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The design-outsourcing effect

Posted: 20 Dec 2004 ?? ?Print Version ?Bookmark and Share

Keywords:asic? fabless? semiconductor?

More than a year ago, experts in the design-outsourcing business began to warn that a bubble was forming. U.S. companies were falling all over themselves to set up relationships with design shops, first in Bangalore, India, then in southeastern China, then just about anywhere. It seemed that no place was too distant from Silicon Valley to be a good source of design skills. One executive I spoke with then came back from a routine trip to Bangalore saying that it was like a gold rush there: You couldn't get a hotel room, and recruiting for Indian Institute of Technology designers had reached almost the level of organized kidnapping.

Since that time we have seen the predictions of the experts come true, as unusual as that may be in the electronics world. Skilled designers have been hunted into threatened status, and salaries have risen. The difference in salaries is no longer a sufficient argument to outsource a design to Bangalore, and the disparity is also rapidly disappearing in Shanghai.

This is leading to some predictable consequences. Design companies are showing up in other, less expensive areas of India and China, and there are rumblings that other countries may be getting involved. Also, the outsourcing horror stories are starting to get as much attention as the success stories. All this is consistent with the deceleration that marks the end of a fad.

So was this all just another of the semiconductor industry's occasional lemmings-over-the-cliff plays? One suspects not, for a number of reasons.

First, some strong relationships have grown up in the outsourcing environment. For every horror story, there is a design team in the United States that has come to depend on the expertise of a sister team offshore. A new category of fabless ASIC companies has also appeared, using primarily offshore design talent and relying on methodologies that are carefully thought out to avoid the potential pitfalls of geographically and culturally split design teams.

And we are starting to hear statements like the following: "I went to China because it is so much harder to recruit top talent in the U.S." The bottom line on outsourcing will not be cheaper labor or boiler-room operations; it will be that the United States has failed to train enough engineers for the next generation.

- Ron Wilson

EE Times

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