take advantage of productivity improvements, even if it includes hiring foreign workers.
Options abroad
John P. Daane, CEO of Altera (nasdaq: ALTR - news - people ) in San Jose, said that his company was hiring chip design engineers in Silicon Valley but also was forced to create engineering offices offshore to take advantage of overseas talent and to put engineers closer to customers. He added: "You would be a fool to relocate everything out of the valley because then your company would become a follower in technology."
The CEOs said that other countries are allowing companies to adopt stock options even as U.S. companies are scaling back on them as the drive to expense options grows.
Rodgers added that he assigns his Silicon Valley engineers the toughest tasks such as creating new kinds of chips that have never been developed before, or projects that involve the cross-departmental work of manufacturing experts, chip designers, design tool software experts and others. Among the hot areas -- that Silicon Valley engineers are exploring -- that Cypress sees are solar cells, magnetic memory, and programmable microcontrollers.
Rodgers and the other CEOs said they see no slowdown in technological progress despite concerns that the industry will hit "brick walls" in some fundamental chipmaking technologies. They see Moore's Law, the tenet that chip performance doubles every 18 months, lasting well into the future.
"I see no barriers for 10 years," Rodgers said.
Local expertise
Halla said that National, which has 2,000 local workers out of 9,500 worldwide, has analog design experts in Santa Clara who have such depth of experience that can't be matched by engineers elsewhere. He also said that local engineers are best able to take advantage of new uses for chips such as wireless sensor networks, which are under research at Stanford University.
Daane said that his team of software-based microprocessor experts in Santa Cruz can do better work than teams in any other part of the world.
Attendees at the conference, which drew 15,000 visitors, had mixed reactions to the CEO comments. Eric Berseth, a designer of test equipment in San Bruno, said that he thinks offshoring is a legitimate business decision, but he doesn't favor bringing workers into the United States when there is a high unemployment rate among U.S. engineers.
Doug Hester, president of chip consultancy Chip World in Milpitas, said: "One of the problems is they talk about how few engineers graduate, but it's not an attractive option based on where you wind up. Look at the financial industry where there is more payoff. They haven't made the industry attractive enough. And if you see the offshoring happening, you wouldn't want to go into engineering now."
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