Still plenty of silicon to come from Silicon Valley

by Ralph Schmitt , TechOnline India - October 09, 2009

There's a vocal minority of individuals who claim silicon is no longer at the heart of Silicon Valley.

There's a vocal minority of individuals who claim silicon is no longer at the heart of Silicon Valley. The innovation and resources that once went into semiconductors, they say, is now being directed predominantly at the likes of social biosciences, networking and gaming. These new growth areas overshadow the technological foundation of this amazing place, they argue, adding that the trend of moving engineering to Asia will put the final nail in the coffin.

Let me set the so-called pundits straight: There's still a whole lot of silicon left in Silicon Valley. Market-making innovation abounds at the device level right here. We are not yet done building wonderful castles of sand.

What is true is that, in a departure from the hyper-growth days of the '80s and '90s, this storied region is now more cautious in investments, more amenable to consolidating companies to get a greater return, and ever more willing to move selected development overseas.

It is concerning that the venture capitalists who have seeded the fields with entrepreneurs are placing their focus in other areas. The amount of capital needed to create a chip company and the relative payout no longer fit their model. Exit strategies for their portfolio companies rely more and more on strategic acquisition at lower valuations. Further, the number of IPOs has been cut by a third since the 1990s, while the time to exit has doubled, to between seven and nine years.

These trends are positive neither for the VC limited partners nor for the overall economy, as post-IPO companies tend to hire at more than twice the national rate.

There are many who believe this has made us uncompetitive against some of our fierce silicon rivals in greater China. Their public markets raise capital at lower financial metrics. The Taiwanese exchange is now even wooing private companies in the United States by billing itself as the "real" tech market of the future. Approximately 30 percent of companies on the Gre Tai Securities Market are involved in semiconductors. The region's financial muscle is behind the industry, providing capital to let it grow and prosper--mirroring the early days of Silicon Valley.

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The fabless innovation boom of the 1990s was a catalyst to moving U.S. chip manufacturing to greater China. As a new wave of Silicon Valley leadership arises, we're seeing this outsource mentality accelerate. While I believe you need to have development close to your customers, it's also true that radically different capabilities exist in each geographic region. Further, there are significant cost and efficiency issues that require closer analysis and more diligence to justify these decisions.

It is my opinion that offshore design is still best used to drive derivative products, targeting cost-sensitive markets. U.S.-based engineers, particularly those in Silicon Valley, are highly valued for their independence and creativity. This will not change, and it is the reason that there still is, and will continue to be, silicon in Silicon Valley.

The semiconductor industry continues to innovate in materials science for the next wave of quantum-leap life improvements. We all know that Moore's Law was the basis of the mileposts used to reduce size and power. It is a given that we will continue to march down this path for what will now be viewed as incremental change--the primary driver of the past.

Today, we are using technology to address real-life needs. Over the past decade, the Valley led innovations in diverse silicon-enabled technologies such as Wi-Fi, 10G Ethernet and capacitive touch sensing. Valley breakthroughs are now enabling efficient lighting, physically flexible electronic circuitry and the use of standard printing techniques for RFID devices.

Semiconductor veterans here have been instrumental in enabling clean technology, specifically solar energy. Both silicon and thin-film-based cells are derived from the innovation of semiconductor professionals.

Silicon Valley is one of the most unique places on the planet, with a spirit that is not done innovating and adapting to the changing world around us. To be sure, global competition is rising, but there's still some incredible silicon--and its derivative technology-- yet to come from Silicon Valley.

It's just not that easy to knock down our sandcastles.


Ralph Schmitt is president and CEO of PLX Technology, in the Silicon Valley city of Sunnyvale, Calif.

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