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Why are the potato chip guys smarter than the silicon chip guys?
Because potato chip vendors can hike prices by adding the word ‘Gourmet’ to their product description, while silicon chip vendors compete so fiercely they are always offering lower prices.
Dr Keh-Ching Huang of Global Unichip, TSMC’s design subsidiary, recalls seeing potato chips being sold under the label ‘Gourmet Potato Chips’ and selling for 20% more than ordinary potato chips.
So why hasn’t the Gourmet ASIC yet been invented?
Instead, the costs of ASICs keep rising while their ASPs keep declining, and the margins keep narrowing.
“People working in the chip industry are too smart. They are so smart that they can’t make money,” says Huang.
The problem for the silicon chip industry, reckons Huang, is that the competition is so fierce that chip companies accept it when customers demand price reductions. Meanwhile, the industry’s challenges get more and more demanding.
“In 2007, we started designing on 65nm,” he said, “it was 2009 before 65nm ICs went into production. So market uncertainty becomes a huge factor when you’re doing a design. It’s a risky business.”
So the IC industry does very difficult, very risky things for very low prices while the potato chip industry does simple, non-risky things for very high prices.
Clearly the IC industry needs a product description which, while not capable of being judged by any testable metric, will be accepted as describing a superior, and therefore higher-priced, product.
‘Freshly fabb ed’ perhaps?
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Ha Ha, John. Excellent
There is a gourmet tag – we call it Analogue.
Gourmet customers are individual consumers, each buys low volume….. Silicon chip guys don’t sell directly to individual consumers. They sell to a middle man (manufacturer) who does not care about gourmet labels. He cares about making money on his end product….. The “gourmet” in the silicon chip business means features that no one else can produce e.g. Intel processors – especially high end – for a long time….. If you want to find the gourmet silicon, look at ASP per mm2 for different products.
The better analogy would be semiconductors versus pharmaceuticals. Chips are invisible inside the product casing and although you can try ‘Intel Inside’ type advertising its always going to be hard to market to emotions.
The thing our industry has not understood but the pharmaceutical industry and the entertainment industries have is that we are selling intellectual property and if we are to extract the true value of the product we need to defend our intellectual property rights viciously. And ‘open source’ is just a self-inflicted engineer impoverishment program – when did you last see an open-source dentist?
Wise words, Stooriefit and FTM but, if there’s one tech company which has managed to breach the rationality filiter it is Apple, and that, to my mind, is because they design their stuff to appeal to the senses and not just to the mind.
Why do people pay exorbitant prices for iPod socks..while even Apple tries hard to price down the iPod itself ? Or why people spend tonnes of money on greeting cards but think twice about buying HDMI cables. Or why mobile phones need to be cheaper than a descent dinner.
The answer is : Technology purchases always go through the rationality filter whereas non-tech purchases go through the emotion filter. It so happens that in many cases, the latter can allow elephant to pass while the former chides ants for being too fat.
But who ever said technology was an easy business to be in?
You can turn the logic around and that goes some way to explaining the difference in the markets: ASIC customers are smarter than potato chip customers and are not taken in by words that describe an apparently superior product but which don’t indicate an improved performance against any testable metric.
One place this logic falls over is where human factors come in, the most prominent being the hi-fi market. Wolfson based iPods are apparently renowned amongst the hi-fi cognoscenti for their superior audio quality despite the fact there is little testable difference between these and the more recent non-Wolfson versions. If they are superior it indicates that most recent iPod customers are dumb, if it is not true all hi-fi buffs are dumb…