Chip companies need to start acting their age, according to a sage analyst. Chris Danely, director of semiconductor research at JP Morgan, thinks the major semiconductor players should behave more like old-line companies in the tobacco, food and oil games. He'd like to see the chip firms manage their cash better and reward …
J P Morgan and Morgan Stanley Worried About Multicore Future
Fascinating. This may not be important but readers might be interested in learning that both J. P. Morgan Chase and Morgan Stanley have visited my blog repeatedly in the last few days. They were particularly interested in my five-part article, "Nightmare on Core Street". You can read it at the link below:
ARRRR! these financial services weasels need to shut up, their entire industry needs to be run like a business instead of being bailed out by the government. The nerve of anyone in that sector saying a goddamn thing to any other about how it's run, is sick and wrong. How the hell do these geniuses think Intel got where it is, it's just laughable. Innovate or die, thats the law, a JP Morgan semiconductor analyst should know that.
He would say that.
So the investment bank scum would like to remove one of the most the most worthwhile aspects of the technology industry (advancing the technology itself), slowing the old glorious march of human progress to a crawl in order that they can get down to the dirty business of further stagnating the world economy and finally buy that second yacht.
Yeah, that's right, take money out of R&D and give it to shareholders, they do all the hard work after all. Definitely the way to run a successful business.
Correct me if I'm wrong, but aren't the fruits of processor R&D realized after 5 or more years? It's not like the R&D of today is going to give us useful products next year. If these companies never funded their R&D departments, we wouldn't have things like 64-bit (or 32-bit, 16-bit, or 8-bit) processors, parallel instruction execution, multi-core processors, energy-efficient designs, etc.
Just because an industry is mature doesn't mean you stop trying to make better, more efficient products. The storage device industry is a mature industry, too, but I don't hear anybody telling them to stop work on solid-state drives or high-capacity (including holographic) optical formats.
New breakthroughs are almost always the result of extensive research and development. Cut the R&D and the industry will stagnate.
What is this guy on?
He backs AMD because he expects Intel to face product delays, while simultaneously recommending all the players cut their R&D budgets. How exactly is that self-consistent?
Chip companies are not "stodgy" manufacturing companies. There's still lots of room for improvement in the fabrication processes (most obviously in the feature size). The first company to cut their research budget will find, a year or two down the line, that their competitor is able to offer a product with twice the performance at the same cost. Cutting R&D is an extremely short-sighted strategy in a market where technology progress is a virtual certainty. Tobacco hasn't been revolutionized since the invention of the cigarette. Chip technology gets revolutionized so often that we take it for granted.
Chip companies ARE manufacturing companies, he got it half right. But the R&D is how they improve their manufacturing processes. That's what the bulk of their R&D is.
Moore's law doesn't allude to some magical quality of chips that makes them double in complexity every so often. That happens because companies spend big R&D bucks making it happen.
Even aside from the obvious one-upping of the competitor, they need to research and develop their manufacturing capabilities to improve yields of chips they're already making. Remember the news when Cell procs were being pumped out with a yield of about 15%? But the yields improve. Why? Because they research and develop this shit.
Anyway, I hope to God everyone here remembers that as soon as Intel slaggered off a bit a few years back, with the Pentium IV and the Itanic delays against AMD's 64-bit monsterchips, that AMD came out of nowhere and grabbed about 20 to 25 % of the x86 marketshare. Intel's revenue was dropping by hundreds of millions.
And the only thing that stopped it was - get ready for this - a faster fucking chip from Intel. And boy did it stop it. Core2 boned AMD overnight.
For Intel to slack off their R&D for the sake of looking "mature" to this wanker would be monumentally stupid, and kinda vain too.
Is getting pissed that they are not getting a return on investment that their own in-house valuation and estimation teams predicted. They don't give a fsck about what the business actually *DOES*.
Intel and AMD invest billions in R&D to make new and faster processors: If they applied "Philip Morris" ideas to their business, we would still be running 386's (hey, you are using a 32 bit processor. 4 gb of RAM and wow, 40 Mhz is good enough for everybody! - We even got upgrades : Want a 387 Copro?)
R&D would be limited to the colours on the box..
So, the chip founders invest billions in R&D, new factories, new production methods to go faster, cheaper, cooler, and every dollar that went into designing the 486, Pentium (1, Pro, ,2,3,4), dual cores, Xeons, ARM, specialised microcontrollers, memory, chipsets would actually have been better spent playing financial games and paying out dividends to shareholders - Like JP Morgan.
JP Morgan have been playing the financial game so long that they have forgotten that a dividend payout is optional - and the amount paied is defined by the board - according to outlook and planned investment and innovation - and not the shareholder playing out-of-the-boardroom media terrorist.
Are they not making enough cash out of oil and other raw material speculation? I find that we are paying these barstewards out too much every day as it is...
Investment bankers and insurers. Should be strung up by their privates and whipped.
PH, as she knows alot about private parts and being whipped ;)
I think the first point is that treating any technology companies differently just because they're tech companies has to stop. We all remember the boomtime valuations, where fundamentals such as, er, profitability were ignored. We are now in an era where tech companies have to deliver growth and profitability most years and most quarters.
If the investment banks were to stop there, I would largely agree.
However, the year on year, quarter on quarter growth does not come from incremental improvements in the same way as it does in traditional goods, it comes from very big increments which arise from very large R&D projects. And some of these big expensive R&D projects fail, just as oil companies sometimes spend a lot of money drilling a dry well. But if an oil company cut back its drilling programme because of a run of dry wells, it would go out of business once the existing ones were pumped dry.
The trouble is that investors listen to these plonkers; they might be beguiled to approve a motion at the next AGM that research be cut. Yes: that would improve the cash available for dividends and so jack up the share price, but then the companies would nose dive in a few years time.
Actually: I am wrong about them being plonkers, they know exactly what they are doing. They will make lots of short term loot, then dump the stock and go and find someone else to suck the blood out of. Parasites, vampires or pirates would be better descriptions.
What the hell?
I read this as the guy saying "Okay, these companies have a successful business model. But they don't have our stagnant business model, so they should change."
Also, surely the worst possible time to try and calm the industry down is when it's in its "mature" phase- some new upstart who truely understands the market- the market where people want bigger, better numbers on their computers than the next guy and will pay for them rather than try to play off companies so they can buy shares easier- will come along and overtake them.
This guy is clearly a complete fool. Without R&D there would be no microprocessor manufacturers- and given that they rely on repeat customers (who ever heard of ad-supported AMDs or pay-monthly Pentiums?) they need the R&D to create the market for these new customers to buy in. Without it, they have no income but plenty outgoings and so they go bankrupt. Not necceesarily because they have crap products, but because everyone has one already and theres no change to buy into.
If I was any more cynical, I'd think he was trying to lower confidence in AMD/Intel just so he could buy shares at a deflated price before everyone realises what a prick he is.
Mine's the one with the pocket containing 7 microprocessor-based devices that wouldn't exist- and hence wouldn't have been purchased, so no money for intel et al- without R&D.
The first JP Morgan
Last year I read a book about Tesla, a complete genius without who the world would have been a far worse place today, yet his further work was stifled by none other than JP Morgan refusing to give him more money to invest in the future (in that case it was wireless transmission of power - totally revolutionary). Why, simple financial sense: Back then JP Morgan had big investments in the copper industry, so made a lot of money from power cables, and thus had a lot to lose from Tesla's invention.
So I can only guess that the continued innovation from semiconductor companies is limiting the investment industry. Simple reasons are the upgrade wagon on new hardware and software; as well as the extra time/expense of keeping up with technology developments to get an informed decision to invest.
I'll always remember a friend from Uni who studied business stuff and ended up as a buyer - he disliked changes to a design since that meant having to recalculate the parts, find new suppliers, renegotiate etc. Totally at odds with development, and particularly the field of semiconductors.
Personally I will never knowingly deal with JP Morgan since they are opposed to innovation and advancement of the human race - just to try and get a bit richer. There's more to life than dividends and return on financial investment!
Last time I looked a ciggeret was made of tabbaco, paper and fluff. Not much inovation to be had there.
How the hell can you compair that to AMD or Intel. As far as I know most people arn't addicted to 40 AMD quad cores a day.
The bussness modle of a tabbaco company, surely, is "we sit here, chern out the same product we have had for 50 years, and watch the money roll in". I think the biggest inovation in tabs is those anoying holes round the filter of silk cut that make it taste like your smoking dirt.
Correct me if i'm wrong, but isn't a short-termist dash for profits what gave us the sub-prime crisis ? Yes you can cut R&D now and make a quick profit from the cost reduction, but in a few years time your business will tank because somebody else will come up with something better and take your market away. AMD and Intel are a great model of exactly how you should run a manufacturing business, strong investment in better processes and better designs.
The comparison with long established 'mature' industries is spurious as well, you only have to look at the automotive sector. GM and Ford have failed to invest in improved manufacturing techniques and designs, while the Japanese companies have invested. GM and Ford are now loosing billions...
Intel, AMD, Freescale, and IBM know perfectly well that whichever one of them chooses to sit around at 90nm while the competition invests billions to get down to 45nm or whatever will swiftly fade into history.
Thus, there is no danger that these companies will take his advice, and turn into commodity producers to attract more capital with higher dividends. That happens after Moores' Law runs well and truly out of steam, so that the market conditions actually change, not before.
@ Chris Danely
tech sector is innovate or die always has been always will be. I can''t believe this guy is involved with the tech sector at director level with JP Morgan.
Someone having a bad day?
So, you slash R&D in a chip company...
Chip power begins to increase at a lower rate...
Consumers Buy less new PCs as there is no percieved upgrade...
Less overall spending on manufactured PCs, means less money for OEMs, OEMs must reduce purchasing budgets...
Small purchase budgets mean only cheapest components can be bought, means no high-end profitability, definition of high-end blurred anyway by lack of innovation.
Further slow-down experienced due to cheaper components.
<loop until out of business>
And now for the other side of the Computing Market!
Slash Chip R&D...
Chips no longer gain performance at the same level...
Software Companies cannot build features into their programs which would need the new hardware, which isn't being created.
Software development slows down, no longer can a new release really seem like a new release, huge apathy to upgrade, huge apathy to innovate.
Software market begins to stagnate, Games - Multimedia - Rich Internet applications all have to be based on current-gen.
Software companies have less money to invest.
Staff are lost - cost/benefit of innovating in software is thrown purely to cost.
<loop until No new versions of windows!>
And one more for the road?
"In the future we will all be accessing the cloud"
Chip R&D slashed, Current hardware has to be used to build the major server structures, scalability is reduced hugely, and tying into the software problems the idea of creating very efficient cloud-based code which can run on the hardware seems like a wasted goal. So the cloud is killed stone dead, which in turn means there is no real need for the huge complex server structures, which amounts to millions lost.
Lets summarise, the guy is a fucking idiot, no idea how the industry works and thinks he can make a quick £20 off the back of it before it all goes tits up. This is why things are sliding into recession. Because of fucking idiots.
Now where did I put my beer...
No innovation in tobacco? How dare you! Are you forgetting menthol cigarettes and low-tar? And what about Skoal Bandits?
Any industry that can package up toxic chemicals and legally sell them to people for over a hundred years must know something about marketing and government lobbying.
@Tabbaco AKA Tobacco
There was huge innovation in tobacco for the first few hundred years after it was discovered. Blending tobacco and dealing with tobacco beetles in the finished goods was a problem that plagued manufacturers for a long time. The machines that cut and roll tobacco for cigarettes are hugely complex and represent some of the best mechanical engineering on the planet. A lot like Pick-and-Place machines for SMT components.
JP Morgan is somewhat correct in their assertion that tech companies need to act and be treated like traditional companies. Their business model isn't sustainable and will ultimately result in total meltdown - not entirely desirable if you're taking the long view.
The R&D thing is somewhat correct too. They spend lots of money on R&D to streamline existing processes instead of innovation on cutting edge products.
@ Tim Williams
GM as much as I hate to admit it are probably the smartest of the big 3 American automakers. While their American brands focused on producing trucks and SUV's, they used their ties to foreign makers for the small cars. A Toyota Corolla is no different than a Chevy Prizm except for the badging. They have partnered with Toyota to learn Japanese production techniques, and having owned a progression of chevy's over my few driving years, they have improved in quality. Ford has put its stock into the effing land yachts that they prefer to call trucks and with gasoline at $4.50/Gal, it is starting to reap what it has sown there. Chrysler....hahahha i dunno
How this applies to microprocessors? Well the one that is doing the best above is being flexible, responding to the markets, and a ridiculous R & D budget from which we are expected to see new products within the next 12 months.
IT angle because of my tangent and JP Morgan has no sense touching anything computer related except for a phone to call the helldesk
Finance inmates running the asylum
I fail to see what qualifies the banking business to give lessons to successful industries.
In case they didn't notice, they almost destroyed themselves by handling subprime mortgage packages like valuable securities, and now they are crying that the taxpayers -- us -- should bail them out. I don't see these execs refunding the record-breaking bonuses they got during the real estate bubble, though.
And now, these fools want to tell the semiconductor industry how it should run its business. The financial sector's credibility is at its lowest, and this guy comes out of the blue to tell the SC people they don't know what they're doing. Moreover, he simply recommends to slash R&D in an industry where most profits are generated by products less than 3 years old.
Why isn't the Reg flaming down this moron? Why do they retranscribe his drivel as if it was worth reading? C'mon guys, you know better.
You take a pay cut and then quit your job.
I've never heard such verbal garbage before, manufactured after a bad night I would say.
IT is the only industry that is turning profits while lowering costs, there's nothing going wrong here.
He can quite and some one else can do his job better, and that would put more money in the hands of his companies investors.
"And some of these big expensive R&D projects fail, just as oil companies sometimes spend a lot of money drilling a dry well. But if an oil company cut back its drilling programme because of a run of dry wells, it would go out of business once the existing ones were pumped dry."
I wouldn't mind having chip development stagnate for a few years. It might force people to write efficient code, rather than assuming that no matter how bloated it is *cough* Vista *cough* processors will catch up in a few months.
Actually tbe sub-prime mortgage thing was caused by the US government mandating that mortgage lenders *had* to provide mortgages to high-risk borrowers, those below a certain income threshold with known credit problems who most lenders wouldn't normally touch with a barge pole. They were forced into the situation that created the problem. That same government (the faces change but the government is always the same) is now proposing solutions to the sub-prime problem they created - solutions that will actually make it worse.
Which just proves my idea that when there's a problem, first look to see if the government started it. They usually did.
Have a quick look at JP Morgan's own figures.
Would you take advice from a company that has suffered an over 50% reduction in profits for the first quarter of 2008 compared to 2007?
Especially when the only reason for this drop was their own extremely poor decision-making in the last two/three years.
Compare this to Intel, which had a 23% increase in income over the same period, and AMD which had around 30% increase.
Intel did make less profit than predicted (I can't find actual figures for that), while AMD still made a loss.
However, AMD's loss in the first quarter 2008 was 41% smaller than in the same quarter last year.
So - a company that has just taken over 50% less profit is giving advice to companies that have had improvements in net profit of around 20 to 41%.
To top it off, this 'advice' is coming from someone who clearly has no idea how a technology/innovation-based market works. It's very simple - those who innovate in the right way, survive. Those who do not innovate (or who innovate in the wrong ways), fail.
The clue is in the name of the market segment...
In Bradford some might say "nay!" I say "don't be so daft" innovators to stop innovating? In IT that seems to be tantamount to saying "Let's go bankrupt slowly with a rather rapid finish".
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