[lbo-talk] Andy Grove, now protectionist

Fernando Cassia fcassia at gmail.com
Tue Sep 7 16:19:40 PDT 2010


What I think has changed (and this is in part pure speculation on my part because I do know the current scenario but not the early pre-1990s scenario), is the nature of the "offshoring".

In the early to mid 1990s, buying a Network card (LAN card) cost an arm and a leg. You had a handful of established firms, among them 3com and IBM, offering networking kit. And once you examined those LAN cards, you found chips inside manufactured by the same company that sold you the LAN card (ie a 3com ethernet card included a 3com chip soldered to the board, which included all the propietary "logic" to make a LAN card work, if you bought an IBM lan card, it included an IBM integrated circuit as the main chip). Yea, some of those ICs might have been manufactured outside of the US, but the intellectual process and offshored manufacturing was controlled competelly by the US firms.

The "problem" (for the corporations) with technology is that once you off-shore something , one day a lot of people in that other country ends up having the know-how to reproduce what you once contracted them to manufacture for you.

Thus, new firms like Realtek (Taiwan) started gaining a bigger foothold in more and more niches of the electronics industry, and some even designing networking ICs on their own, and to gain market share, started selling those at smaller margins than the established guys, that is, at a fraction of the cost of the market niche heavyweights.

So, one could suddenly buy a LAN card with a Realtek chip for $70 each instead of $150-$200. Yeah, some had horrible drivers (some still do, ask anyone about the quality -or lack thereof- of Realtek sound drivers) but in this world "lower price" almost always wins over "quality but expensive".

This isn´t just a story of "electronics getting cheaper all the time" I mean another angle: the offshoring of intellectual property and new players from Asia replacing US firms as the ones that make the ICs for stuff that ends up in American firms´ devices. **

The latest wave, I think it was from 2005 to this date, saw the mainland China factories entering the game, and even designing their own ICs. So, now you have USB ethernet adapters with Chinese chipsets for $8. Where is 3com in the low-cost home networking segment now?. The same could be said about once-giants like Alcatel or Cisco which once produced 3 out of 4 DSL modems given for home use by ISPs. Most of these, today -at least down here in LatAm- are Chinese ZTE. As the race to get cheaper and cheaper design and manufacturing continues, you get things like these: -------------------------------

"4timing.com, June 2002

Chinese IC Design Center Partners with Credence

Credence Systems, Fremont, CA, announces a partnership with the __Chinese government-sponsored Nation I.C. Design Industrial Base (NICD IB) in Beijing, China. NICD IB, with the help of Credence, will provide technology resources to more than 65 local design houses and 10 major universities__. Under the partnership, Credence will provide NICD IB with testing technology with the installation of a Quartet system-on-chip (SoC) production test system."

------------------------------- So how do you put the worms back in the can?. I guess you can´t. The US firms have created their own competitors. And I don´t blame the Chinese for wanting to give their people better living standards through industrialization...

I am half asleep while I type this so please let me know if there are any gross inaccuracies in my line of thought, please. I am just thinking aloud. :)

FC ** there are exceptions to this... like UK based ARM, which succesfully created a market for mobile processors by also licensing its IP cores to other manufacturers...

On Tue, Sep 7, 2010 at 7:36 PM, Myles Sussman <myles.sussman at gmail.com> wrote:
>
> It's especially weird to see Andy Grove go off about saving American jobs
> now, given the history of Intel Corporation.
>
> One of the things that is surprising to this Californian is how often people
> think and talk about the offshoring of American jobs in Detroit and "old"
> industry hotbeds, whereas "high-tech" was employing it right from the very
> beginning (starting in the 1960s). Somehow that goes without notice (perhaps
> because unions were avoided by a lot of high tech companies from the
> earliest days?). Sure, in 1977, total US automobile manufacturing employment
> was a bit under one million so that was a bigger scale than chip companies
> were back then. Nevertheless the captains of high-tech industry were at the
> leading edge of moving jobs overseas.
>
>
> >From a paper (http://web.mit.edu/ipc/sloan05/BrownLindenOffshore.pdf)
>
> *"The semiconductor industry already has a rich experience with the
> offshoring of manufacturing activity. Semiconductor (or chip) companies were
> among the first to invest in offshore facilities to manufacture goods for
> imports back to the U.S."
> *
>
> *"By 1977, U.S. (chip) companies employed close to 100,000 workers in
> offshore assembly
> plants, compared to 114,000 domestic employees, of whom 64,000 were directly
> involved in
> production."*
>
>
>
>
> On Fri, Sep 3, 2010 at 12:40 PM, Fernando Cassia <fcassia at gmail.com> wrote:
>
> >
> > http://www.zdnet.com/blog/btl/is-the-american-tech-industry-oiling-its-own-guillotine/38594
> >
> > Grove has been telling anyone who will listen the last couple years
> > that the American technology sector is in decline and he has proven
> > himself eager to diagnose its ailments. Unlike other tech leaders,
> > these days you won’t hear Grove calling for a bunch of extra H1B Visas
> > or other short-term tactics to buoy the tech sector. Instead, Grove
> > has turned idealist, some would even say, “protectionist.”
> >
> > Grove has become even more passionate about another issue: The decline
> > of the U.S. manufacturing sector, especially in tech. He has attacked
> > the current American ideal that a continual stream of startups can
> > provide all of the jobs and innovation that we need to build a healthy
> > economy and maintain our leadership in the tech sector.
> >
> > In a guest column for Bloomberg, Grove recently stated:
> >
> > “Americans love the idea of the guys in the garage inventing something
> > that changes the world… Startups are a wonderful thing, but they
> > cannot by themselves increase tech employment. Equally important is
> > what comes after that mythical moment of creation in the garage, as
> > technology goes from prototype to mass production. This is the phase
> > where companies scale up. They work out design details, figure out how
> > to make things affordably, build factories, and hire people by the
> > thousands. Scaling is hard work but necessary to make innovation
> > matter. The scaling process is no longer happening in the U.S. And as
> > long as that’s the case, plowing capital into young companies that
> > build their factories elsewhere will continue to yield a bad return in
> > terms of American jobs.”
> >
> > He pointed out that Apple has 25,000 employees but it outsources its
> > manufacturing to a Foxxconn facility in southern China that employs
> > 250,000 workers to build Apple products. And this 10-to-1 ratio is
> > essentially the same for Dell and other high-tech companies that use
> > Foxconn, a company that now employs 800,000 workers — more than Apple,
> > Dell, HP, Intel, Microsoft, and Sony combined.
> >
> > The common refrain in the U.S. in recent decades has been to devalue
> > and dismiss manufacturing jobs and hang our hats on the fact that most
> > of the high-end knowledge workers remain in the U.S. for these tech
> > companies, and that those jobs are much more valuable and much less
> > commoditized.
> >
> > Grove challenges that line of thinking, saying:
> >
> > “Not only did we lose an untold number of jobs, we broke the chain of
> > experience that is so important in technological evolution… abandoning
> > today’s ‘commodity’ manufacturing can lock you out of tomorrow’s
> > emerging industry… Transferring manufacturing and a great deal of
> > engineering out of the country has hindered our ability to bring
> > innovations to scale at home. Without scaling, we don’t just lose jobs
> > — we lose our hold on new technologies. Losing the ability to scale
> > will ultimately damage our capacity to innovate.”
> >
> > The example that Grove uses to illustrate this is batteries. The U.S.
> > makes a fraction of the Lithion-Ion batteries used to power the
> > world’s computers and electronic devices. The U.S. lost the battery
> > race a couple decades ago when it started shipping the manufacturing
> > processes for consumer electronics to Asia. But now, Lithion-Ion
> > batteries are going to be used to power electronic automobiles and
> > that market could quickly dwarf the electronics industry and the U.S.
> > is out of the game before it even begins.
> >
> > -full story at URL above, discuss...- :)
> >
> > ___________________________________
> > http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>
>
>
>
> --
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