Excerpts from interview with CEO of Microchip Technology Inc.

At EETimes.com, Steve Sanghi, CEO; expresses some unconventional views of the semiconductor industry.


-"Semiconductors are a $350 billion industry. Historically, the semiconductor industry has been built on growing 17 to 18 percent a year. This cannot happen forever. Semiconductor companies are also largely built on these ideas: 'Build it and they will come. Price the parts for tomorrow. Moore's Law. Move to the next geometry.'

But the industry is slowing now. Most pundits say the semiconductor industry will grow 7 to 8 percent a year. The semiconductor industry needs to adjust to these mature growth rates, but I'm not sure it knows how to do so. And the 'build it and they will come' idea just won't happen anymore"...

-"private equity comes in and they believe that semiconductor companies are sitting on all-time historic high cash flows. However, I believe some of these private-equity deals will go bust. I believe private equity is going into the excessive bubble phase"...

-"what did we do to fix the company? This is where I didn't take any of the proposals from the consultants. We really needed to design our own system. Years later, we ended up giving our system the name 'Aggregate System.' It essentially means to re-design the enterprise, in which all parts of the company are working together"...

-"We don't ever build fabs. We buy other people's mistakes. The world is going to 300-mm, where I don't need to go. Our products don't require the bleeding-edge of lithography at 45-nm. There are so many 200-mm fabs that are up for sale and going on the market. We also have additional clean room capacity in our Oregon fab"...

Google's first quarter report

Quick summary of the numbers:
-69% increase in profit from year earlier quarter = $592 million up to $1 billion
-66% increase in revenue from year earlier quarter = $2.25 billion up to $3.66 billion
-40% increase in searches from year earlier in February

Phil Davis has a very nice analysis of the report here:

-"If this is an arms race it is more like the one between the US and Mexico than the one between the US and Russia! Microsoft (notice we now ignore Yahoo) is fighting this battle with conventional forces and studying battle plans from the War of 1812 while Google is literally taking satellite images of their offices and devising strategies for battlefields that haven’t been invented yet"...

-"Make no mistake about it, Google is one of our country’s greatest exporters, pulling in over $100M a month in overseas revenues (imagine our trade balance without them!)"...

Eric Schmidt in the conference call said "Each of these strategies involves creating solutions that benefit both advertisers and users, and it is the synergy between them that we have been able to harness. Targeted, useful, effective advertising will continue to be our mantra; you all know that, of course. Technology and efficiency is the core of our technology approach, and it really does benefit end users." The contrast between Google's excellence in execution and Microsoft's stumbling and fumbling couldn't be greater. The cultural difference between these two companies is epitomized by Schmidt's statement. It is clear to everyone that Microsoft's main goal is to continue to milk their installed base while they fumble around trying to find a coherent strategy for the future.

Meanwhile, the contrast between Yahoo and Google is nicely summarized by this headline from another SeekingAlpha post: Google: Twice Yahoo's Size, Growing Revenues Nine Times As Fast...

An Optimistic Cosmologist-Freeman Dyson

TCS Daily has an interview with Freeman Dyson posted yesterday. The interviewer begins by stating

"In your book "Infinite in all Directions" (1988) you discuss eschatological questions surrounding the theoretical issue of the end of the universe. As one of a very small number of optimistic cosmologists, you have developed a scientific theory of infinity. You write: "I have found a universe growing without limit in richness and complexity, a universe of life surviving forever and making itself known to its neighbors across unimaginable gulfs of space and time." This hopeful cosmology contrasts sharply with the apocalyptic Zeitgeist." He then asks the question "What would you say are the most important intellectual principles and ideas that have sustained your optimism?"

Dyson's short answer is "My optimism about the long-term survival of life comes mainly from imagining what will happen when life escapes from this planet and becomes adapted to living in vacuum. There is then no real barrier to stop life from spreading through the universe."

The rest of the interview expands on Dyson's views on a variety of subjects. It is a must read...

French train blisters the tracks at 357.2 mph

Today a French high-speed train known as TGV set a world speed record for conventional trains of 357.2 miles per hour. That is quite impressive. In my view, trains at this kind of speed would be competitive with commuter aircraft for the types of routes that both transportation systems serve. It seems that high speed train systems would work economically in parts of the US, particularly the east coast and upper midwest. Why aren't these trains in use in the US?

A logical location for such a high-speed train would be from Los Angeles to Las Vegas. The highway distance between these two cities is approximately 300 miles. Place a couple of stops including one in downtown LA and a couple more out through Orange, Riverside, and San Bernardino counties, and then you would have a straight shot to the Strip. Filling these trains with eager gamblers would be easy, and presumably security checks would not be quite as tight as at airports and you have a viable alternative to airlines.

More on the music industry

Following up on my recent post, it turns out that ArsTechnica has done some analysis of music industry trends just yesterday. The author points out that "legal downloads continued to grow, but so far the focus from analysts and the press has been on how legal downloads have failed to "fill the revenue gap" created by the shortfall in traditional CD sales. What deserves further examination, however, is whether legal downloads are causing that shortfall. We do believe that they play a significant role in the music industry's current situation." Further described in the story is the projection that "this quarter, 81.5 million CDs will be sold. While that's down 20 percent from the same period last year, digital singles sold by the likes of Apple's iTunes store grew 54 percent, to account for 175 million songs sold. In other words, the quantity of downloaded songs far outweighs the quantity of CDs sold as a whole." The remainder of the ArsTechnica story discusses the author's hypothesis that the massive decline in song revenue is due to the fact that since buyers can now purchase their music by the song, they are not bothering to purchase the "filler" songs that in the past made up the bulk of the content on albums/CDs.

This seems like a blinding flash of the obvious to me; since we can now preview songs before buying and can purchase songs one at a time, we are only going to buy the songs we like and will ignore the rest. The author states the question this way: "how often does a consumer opt to buy just one or two songs off an album rather than buy the whole thing? This phenomenon must affect the top of the music charts quite viciously. I know I'm reluctant to buy an album, especially anything approaching a "hit album," unless I know that there's more than 2 to 3 songs on it that I like." The answer to the question is "approaching 100%". There's no doubt in my mind that just about every adult American has bought a CD after hearing a song they liked and then were disappointed with the rest of the songs included. I personally have had the misfortune of purchasing several CD's due to a popular song only to find out that the style of the hit song was nothing like the artist's core style or any other songs on the CD. That means you, Goo Goo Dolls!

The conclusion I draw is that the incumbent music industry infrastructure will inevitably shrink to the point where the fixed costs can be supported by what consumers are willing to pay for music.

Music CD sales shrinking constantly

Paul Kedrosky provides a couple of valuable nuggets of information:
-this chart
-this quote:
"In recent weeks, the music industry has posted some of the weakest sales it has ever recorded. This year has already seen the two lowest-selling No. 1 albums since Nielsen SoundScan, which tracks music sales, was launched in 1991.

One week, "American Idol" runner-up Chris Daughtry's rock band sold just 65,000 copies of its chart-topping album; another week, the "Dreamgirls" movie soundtrack sold a mere 60,000. As recently as 2005, there were many weeks when such tallies wouldn't have been enough to crack the top 30 sellers. In prior years, it wasn't uncommon for a No. 1 record to sell 500,000 or 600,000 copies a week."

The system for getting music to listeners has rendered the CD distribution system completely obsolete, in my view. The music industry incumbents are resisting this, of course. To me, the biggest source of resistance from the music industry lies in two areas. One is that their investment in CD-production facilities have been fully amortized and so the marginal cost of producing CD's is trivial. Protecting those CD profit margins is at the top of their list. I would venture that the CD-duplication plants are essentially worth scrap value at this point, except for marginal revenue from CD production. The second source is the traditional system where A & R people would spend tons of money on throwing promotional parties, expense account meals, payola and so forth. These people don't want to see their gravy train derailed.

Cisco vs Microsoft

Over at SeekingAlpha.com, Kris Tuttle provides some interesting details regarding Cisco's purchase of WebEx. He says that

"WebEx has a network of 3000 servers and over 2M subscribers who use their technology as an on-demand platform for collaboration. Cisco sees that unified collaboration and communication are growing fast and particularly important in the SMB market when it can be offered in a SaaS format" and also "Because WebEx has established distribution channels, partners and a strong business model, it will be run as a stand-alone business and integrated into Cisco operations over time. This is said to represent a “new model” for Cisco. It seems similar to the VMWare structure at EMC for now."

The questions raised are:

1. "If more and more people are going to use an expanded WebEx/Cisco platform to collaborate does it mean for the usage of Microsoft Office products?
2. Does this move by Cisco put more pressure on Google to add communication collaboration to their Docs and Spreadsheets platform?"

I had never thought of Cisco as a direct competitor to Microsoft before. Interesting...

Changes at Sun Microsystems

I think that McNealy leaving is a good thing, as apparently he was the only one standing in the way of mass layoffs at Sun. The word is that he was keeping the extra programmers around as an investment in potential future software development. That's commendable but eventually any company has to have a level of employees that makes the profit and loss statement work.

I don't think that the ex-Sun employees have had much difficulty finding work.

I think that Sun is heading in the right direction with its business strategy; they just need to get their costs under control. Taking the AMD Opteron and developing systems based on it and pushing them hard has been and will continue to be extremely successful. Sun was one of the first OEM's to take AMD's product and run with it. This is going to be a long term win for Sun.

Sun's primary problem has been that they were so successful during the dot com boom that they weren't focusing on building future business but rather moving their servers out the door as fast as they could. It takes time to re-orient a large company in the face of wrenching changes like the dot com boom and bust. HP has taken plenty of lumps but they are on the road to success again as well.

Google's technologies makes most sense inside an enterprise

This is due to the fact that within an enterprise the page rank algorithm that Google search is based on would be less vulnerable to spoofing and disruptive search engine optimization. Links between pages within the enterprise that are not legitimate or serve only to puff up an individual's particular contributions will be able to be quickly spotted and purged, and offenders can be disciplined.

Also, the various apps that Google has rolled out to the public would make a compelling package for an enterprise if packaged within a Google hardware appliance. I would see the package as follows:

-intranet search (i.e. Google's standard search functionality)
-alerts--employees receive alerts when content is posted to their company intranet
-blogger--employees can use a blog as a method of communicating to co-workers vs email
-calendar, docs, and spreadsheets--obvious replacement for Microsoft products
-gmail as in-house mail server--obvious replacement for Exchange
-wiki-Google will do something with the JotSpot technology they've got--obvious replacement for Notes and Sharepoint
-etc....