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A call for new investment in innovation

Posted: 16 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:photovoltaics? LEDs? home and building automation?

Dauvin: The electronics industry has a tremendous track record in improving productivity in areas like accounting, communications and computing.

The semiconductor industry's dilemma of profitless growth has a solution, according to Jean-Philippe Dauvin, one of the experts of independent consultancy and market research firm Decision.

In Dauvin's view, Europe's electronics industry for example, is well positioned to expedite growth and achieve better margins in the coming years, provided it is willing to make some changes to exploit opportunities in higher-margin sectors.

"Some of the major semiconductor companies in Europe will move very quickly. The future will provide some positive surprises," said Dauvin. In this interview, the economist outlined the growth opportunities and some tactics to exploit them.

Not a commodity
The semiconductor industry generated record sales last year, but that growth came without deep profits. "The rash conclusion is that the 55-year-old electronics sector has become a commodity business, like wood," said Dauvin. "Industry's reaction has been, as usual, to cut costs, resulting in reduced spending on innovation. It is a strategy that has not had a positive impact on stock market valuations."

Rather than cut spending on R&D, Dauvin argues, new investment in innovation is required to apply electronics-driven productivity gains to "social needs," an umbrella term Decision uses to define a range of opportunities.

For example, said Dauvin, "the electronics industry has a tremendous track record in improving productivity in areas like accounting, communications and computing." Extending such productivity gains to the health care and medical sectors, he said, is one avenue open to chip companies. Specifically, "there are opportunities to support early disease diagnostic systems, implantable devices and user-centric network applications in home care."

Social needs
Three social needs identified by Dauvin are individual well-being, security and energy. Markets for individual well being include living spaces, individual care and medical devices. Examples would be labs-on-chips, disease diagnostics, point-of-care electronics and user-centric networks. Security markets include tracking, infrastructure and personal security. Examples are RFID, sensors and wireless sensors networks. The energy markets are power savings and production for home, transport and industry. Examples are photovoltaics, power electronics, LEDs, home and building automation, automatic injection, anti-locking braking systems, electronic stability program, engine control and power steering.

Two large European companies have already taken measures to exploit emerging growth markets, Dauvin said. "Philips and Siemens are positioned for the products of tomorrow with, for example, lighting, hospital products and security systems."

The transition means investing in innovation, but "not necessarily in making ever more complex chips at ever lower costs," as in the past, the economist said. "Many of these future products do not need 32nm technology or a huge, multibillion-dollar fab."

Beyond boxes
If the industry hopes to pursue goals beyond its perennial quest for greater processing power on smaller pieces of silicon, it will also have to get past the idea of selling "boxes," Dauvin said.

The mobile phone, for example, "is a box; there is a lot of cost, but no price." Cellular handsets are provided at zero or minimal cost to consumers so that the service provider can make money on monthly service subscriptions.

A long-overdue influx of new talent is needed if the chip industry is to start thinking outside the box, Dauvin believes. "Companies need to be looking to hire from outside the semiconductor industry. Today, fewer than 1 percent of employees come from outside the chip industry. About 90 percent of the top jobs are held by engineersbut 60 percent of the business is in consumer electronics and is consumer-driven." Consumers, in the main, are not interested in engineering but are conscious of fashion and susceptible to marketing. The implication is that marketing expertise should be driving the industry.

Learn from other sectors
Dauvin also advises semiconductor executives to study how other mature sectors achieve profitable growth. "Look at Nestl," he said. "It had flat growth in coffee sales. It created a new product, Nespresso, which has helped to drive incredible sales of an old product line: coffee. The Nespresso business is growing at 40 percent. I have two machines now. Instead of making two cups of good coffee a day, now I am making manyprobably too many."

Another example is French automaker Renault's success with the Logan. "The car is made in Europe's low-wage countries, such as Romania. But it's not just about labor costs," Dauvin said. "It uses mature technologyreliable and stablethat has been optimized and updated in a new design. Even at a low price of about 9,000 euros [about $14,000], the car offers a good margin for Renault."

Crazy idea
Dauvin said he has "made this presentation many times in the past year" to industry executives. "They say to me, 'What is this crazy idea?' They pat me on the shoulder, offer me another cup of coffee and try to change the topic. But I am convinced that they have received the message and that they are changing."

Jean-Philippe Dauvin graduated from the University of Paris with a business administration degree and a Ph.D. in economic sciences. He began his professional career in 1965 as an economist within the Saint-Gobain Group. From 1966 to 1982, at BIPE, a leading French Consultancy company, he created the electronic department after carrying out the first strategic studies on the electronic industry for the Commissariat au Plan of France as well as for the European Community.

He worked first as chief economist in 1982, then as director of economic studies in 1983, within Thomson Composants' strategic planning group. In 1987, Dauvin became corporate market research manager of the SGS-Thomson mcroelectronics group, now STMicroelectronics.

From 1991 to 1994 Dauvin was European chairman, and then world chairman, of the World Semiconductor Trade Statistics (WSTS), the independent organization producing worldwide statistics for the semiconductor industry. When ST University was created in 1994, Dauvin became VP of the knowledge and education group. He became chief economist and group VP at STMicroelectronics, where he is still emeritus chief economist.

He teaches at the Ecole Suprieure d'Electricit (Supelec) and in other business schools. He has been a member of the scientific orientation committee of the Ecole des Mines, the most prestigious French engineering school, since 2002.

- Valerie Thompson
EE Times

-Additional reporting by EE Times-Asia

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