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Design offshoring troubles U.S. engineers

Posted: 18 Sep 2006 ?? ?Print Version ?Bookmark and Share

Keywords:chip design? offshoring? IC? R&D? chip Mike Clendenin?

Chip design jobs hustling out the back door to save money? Such a scenario has long troubled the minds of U.S. engineers who witnessed firsthand the offshoring of other design and support work to cheaper countries. Poof, jobs gone forever.

The controversial issue struck another sour note in late July when a Commerce Department report mothballed by the Bush administration in 2004!an election year!finally came to light. The report added to a growing pile of evidence showing that U.S. chip design is becoming more vulnerable to offshoring in places like China and India.

After news of the report surfaced, EE Times U.S. readers responded to a call for opinions on how outsourcing is affecting them.

Surprisingly with such a hot-button issue, there were no rants. Instead, there was a grim acknowledgment that it's a dog-eat-dog world, and that globalization will leave no industry unscathed.

"For too long, the U.S. has been complacent in its leadership role and too many people have failed to recognize the significant advancements in other countries and the clear, strong talent pool that has been increasing in its size and competencies," said Michael Krause, an engineering fellow at a U.S. company. "People need to wake up to the fact that a global economy touches all jobs and all skill sets."

American EEs fear that U.S. companies are looking for equally smart, but cheaper, engineers in developing markets who can be future stars once they gain experience. Moreover, they wonder if America is trading away its future industrial leadership for short-term gains in the bottom line, while shortchanging long-term priorities like investments in education and basic R&D. Others would like to see more enlightened policies to encourage foreign talent to study and live in the United States.

Call it globalization, call it localization for new markets. But no amount of window dressing or even rare candor will change a disturbing reality for U.S. chip designers: Their jobs are at risk and will be for some time.

The U.S. tech industry started offshoring assembly and test in the 1970s, followed by chip fabrication and much system design in the 1980s and '90s. But a trend that could have easily turned sour ended up spurring the fabless model, a linchpin of innovation in the IC industry!and an arena dominated by U.S. companies.

The testy part
The testy part of offshoring now is its move into the part of the industry!chip- and platform-level design!that employs the highest number of EEs, and the highest paid.

IC jobs in California have declined steadily since 2001, according to state statistics. Cast the net wider, however, and the picture is a little fuzzier. Data from the U.S. Bureau of Labor Statistics!which does not drill down to the chip-design level!shows that employment and earnings for U.S. electronics engineers steadily rose from 1999 to 2004.

A lack of reliable data makes it hugely problematic to determine the impact of offshore chip design on the U.S., according to researchers who have studied globalization in the high-tech industry. For instance, the suppressed Commerce Department report didn't cite BLS statistics but instead included Semiconductor Industry Association (SIA) estimates. The SIA figures showed that the number of engineers employed offshore by U.S. chipmakers climbed by more than 10,000 between 2000 and 2003, while U.S. engineering employment declined by 4,000. This is contrary to BLS statistics.

The job shifts occurred in the wake of several significant events: The telecom and dot-com bubble burst, venture capital funding dried up, the September 11 terror attacks made it harder for high-tech workers (and students) to enter the country and cuts were made in H1-B visa numbers. At the same time, the IC market began to rely less on corporate PCs and more on price-sensitive consumer electronics.

It is still too early to tell the long-term impact of design offshoring. The trend will put some pressure on U.S. salaries, but will it decimate them?

One indicator may be Taiwan. Over a span of more than 15 years, the island has spawned more than 200 IC design houses, but only one has broken into the global top 10. During Taiwan's rise, U.S. engineering experienced a period of expansion and wage growth. Indeed, competition from Taiwan may have spurred innovation in the U.S. by forcing engineers to move quickly if they were to stay a step ahead of their new rivals.

Particularly in Asia, some industry leaders suspect America is overreacting to the offshoring phenomenon. Said one Chinese executive: "U.S. innovation never ends. Play that strength. After that depressing time for EE engineers in the early '90s, you had IT, semiconductors, software, Web browsers. You had Microsoft, search engines, eBay, Amazon.com." He added, "I think the U.S. industry is crying for nothing. They grab the high margin of the business and give the dirty work to the Chinese, and then complain about it."

Ultimately, U.S. engineers will need to adapt. If reader responses are a guide, then there's hope that they will.

- Mike Clendenin
EE Times




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