praxthoughts

Why, How and What of Custom SoCs

Ever watched the Ted talk by Simon Sinek How great leaders inspire actions? Not yet, then I encourage you watch this 20 mins talk. This video covers the most fundamental thing that most companies fail to address: connecting with customers! Often companies focus on their products, going into details about the technical features, price, engineering innovation, etc. However, they fail to address the basic thing that is needed for a successful sale: Why they are offering the product? Answering this question bridges the gap between product and market. Revenue is an outcome, not the sole purpose of a company’s existence.

Let us take an example of a conventional sales pitch for the embedded computing platform: System on Module (SoM).

We offer SoM that has a SoC, memory, power circuitry, Operating System, and BSPs, all integrated on a small form-factor board that offers you a platform for building your next embedded product”.

Sounds exciting? Well, it depends. However, it does not generate a great interest. Now, how about the following as a sales pitch?

Would you like to accelerate time-to-market for your next embedded product development, while also reducing development cost and risk? Well then, we have something that may interest you”.

The latter pitch nails it, by generating curiosity and interest, yet the funny thing is that we are yet to use the term ‘SoM’, which we are supposed to sell! It starts from the customer-side, instead starting with tech jargons.

Custom SoCs are not new in the semiconductor market. However, with latest industry dynamics and enablers, there is a renewed interest in custom SoCs. As someone who is not an expert either in technology or in marketing, but maybe a jack in both 😊, this post is my humble attempt to apply Simon Sinek’s approach to custom SoCs. Hope you enjoy this post and share improvement areas on the same.

Why

Let us explore some of the industry dynamics, customer expectations, and motivations, for the push towards custom SoCs.

Questionable Moore’s Law

For more than five decades, Moore’s Law has guaranteed performance boosts, yet at lower cost and power consumption. With time, performance enhancement and power optimization was obvious. However, currently the economic equation, which is guaranteed by this law, is failing. With leading process nodes tending to reach atomic level, the designs are becoming complex, leading to long time for commercialization, thus the cost equation does not hold true. With custom SoCs, performance boosts and power efficiency is possible without compromising on cost.

Frugal and cost-sensitive IoT end-nodes

With smartphones adoption flattening out, IoT is the next wave that will drive revenue and growth of the semiconductor industry. The problem is that IoT is not a product; it is an ecosystem of products and services, each playing a specific role in the value chain. The use-cases are not dictated by the supply-side, but by the end-users’ (or the demand-side) need for optimizing cost and increasing productivity, efficiency, safety & convenience. For e.g, an industrial plant intends to reduce down-time of the system. They can put IoT end-nodes at various points, and whenever there is a deviation from the expected behavior, the relevant end-node sends alert, so the breakdown gets repaired in least possible time. The data collected from all the end-nodes can also be used to perform analytics, which helps to explore means to predict failures and increase efficiency & productivity.

Most of these end-nodes will be customer-specific and application-specific, and work in ambient conditions depending on the type of industry. Stock SoCs can be an over-kill for these niche applications, and may not fit within the budget of many start-ups and small companies working on specific IoT use-cases.

Competitive advantage

Stock SoCs are mostly a commodity as any company can use those and build their products. So, competitive advantage and differentiation are limited to mostly software. However, with custom SoCs, companies can extend the differentiation into low-level hardware as well. Some proprietary IPs, accelerators, etc. can be integrated on the SoCs to enhance performance and power efficiency.

Cost optimization

Stock SoCs are like buffet meals, in which you pay for the entire course irrespective of your appetite and food preference. As true for ala-carte option, in which you can reduce meal cost and order as per your choice, with custom SoCs, BoM cost can be reduced as you will integrate only parts that are needed for your end-product. Some reports mention that BoM cost and die size can be reduced substantially with custom SoCs.

Artificial Intelligence (AI) and Deep Learning (DL)

AI and its subset DL, Machine Learning (ML) has the potential to offer enormous possibilities. Few applications can be NLP, Computer vision, automation, etc. Currently, GPUs are mostly used to address the computation needs for AI, as the former can perform parallel processing on humongous amount of data, needed for training and inference. In future, we will see many applications and products that use AI for enhancing performance and efficiency. Many companies are venturing into custom chips that are optimized for AI. Tesla is supposed to be working on custom chips, which may have state-of-art computer vision and machine intelligence, for realizing driverless cars. TPUs from Google are optimized for AI, and some reports mention that the 2nd gen TPUs can outperform Nvidia GPUs for AI tasks. Apple moved away from stock GPUs, and planning to build GPUs in-house, maybe to integrate more AI tasks on future iPhones.

How

In this section, I will focus on the enablers of custom SoCs. There are many proprietary ISAs that offers architectural license to build custom SoCs. However, I will cover only the two factors that are enabling penetration and adoption of custom SoCs, at low cost.

RISC-V

RISC-V ISA deserves a special attention for giving a strong boost to custom SoC market. Being an open-source ISA, RISC-V will enable designers to build custom SoCs at very low upfront cost. Designers don’t have to pay for the license and royalty. This is sort breakthrough innovation in the semiconductor industry, as it will add many new customers for custom SoCs. RISC-V is gradually building an ecosystem with IPs, debug-tools, etc.

ARM DesignStart

The ARM DesignStart enables designers to build custom SoCs at low cost. It offers free of cost access to Cortex-M0 IP, EDA tools and physical IPs. With a minimal cost, designers can license the ARM IP for production devices.

What

Finally, I would like to touch on the technical part. With my limited understanding, my view is that custom SoCs are disrupting the existing fabless semiconductor value chain. Usually, OEMs procure stock SoCs offered by the SoC design companies such as Qualcomm, Nvidia, NXP. The SoCs are designed based on some licensable CPU IPs (ARM, MIPS, etc.), then manufactured at fabs such as TSMC, Global Foundries. SoC design companies attempt to address multiple markets and applications with their stock SoCs, as this strategy offers benefit of economies of scale. Custom SoC is breaking this value chain, with OEMs bypassing the SoC design companies, and dealing directly with IP vendors, EDA vendors and fabs.

With custom SoCs, designers can integrate any proprietary IPs, analog sensors, mixed-signal parts, DSPs, accelerators, etc., depending on their application needs. This also enables designers to push many tasks to hardware, instead of doing the same in software. The benefits of pushing things to hardware are more security, reduced software memory footprint, better performance and low power consumption.

Conclusion

I strongly believe that emerging market of IoT and AI will provide a huge thrust to custom SoCs. In the last decade, stock SoCs has seen unprecedented growth with smartphones. However, in future we will see more IoT and AI applications integrated on smartphones and other embedded devices, and then maybe custom SoCs will steal the show from stock SoCs. General-purpose/ Stock SoCs will still play a dominant role; however, we will see more industry focus on application-specific parts.

It will be something like going back to past again. The industry started with ASIC, and then moved towards stock SoCs for cost advantage, and now we are seeing some motivation towards going back to custom SoCs (sort of ASIC) motivated by cost, performance and power efficiency.

Apple, Imagination and beyond…

There are multiple instances when Apple has shown the way to the industry, with breakthrough innovation in business model and engineering. Challenging the status-quo is embedded in Apple’s culture. By launching iTunes in 2003, Apple created a new business model in music industry. The model was a win-win for all – music companies, customers, artists, and Apple, of course. Then, few years later, with the launch of exciting and appealing iPhone, Apple mostly killed the hegemony of Nokia in the mobile phone industry. The popularity and massive adoption of iPhone encouraged many other companies, existing and new ones, to join the smart phone revolution.

Coming to engineering innovation that also led a race among semiconductor firms, was the introduction of 64-bit smart phone SoC. After the announcement, many other companies followed the suite.

Currently, there is one more such radical change happening. With Apple moving away from Imagination’s GPU, and planning to build its own graphics chip, the former is creating a new trend in backward integration by OEMs. Currently, there are few OEMs, which design their own SoCs in-house, including Apple, Samsung, Xioami, and Huawei; all these companies take architectural license from ARM and design the SoC. Most of these SoCs use an ARM Mali GPU. It is still unclear on Apple’s intentions of moving away from PowerVR GPU.  Is this a strategy to pull down the valuation of Imagination, making it an easy acquisition target? Or is this a move to further penetrate into backward integration by designing the GPU in-house? Whatever might be the case, Imagination may be the losing side.

Let us pick each of the options above and explore the effects of the same.

Backward integration by OEMs into chip design

PowerVR GPUs were being used in majority of Apple’s products till date. With Apple’s intention of building GPU in-house, the licensing revenues of Imagination will reduce substantially. Let us a try to take a bigger picture of this move by Apple, considering backward integration was the prime reason for this. In general, why an OEM digress away from its conventional business model of selling smart phones to end-users, and move backward into activities, which are not its core competencies?

Optimize cost

All smart phone OEMs mentioned above has high sales volume, going into hundreds of millions. With such humongous volume, it makes sense to control your recurring operational cost, which also includes licensing rents and royalty. OEMs have to trade-off between Build vs Buy. In large volume, it is pragmatic to adopt Build strategy, instead of Buy, which will cause a continuous cash outflow. With a one-time, yet high NRE cost, OEMs can design a SoC in-house. Obviously, there will be still some continuous expenses such as engineering resources salaries, manufacturing cost, etc. However, designing a SoC in-house optimizes cost in the long run, as the high NRE cost amortizes over large sales volume. Custom SoCs also reduces BoM cost as only required components are integrated on the SoC.

Competitive advantage

With custom SoCs, OEMs can differentiate their products from those of the competitors. Such differentiation is not possible by using standard off-the-shelf SoCs available in the market. OEMs are close to the end-users, so they know the end-user’s expectations better than conventional SoC design firms. SoC design firms have large overheads, so it makes a good business case for them to design standard SoCs and achieve high sales volume by targeting multiple use cases, markets and applications. Backward integration into SoC design gives flexibility to the OEMs to fine-tune their products to meet customer requirements and differentiate their products from those of competitors. In-house SoC design also enables OEMs to have their custom implementations, suited to their performance and power requirements.

With the recent fallout with Qualcomm on modem licensing revenues, would Apple attempt going into designing modem chips? With my limited knowledge, it may be far-fetched and over-ambitious for getting into modem development. Apple still continues to source from Qualcomm. With respect to in-house development of GPU, Imagination holds the view that Apple cannot design a GPU without violating Imagination’s patents. Let’s see when wewill see Apple products with in-house GPU.

Machine Learning and AI

Machine Learning and AI are now hot trending topics in the technology sector. Companies are still wondering how to monetize these technologies. We will definitely see considerable actions in these fields in the near future. There are endless possibilities of these technologies to be used for various applications such as NLP, Computer Vision, Image recognition, and many more. These applications requires massively parallel computations, which are most suited to run on GPU, rather than hogging the CPU. I believe this maybe one more reason that encouraged Apple to move away from standard GPU, and develop in-house GPU, which are optimized for machine learning and AI. In future, we will see more and more AI features integrated in smart phones. With in-house GPU, maybe Apple is preparing for the future.

Possible takeover of Imagination

This point is more specific to this case, unlike the earlier point, which broadly analyzed the backward integration strategy followed by OEMs. The move by Apple has hit the stock prices of Imagination and few analysts claim that the latter will be loss-making by 2019, after the removing the revenues from Apple. Maybe this is a deliberate move by Apple to shake up the GPU vendor, and then acquire it at a low price. Apple will get access to patents of Imagination, and may continue using PowerVR in its product portfolio.

Should ARM worry?

Assuming that Apple takes over Imagination, should ARM be worried? I strongly believe that with its huge market share, Apple has the strength to influence the semiconductor market. After acquiring Imagination, Apple gets access to MIPS ISA. Currently, ARM is almost a monopoly ISA for smart phone SoCs. However, with a huge market presence and willingness to take bold steps, Apple will be at bargaining table with ARM, and Apple may consider spending millions to make a switch from ARM to MIPS, in its products. Although MIPS ISA has an almost negligible share in smart phone SoC market, with Apple supporting this ISA, things may go against ARM. So, with takeover of Imagination, Apple gets access to PowerVR GPU and MIPS CPU. What do you think about this?

Conclusion

I believe Apple can greatly influence the dynamics of the semiconductor industry. Irrespective of which of the two options Apple takes further, I believe that many other companies in this industry will face the ripples.

I know that things are not as simple, as suggested in the post. I will be overly glad to receive loopholes and improvement areas on this post.

ARM vs RISC-V: Beginning of a new era

The emerging Internet of Things (IoT) industry is an aggregation of products and services, complementing each other to enable efficiency and cost-optimization in multiple industries. It does not have a vertically oriented value chain. It stretches horizontally across multiple industries and markets such as Industrial automation, Automotive, Medical, environmental monitoring, and many more. The use-case for these industries are quite diverse. At the front-end of the applications are end-nodes or sensors, which monitor the ambient conditions and pass on the data down the chain. These end-nodes will be scattered in billions in various industries.

Rise of Custom processors

As mentioned in my earlier post ARM vs Intel: The new war frontiers, COTS processors will not be ideal for building these end-nodes, as the latter are application-specific. Companies would be inclined to custom-processor, as it offers flexibility to assemble only required parts. These parts can include analogue sensor, DSP or proprietary IP, etc. Further, custom processors substantially reduce BoM cost and die-size, which will minimize power dissipation. It also helps companies to differentiate their product from those of competitors. The low entry cost and pervasive presence of IoT industry will encourage many start-ups and small companies to build products for niche applications. With custom processors, these companies can further optimize the cost.

Failing Moore’s Law

In addition to the proliferation of the IoT devices that will give a huge boost to the custom processors, another influencing factor is questionable existence of Moore’s Law. For more than five decades, Moore’s Law acted as a self-fulfilling prophecy. Semiconductor companies raced to make this law a truth, irrespective of whether the market needs high performance processors. There are always the innovators and early-adopters that are desperate to use products based on leading process nodes. However, the mass market takes time to switch to these new products. With high-performance, reduced power consumption, and cost reduction, Moore’s Law ensured that technology played a dominant role.

However, currently the economic equation that is guaranteed by this law, is failing. Leading process nodes are becoming complex to design, with long lead time for commercialization, thus the cost equation does not hold true. The quest for cost optimization forced the industry to look for alternatives, as shrinking nodes is no longer economically beneficial. Customization is the answer, as it can reduce the BoM cost significantly. The billions of end-nodes does not need leading process nodes, custom processors at matured nodes will be good enough.

ARM’s response

ARM is a monopoly in smartphone processor market. In the embedded and IoT space, there is no dominant architecture yet. ARM is ideally poised to fill up this vacant position, as it already has a strong presence with CPU IP offerings at diverse power, performance, and price options. With DesignStart license for Cortex-M0, ARM has enabled custom processor design at low cost with less risk. This program will be really useful for start-ups and small companies, as they get an access to proven architecture and IPs at low licensing cost, complemented along with an extensive ecosystem of IPs, software support and silicon partners that can massively reduce the time-to-market for products.

How we can further optimize cost of custom processors?

Enter RISC-V

Open Source Software (OSS) has played a vital role in democratization of the software industry. One of the most popular examples of OSS is Linux operating system. OSS enables innovation and differentiation, at a low cost of adoption. This promotes small firms, start-ups to build products based on OSS such as Linux. A large community of developers supports the software development, so there is no risk of vendor-locking or obsolescence of proprietary technology. The collective efforts of the community ensure a large ecosystem, and this benefits all the users. Linux has gained enormous presence in diverse applications such as embedded, PC, etc. Network effects can also be leveraged, as more users start using Linux, more features, and utilities are added.

RISC-V extends the open-source movement into CPU ISA.  It is an open-source ISA that is license-free and royalty-free. As RISC-V is void of any licensing, the ISA can be used for building custom processors with zero licensing cost. RISC-V is gradually building an ecosystem. In Embedded World 2017, RISC-V showcased the extensive ecosystem with FPGA solutions, security IPs, debug infrastructure, etc.

Few ARM customers have already started using RISC-V for designing custom processors. Now, SoC design companies can develop custom processors at a low cost, without the paying licensing rents. With some NRE investment, these firms can develop the SoC and get it manufactured in fabs. Thus, the price of the processor will be lesser than those based on ARM IPs. At the face value, it looks like we have found an ideal candidate that has the potential to become the dominant ISA for IoT industry. With customization & zero licensing cost, RISC-V looks like a winner.

Is it really that simple?

Are there free lunches?

Linux is a quite successful with billions of deployment in diverse products. Although, it needs considerable effort and expertize in using Linux for commercial products, the benefits weigh over the man hours. Linux offers unmatched flexibility. The enormous community provides a good ecosystem around the OS, with extensive support for peripherals, 3rd party software, etc.

However, extending the concept of open-source to chip design is a different ball game, owing to the basic differences between software and hardware. Unlike software, which needs only time and effort to be developed, hardware involves tangible components, for which someone has to pay. Secondly, you can rework on the software any number of times after testing on the hardware, emulator, etc. Bugs can be fixed with only investment in time and effort, maybe with minimal cost. However, bugs in the hardware can be a million dollar loss! Multiple spins of a processor can shoot cost substantially. Finally, hardware design is more complex than software development.

Let us consider the case of open source RISC-V. In a SoC, CPU IP is just one part; there are many other physical IPs and peripherals needed. So, an extensive IP and EDA ecosystem is needed around the CPU IP.  You can only get the CPU IP without licensing rents; however, the surrounding ecosystem is gone cost you. IP vendors should see a viable business case to add support for RISC-V in their portfolio. Let us assume that a strong community backs the RISC-V, and it offers all the IPs and tools needed for building SoCs. However, the question remains whether companies building custom SoCs, will take the risk of using a community backed ISA? Bugs can lead to multiple tape-outs, which add huge cost. Finally, designing a SoC is complex and needs good expertize in multiple areas such as implementation, physical design, packaging, etc.

With ARM ISA, most of the issues mentioned above are alleviated. You get access to proven IPs, robust ecosystem (software, cloud services, security solutions, silicon vendors, fabs), and committed support, instead of community support offered by open-source ISA. Design complexity is reduced; however, still some expertize in SoC design is needed for building custom processors.

Who will build RISC-V based SoCs?

The idea of open-source is disruptive, as it enables a level-playing field to companies, with limited budget, to compete against big players. Although the concept of open-source ISA is revolutionary, it may not have a disruptive effect in democratizing chip design.

In my view, it is unlikely that small companies and start-ups addressing some niche application in the IoT space, will invest time, effort and money in building custom processors based on a community-backed ISA, as they have to validate whether the entire system meets their specifications. It would be a safe bet for them to use licensed ISA, as they get a proven system, complemented with a robust ecosystem. Multiple tape-outs of the SoC can add substantial cost. A matured ISA with some initial cost would be a good starting point, instead of a free fledging ISA. SoC design is not their core activity, so hiring a diverse team for chip design, may not be a pragmatic decision. ARM is used widely across the industry, so the design part can be outsourced to some small companies, specializing in ARM-based SoC design. EDA tools and fabs are costly. EDA vendors and fabs already support ARM-based IPs; they should see economic benefits for adding support for RISC-V. Until RISC-V reaches a critical mass adoption, it’s like a chicken-and-egg situation. Multi-homing adds cost for any company be it a fab, EDA vendor, design firm, or an app developer. Low volume business will attract higher rents. All these cost overheads have to be factored while building RISC-V based SoCs.

Market leaders in the SoC design will definitely develop RISC-V-based SoCs, as it increases their buying power by having some alternative to ARM. However, I believe that these companies will not be interested in engaging with low-volume customers, who needs custom processors. Owing to their large overhead, it makes business sense to sell millions of standardized SoCs.

Summing from above, in my view RISC-V, in its current state, cannot significantly disrupt the semiconductor market structure. One of the key virtues of open-source movement is minimize entry barriers into a market by offering a good enough base, in comparison to licensed entities. Although, RISC-V will offer flexibility for building custom SoCs at low cost, the ecosystem is not yet ready to accept it. The whole semiconductor industry need to work in sync to make RISC-V successful.

Conclusion

It is too early to pronounce the verdict on RISC-V. Any new idea takes time to flourish. I am sure the people at RISC-V are smart enough that they would have foreseen the issues that I have mentioned above and many of the issues would have been already mitigated internally. In my view, RISC-V should focus on one segment such as IoT end-nodes or something else, and then offer this segment a compelling and complete solution, along with a holistic ecosystem, rather than focusing on the entire IoT and embedded industry. Once they achieve mass adoption in one segment, it is easier to spread into other segments, as new users have a great case study or example to look upon.

What should ARM do better to be perceived as a leader in the embedded and IoT segments? I do not have any answer for this, as from an external perspective things look pretty well now for ARM, with a huge installed base. The upward trend will continue in future as well. Extending DesignStart license to other Cortex-M IPs would be a good option for further adoption. However, the main forte should be the strong ecosystem of OS support, cloud services, security, IPs, debug toolchain, EDA, silicon partners, etc. All these play a vital role in building a successful product based on a custom processor at low cost.

Low-cost and customization are often mutually exclusive. Any ISA addressing both these ends will play a dominant role in the IoT industry. My views are limited to my knowledge. I believe there will be many lacunae in this post, so I look forward to the improvement areas. I do not have any professional obligations toward any companies mentioned in this post. The views expressed are completely personal.

Embedded Product Development – Make vs Buy

Original Equipment Manufacturers (OEMs) face many questions before building any product. After they are convinced that there is a business potential in their new product, next comes the crucial stage of project execution. They aspire to build the product in-time, maybe before the competitors or better than the competing products, without compromising on their budget constraints. However, aspirations occasionally match with reality. Time-slips, production-failures, over-budgets, etc. are associated with most projects. In this blog, I will attempt to show how using COTS (Commercially off the shelf) platforms can help OEMs accelerate the time-to-market along with reduction in development cost and risk.

Cost, performance, PCB designs, memory, time-to-market, technical support, casing, I/O configuration, size, procurement, enclosures, flexibility, scalability, component obsolescence, compliance, certifications. Whew the list goes on! You will face many more questions while building an embedded product. With customers’ expectations for better performance, yet longer battery life, is making the product development increasingly more complex. Advances in technology are inevitable, and this forces OEMs to keep pace with technology and competitors. Complex designs on a small form-factor adds substantial design risk, which may further stretch the development time. However, using COTS platforms reduces your list of concerns substantially.

Any embedded product has mostly similar components, both for software and hardware. Hardware includes SoC, memory, power circuitry, I/Os (USB, Ethernet, VGA, WiFi, BT, etc.) integrated over a printed circuit board (PCB). The software consists of device drivers, operating system, BSPs, GUI, application layer, 3rd party apps, communication stack, etc.

Make: Full-custom Development

OEMs are more inclined to build products from scratch, as it offers total flexibility and better control over quality, cost. However, full-custom development has many constraints.

  • Boost NRE (Non-Recurring Engineering) cost: High investment in engineering resources as the team need diverse expertize in mechanical design, hardware layout, low-level firmware, application, etc. More testing and validation is needed, as the product is developed from scratch. Hardware design iterations add to substantial project cost as well.
  • High BoM cost: Usually, sales volume of embedded products is low. So, OEMs cannot leverage economics of scale with low volume procurement of components, and thus Bill of Materials (BoM) cost is high. However, if the sales volume exceeds 50-60K per year, then it makes more investment sense to pursue full-custom designs.
  • Long time-to-market: As the development happens from scratch, the project time increases, and thus long time-to-market. Multiple hardware design iterations compound the time-slip.
  • High development risk: With scratch development of hardware and software, there is a high probability that things may go wrong at any level. This adds significant risk to the project compromising time-to-market and development cost.
  • Questionable scalability: With Moore’s Law in action, the silicon components such as SoC, are getting matured in terms of performance, power-efficiency, and cost-effectiveness. However, it is difficult to scale up a full-custom platform to accommodate these advances. Upgrades to a platform based on future customers’ demands and latest technologies may need re-design.
  • Questionable Product Life: Although designers pursue multiple sourcing of components, once a critical component such as SoC, RAM, and Flash, reach End of Life (EOL), a re-design will be needed to accommodate the substitute component. For industrial products, component obsolescence management is critical, as the product life is more than 10 years. So, each and every component used in platform must be available for this extended period. This adds substantial overhead for designers in terms of supply-chain management.

Buy: COTS Platforms

Let us now explore the COTS platform and their advantages. COTS platforms such as Single Board Computer (SBC) and System on Module (SoM) are available with the hardware platform and low-level software including Operating System, BSPs and Device drivers. OEMs can focus on enhancing user experience with awesome GUI, application-specific frameworks, etc., instead of engaging in generic board bring-up activities. There is no value addition in reinventing the wheel, as once an operating system is supported on a SoC, the BSPs can be reused.

Advantages over Full-custom Designs

  • Lower NRE cost: As the hardware and associated low-level software are already available, the scope of project reduces. Focus will be on integration and application development. Thus, the resource cost, along the validation effort, comes down significantly.
  • Lower BoM cost: COTS platform vendors leverages economies of scale in component procurement and manufacturing, with huge volume. Thus, the platforms are cheaper than sum of individual parts’ cost.
  • Accelerate Time-to-Market: The project timeline becomes shorter, which accelerates time-to-market. Further, the low-level software and hardware are already matured, so bugs are limited mostly to the application layer.
  • Lower Development Risk: The platforms are validated the vendors and numerous existing customers, thus the platforms are robust and matured.
  • Long Product Life: Usually, vendors guarantee the platform availability over extended time period. In case, any component reaches EOL, then it is the vendors’ responsibility to ensure availability of the platform. OEMs need not have to worry about critical component obsolescence.
  • Less supply chain overhead: System designers need to deal with less component vendors, as most of the critical components are available on the COTS platform.
  • Access to latest technologies: Usually, market leaders of semiconductor parts such as SoC, Flash, and RAM prefer to engage with customers, who order for large volume. However, most embedded products have low sales volume. By using COTS platforms, OEMs can get access to latest technologies from leading vendors, as COTS platform vendors engage in huge volume semiconductor business.

Single Board Computer (SBC)

Single Board Computer (SBC) is used widely in embedded computing industry to build variety of products. SBCs are off-the-shelf, application-ready embedded platforms that host the processor, memory, power circuitry, and I/Os on a single printed circuit board (PCB), and comes along with associated device drivers, Operating Systems and Board Support Packages (BSPs). So, the product development becomes fairly simple. System designers can just build the application software and put the board in a nice enclosure, then the product is ready.

However, there are few constraints of using SBCs for embedded product development.

  • Not scalable: In a SBC, the processing unit and I/O section are integrated over a single PCB. So, it is not possible to migrate to a latest processor with the same board. For migrating to latest technologies or meeting customers’ future expectations, new SBCs have to be used.
  • Not flexible: Customizing a SBC, based on the OEMs’ requirements, is not possible as the CPU and surrounding I/O are closely coupled due to the single-board design. Usually, standard I/Os are part of the SBC. Additional peripherals can be added using interface boards; however, this may increase the size of the platform. Further, the I/O configuration is fixed, so it is challenging to build size-constrained products.

System on Module

An embedded platform can be represented as below:

1

The ‘Application Agnostic’ part consists of essential design commodities, including the processing & memory requirements. This part may not differ much whether the end-product is a medical device or retail PoS device, assuming the processing and memory requirements are somewhat similar.

This ‘Application Specific’ part constitutes both the hardware and software, depending on the end-product and OEM requirements. OEMs can enhance end-user experience by creating awesome UI, user application, etc.

Computer on Module (CoM) or System on Module (SoM) is an embedded computing solution that consists of the application-agnostic hardware and software. System designers can focus on the application-specific part by using an off-the-shelf SoM, and thus accelerate time-to-market. The combination of an application-agnostic SoM and application-specific carrier board, along with display and peripherals, offers a complete platform for building any end-products. OEMs can design carrier boards as per their size and I/O requirements. The SoM can be inserted into the carrier board through some standard connector such as SODIMM or MXM.

2

In addition to the generic benefits of COTS platform, SoM also resolves the scalability and flexibility issues inherent to SBC.

  • Platform scalability: Most vendors offer pin-compatible SoMs. This means that a carrier board can be used along with multiple SoM, without any hardware changes. Some application software change may be needed. This ensures seamless migration to latest technologies. For example, a ECG machine is launched in the market; however, after 2 years due to market demands, the OEM intends to use the latest and faster processor. Without a platform redesign, the OEM can easily migrate to the latest technology by using a SoM based on the new processor, on the existing carrier board. Thus, platforms remain future-proof. Further, product variants with different performance and price can be launched without full-scale development for each variant.
  • Platform flexibility: Each application has specific requirements in terms of I/Os, size, performance, and power. The OEM can select an off-the-shelf SoM based on the performance and power needs. The carrier board can be custom-built as per the I/O and size requirements. Thus, SoM approach offers more flexibility than the SBC approach.

Conclusion

We can summarize that in the choice between ‘Make vs Buy’ for embedded product development, the ‘Buy’ option is more favorable in terms of time-to-market, development cost, obsolescence management, development risk, and scalability. Further, among the COTS platforms, SoM are better equipped to handle the demands of projects instead of SBC.

As usual, this post is constrained by my bounded rationality. Please share the improvement areas and flaws on this post.

ARM vs Intel: The new war frontiers

With Intel’s exit from smartphone processor market, the competitive zones are redefined with its rivalry with ARM. Is ARM’s domination the only reason for Intel’s exit? With no competing architecture, is ARM a monopoly in smartphone processor IP market? What are the new areas of competition between ARM and Intel? I will attempt to answer these questions in this post.

Intel’s exit

I read some news that Intel invested around $10 billion in its mobile processors endeavors.  Intel not only invested such huge capital but also digressed from its conventional business model to gather market share. For gaining traction in the low-cost smartphones, SoFIA project was started. In this project, Intel relied on partners, putting aside its vertically integrated business model. Intel partnered with 3rd party SoC design companies for designing SoC on the Atom CPU, and these SoCs would be manufactured in the 3rd party fabs.

It is no brainer to say that ARM is the major reason for Intel’s exit. Can there be some more reasons? In order to compensate for its late entry into smartphone market, Intel paid smartphone OEMs to use its SoCs, and focused on all segments from cost-sensitive volume market to premium segment. The text-book strategy to penetrate a market with dominant incumbent is to focus one customer segment and offer them a complete solution. Did Intel’s strategy match this? I don’t think so. Intel attempted to cater the needs of wide customer segments from high-end to low-end. The solution was not complete, as a competitive integrated modem was missing in some SoCs. I wish Intel would have followed the text-book strategy. It would have been a good experiment to test the credibility of such text-book theories in practice.

Anyways, this is a retrospective discussion for now. Intel also never got any good deal from major OEMs such as Apple, Samsung and Xiaomi. One of the reasons behind this is that all these OEMs have also backward integrated and started designing their own processors. So, x86 is not an option. These companies take architectural license from ARM, and then design the processor as per their needs, and manufacture the processor in fabs such as TSMC, Samsung, etc. The impact of OEMs’ backward integration to pure-play SoC design companies such as Qualcomm, Mediatek, merits a separate analysis. I will try to focus on this in my next post. Open-source systems boost innovation and adoption, as evident from the wide-spread adoption of entities such as Android, Raspberry Pi, Linux, etc. A closed system can never achieve the benefits of network effects, which dictates that value of an entity increases as more users adopt the entity. Intel can never achieve this, as x86 is proprietary.

Is ARM now a monopolistic power?

With the exit of Intel from smartphone market, ARM is the only company offering IPs for smartphone processors. Does this mean smartphone processor IP market is now a monopoly? Can ARM attract monopolistic rents? With my limited knowledge on microeconomics, I believe the smartphone processor IP market can be modelled as a monopoly, as only one company is active. ARM licenses its IPs to many companies that design processors based on those IPs. ARM makes revenue through licensing cost and royalty. What prevents ARM to dictate prices for smartphone processor IPs?

In my view, there are primarily 3 reasons.

  • Dwindling smartphone market: Smartphone penetration has almost reached saturation in developed market. Most sales happen for add-on or replacement phone. Now, developing nations such as India and China holds the next new billion potential customers. These markets are price sensitive, so driving price to cash-on to the monopolistic power by ARM will have negative impact on sales volume. Rising input cost will result in higher end-product price
  • Most SoCs are application-agnostic: ARM license processor IPs that can be used by the design companies to develop SoCs targeted for variety of applications. For example, the same SoC can be used for smartphone, gaming consoles and high-end computing applications. So, it is not possible only to rise licensing and royalty fees for smartphone processor IPs
  • Smartphone as a growth driver for adjacent or emerging market: The pervasive presence of smartphone has led to growth of many adjacent or emerging market. Smartphone acts as a communication medium between humans and machines/ devices. The rising IoT era is dependent on smartphone for connecting the tiny end-nodes with humans. Wearable devices such as blood pressure monitoring, etc. need to be compact, power-efficient and low-cost. So, most of these devices are headless and use the smartphone as a medium to communicate with human, using some software app.

The same is true for embedded computing market that includes applications for home-automation, industrial automation, medical, automobile, etc. A diverse range of these devices depends on smartphone. In home automation, a remote assistance product for elderly people uses the care-taker’s smartphone to send distress signals, in case the elderly people meets with an accident.

IoT is the next emerging market that will give a great boost to electronics / semiconductor industry, so the enablers or growth drivers of this market should be cost-effective to drive mass-scale adoption. ARM supplies low-cost processor IPs such as Cortex M series that are widely used for connected devices. A rise in smartphone processor IP, usually the high-end ones such as Cortex A15, A9, A53, etc., may decelerate the growth of smartphone market, in turns will restrict the growth of the adjacent markets

New war frontiers

With Intel’s exit from smartphone processor, the areas of competition between Intel and ARM have shifted grounds. Intel will be focusing more efforts on the emerging connected and IoT market. IoT is the next tech tsunami that will drive innovation, competition and market penetration, as smartphone has done so in the last decade. The challenge is that IoT is not a product, it is an ecosystem. Apart from the software offerings such as cloud management, APIs, data analytics, etc., at the hardware level it needs sensors or end-nodes, gateways, server or data center, and connectivity devices.

At the front-end or customer-facing end of IoT applications are connected things or sensors, that tracks or monitors some ambient conditions. These end-nodes or frugal devices will be scattered in all places from light bulbs, vehicles, building, elevators, industrial plants, oil refineries, and many more. The data collected from the ambient environment will be passed on to gateways that may do some processing on the data. The data is pushed from the gateways to servers, in which advanced data analytics can be done on petabytes of data. Cloud services plays a vital role in this chain from data collection, reception and analysis. Each of the hardware involved in the chain including sensors, gateways, and servers will be having some processing unit, memory and some I/Os depending on their usage.

Sales volume will be driven by end-nodes or sensors that will be needed in billions for collecting vital information from various surroundings. To drive mass adoption, these end-nodes should be low-cost; however, due to application-specificity and customer-specificity, the sales volume for individual SKUs will be less. COTS processors may not fulfill all the requirements of power, performance, price and space of the end-nodes. The focus will be on application-specific processor that is tuned to the needs of the specific industry. Companies building IoT products would be more interested in custom processors that are tuned to their requirements and budget. However, the problem is to fulfill the conflicting objectives of customization and low-cost. Any company solving this problem will crack the IoT market.

Now coming to the competition in the end-nodes business between ARM and Intel. Intel offers Quark SoC and micro-controllers that can be used for the end-nodes or connected things. In a recent blog after its restructuring, Intel made clear that it will work towards offering a complete ecosystem for IoT: frugal connected things, servers, networking and cloud services. However, one thing that I fail to understand yet is how Intel will control the cost structure of Quark or similar processors, without making business loss? With its vertically integrated business model, it is difficult to achieve cost-optimization. Further, off-the-shelf processors may not be ideal for many IoT applications.

In past, for capturing low-cost smartphone market, Intel sidelined its vertically-integrated business model and started the SoFIA project, in which it partnered with Chinese design companies for the SoC design and then get the SoC manufactured at pure-play foundries. The idea was to cost-control that is not possible with the high-margin Intel’s business model. Shall Intel pursue a similar program for low-cost processors targeted for the connected things? I believe, it is worth a try.

However, the second issue that may erupt with the above strategy is that COTS processors may not be an ideal choice for many IoT applications. ‘One processor fit all’ may not hold good for IoT market, as the applications are diverse in terms of usecase, power, performance, and I/Os. With proprietary x86, it is not possible to build customized SoCs. Should Intel start licensing x86 architecture? This is a difficult question to answer, for me at least. However, I strongly believe in the power of network effects, collaboration and coo-petition. All these cannot be possible with closed standards. AMD has already started licensing x86 server IPs. I am sure that Intel will have to deal with more competitors in the near future. What do you think on how Intel can address this issue?

On the other hand, ARM is steadily carving an IoT ecosystem. Already being used in billions of smartphones and embedded devices, ARM may have an edge over Intel in the IoT market currently. With IP licensing model, system designers can differentiate their products from those of competitors by designing processors according to their budget, form-factor and application requirements. This offers better control to companies to target niche segments of IoT. ARM has realized that mass-scale production by large SoC vendors will not bring radical innovation in IoT space, instead value-addition will be driven by small companies that focus on niche markets.

With ARMDesignStart program, ARM is lowering the entry barrier for custom SoC design and manufacturing on Cortex-M0 IP. This program offers low-cost access to Cortex-M0 IP along with design services (from Cadence, & Mentor Graphics) and physical IPs. This will promote further penetration of ARM IPs among start-ups, design enthusiasts, etc. Designers can start their development with limited fixed cost. After evaluation, they can go for full-scale production at nominal cost. This will enable low-cost products targeted to hundreds of niche IoT applications.

Further, ARM also aspires to capture market share in server space. Presence in server space will be enable a full-scale IoT value chain: end-devices (Cortex M series), gateways (Cortex A9, A15 etc. in vehicles, medical, & many more), servers (64 bit processors) and software (mbed, Cloud services).

Conclusion

Interesting times are coming ahead. Both companies, along with many others will compete to realize the billions of connected devices. I strongly believe most innovation will happen at small companies and start-ups, rather than in large companies. The strategy should be address the needs of these thousands of small companies by offering a base that is cost-effective and scalable.

I really look forward to your views, suggestions and improvement areas. I would like to emphasize that these are completely personal views with my limited knowledge. I do not work for any organization mentioned in this post. I also encourage you to take a look a look at my earlier blogs on ARM vs Intel.

ARM vs Intel – Not a tech war

ARM vs Intel – The way further

 

Are Smart things making us smarter?

Nowadays, we don’t have to learn how to drive a vehicle well because there are systems in the car that is taking care of many things without our knowledge.  We don’t have to remember whether we have switched off the lights before leaving the house. The smart home automation system shall switch off the lights after detecting no sound or activity for some time.

Self-driving cars are the way to go in future. In future, people don’t have to hire a chauffeur. You may just board on the car and tell it where to go. The car shall use GPS to find the optimal route and take you there, cruising through the traffic. You can get down from the car, and then the car will find an empty parking spot for itself. While you are leaving, call the car from your smartphone to be in the entrance in 5 mins. When you reach out, the car will be waiting for you with the rear door open and playing your favourite music, setting the appropriate temperature for your comfort. Awesome!! Not only that, come next the smart fridges. You can check whether there are beer cans in the fridge by sending a message to the fridge. The fridge shall detect that there are only few beer cans left, and then it can send a message for ordering beer cans from the nearest supermarket. The beers shall be delivered in your home without your involvement. Maybe we can term this as “Self-Replenishing Fridges”. The advertising gimmick for this product would be “The fridge that never becomes empty”.

I may sound like a guy who loath technology and who doesn’t want technology to enhance our lifestyle. However, I believe that I am looking at things with a more conservative viewpoint. In my view, most companies are struck in a red ocean, in which the only focus of companies is to create competitive advantage. The companies’ pursuit of doing things better than the competitors tend to expand the chasm between the technology and customer utility.

I agree that future of technology is all about convergence and integration, i.e, the seamless migration from one environment to another for the end user. In a typical day, people spend majority of their time in three environments: home, office and travel. I believe technology is about integrating all three environments together, so that when a user moves from one environment to another, the devices are aware of the movements (contextual awareness) and take appropriate actions. For e.g, when I move from my home network to my office network, my smartphone shall hide my personal profile and show my official profile. I believe consumer electronics giants such as Apple, Samsung have intentions of dominating in each of these environments. Apple has already penetrated our home with iPod, iPhone and iPad. With the tremendous success in the home segment, Apple extended its offerings to penetrate the other two environments with enterprise (BYOD offerings) and automotive (IoS in car). Once a firm has dominant position in one environment it is easy to offer complementary offerings to penetrate other environments. Similarly, Samsung is also attempting to penetrate the enterprise segment with its Samsung Knox offering. I may have missed to notice any tangible drive by Samsung in the automotive segment. However, the eco-system of Android shall work out in favour of Samsung as most of its smartphones are based on Android. With the growing prominence of automotive apps, Samsung is in a favourable position to also penetrate into vehicle with its android smartphones. I believe rather than embedded intelligence in vehicles, it is more beneficial for both the automotive OEMs and end users to extend the capabilities of the smartphones by using automotive apps. This strategy decouples the mismatch in the product life cycle of automobiles and consumer electronics technology.

It is obvious that tech firms will keep on innovating and create new trends to penetrate in each of these environments. It is also infallible that we consumers will become prey of these tech trends and depend more on these machines instead of our brains. Then I really question whether these smart things are really making us smarter or just offer us an illusion that we are becoming smart.

ARM vs Intel – The way further

In any market, firms compete for the limited market share and revenue. The payoff or returns on investment of the firms are influenced by the exogenous factors such as innovation in related technology, consumer preferences, macroeconomic conditions etc. These factors are beyond the control of firms; however, these have a direct impact on the sales and growth of the firms. Further, as firms compete for the limited market share and revenue, then the future of each firm growth is not only judged by its actions but also its competitors’ actions and reactions. In an idealistic & theoretical setting, each firm would have taken actions to maximize its returns without considering the actions of competitors and the market conditions. Both the market conditions and the competitors’ actions are unpredictable. Each firm takes some actions based on its current understanding of the competitors and market conditions. So, each firm act under bounded rationality as the dynamics of the market conditions and competitors’ actions cannot be predicted properly. Market conditions are driven by macroeconomic factors and consumer sentiments. The firm can only observe the current market state and make some guess about the future trends and then take some action in the current period. In each time period, firms attempts to take the best action, so as to maximize its long term returns on investment. There can also be some effect from the adjacent markets as well. For example, the change in price of tablet may impact the buying trend of ultra-books, in case these are substitutes. At any given point of time, firms act based on the current trends and some future expectations. In the next time period, firms observe the outcome of their actions, competitor’s action in the previous time period and the changes in market conditions, and then take action for the current time period. Thus, firms act, learn and adapt in the market. In the long run, each firm desires to maximize its rewards or profits. However, as the market expansion is limited, the conflicting objective of each firm leads to friction. Many eminent economists and mathematicians have extensively studied such competitive settings using game theory models and infinite horizon discounted cost criterion and then suggested the optimal actions and outcomes of the competing firms. In this post, I shall attempt to explore the competitive strategies adopted by firms in a market using the case study of competition between ARM and Intel in the microprocessor market.

Each firm possess certain set of capabilities that it can execute better than other firms. Sometimes it is also mentioned as core competency. These competencies push a firm away from the competitors and the firm creates a competitive advantage by differentiating its product or services from others. However, in course of time the competitive advantage based on certain set of core competency dilutes as competitors learn about this advantage and imitate it. Then, firms must move on to explore some other form of competitive advantage. Intel is vertically integrated and it has a strong presence in the PC and server segment of microprocessors market. The core competency of Intel is technological advantage as it has a long learning curve of chip design and access to fabrication unit. It can pursue shrinking the process nodes currently from 14 nm to 10 nm and maybe further. It leads the race in setting up the technological trends in the microprocessor market and then others may follow up. ARM with it fabless model of business has core competency in the ecological business model that creates network effects. As ARM supplies only microprocessor IPs, it offers flexibility to the OEMs to customize their chips as per their requirements. Samsung, Apple, Qualcomm have architectural license from ARM and thus they can modify their SoCs as per their needs. In terms of business model innovation, ARM drives the microprocessor market.

However, as mentioned earlier competitive advantage can be replicated by competitors unless those are protected by intellectual property. Intel is entering the smartphone microprocessor market aggressively, in which ARM has dominant share. ARM is also creating an eco-system from last few years to enter the server market, in which Intel has a dominant share. Going further, ARM and its partners intend to catch up with Intel in terms of process node technology going from 22 nm to 14 nm. Intel already has fab ready for 14 nm production; however, ARM partners are currently planning to reduce the process node. In terms of business model, Intel cannot completely follow ARM as the former is vertically integrated. However, Intel can do some changes around its business model to replicate something of the ecological business model. Recently, Intel agreed to manufacture ARM based chips for Altera on 14 nm node maybe to increase its fabs utilization. Further, Intel is also planning to customize its high end processors, so that clients can customize their chips. I believe Intel is slowly realizing the benefits of an ecological business model and it is attempting to pursue some options in this regard without compromising its vertically integrated business model.

Assuming that both the firms exist forever, then what would be outcome of this competition? Can we simulate this competition within the framework of game theory and then derive the optimal strategy and outcome? Last year, while defending my masters in business degree, I pursued this work as my comprehensive project. In the framework of the game, ARM and Intel were the players having some actions based on their core competencies and aspirations. Further, the exogenous impact of the market conditions was taken into factor by various market states: Bull, Bullish, Average, Bearish and Bear. Then, the game was iterated for large number of periods. In each time period, both the firms take some actions based on their current understanding of the other firm’s prior actions, current market state and the expected reward. The firms tend to take actions by which each of them can simultaneously achieve the optimal reward. A further reading on Nash Equilibrium is needed to understand the optimal payoff criterion. In each time period, the firms visit a state-action pair and each of them gets some reward. The next market state is picked up from a transition probability matrix. As the game progresses, the competitors’ knowledge about each other matures and they play rationally with less ambiguity. Finally, with this approach the cumulative payoff for each firm flattens up with no increase in subsequent periods. Thus, the market reaches equilibrium.

However, I am still wondering whether competitive effects can be modelled within the scope of theoretical framework. I believe most theoretical frameworks give good understanding of competition retrospectively. There are many variables that cannot be captured in present period: changes in customer purchasing powers, macroeconomic factors, actions of current competitors, new entrants etc. My work was limited to the quantitative simulation of the competition in the microprocessor market.

The question still remains: what is the way further in the competition between ARM and Intel considering each firm last forever? Is market equilibrium possible in this scenario and what would be the equilibrium strategies for both the firms? Is it possible to make out which firm shall win in the long term? I am not an expert in competitive market strategy; however, with my limited understanding I can just mention that each firm shall leverage its core competencies to expand their business horizon in new domains. Each firm shall jump from one emerging trend to other emerging trends to keep up pace with the market and competitor. It is impossible to derive an optimal strategy for each firm as there can be no fixed recipe for succeeding under uncertain market conditions and competitive effects. So, the strategy that each firm pursue shall be mostly emergent rather than formal in order to factor in the unpredictable market scenarios and competitive actions.

Currently, smartphones market is exploding. Many new OEMs and SoC designers are entering the market to cash on the demand. As any market becomes attractive, competition increases and thereby deteriorating the profits of competing firms. Smartphones market is already crowded with multiple offerings and OEMs struggle to differentiate their offerings from other similar products in the market. Further, there is also impact from the adjacent markets. Wearable devices are coming up and in future some of them may replace smartphones. Each firm in the smartphone market intends to differentiate their offerings. The differentiators come in areas – hardware, software, supply chain, post-sale services, disposal etc. I shall limit the scope to only hardware and software. I believe it is easier to replicate software; however, differentiation in terms of hardware will need major investment in capital and knowledge. Fabrications units such as TSMC will have to invest heavily migrating to 14 nm or further down in process technology.  ARM, Intel and few other firms such as MIPS have aspirations of dominating the smartphone microprocessor market. ARM has to struggle to maintain its dominant share with its business model innovation. Intel strives to crack ARM’s domination with technology revolution. In terms of exchange of best practices, ARM and its partners can catch up with Intel’s technology with some lead time and capital investments; however, Intel may struggle to follow up the business model innovations of the former. Currently, differentiation in smartphone segment is more limited to technology push such as true octa-core, BIG:LITTLE, symmetric processing etc; however, with adoption of smartphone saturating in the developed nations, the next big market will be developing nations such as China, India. I can assert that Indian customers seek value for money. Products with most utilitarian offering and least price shall usually crack the market. This is driving many Indian OEMs market share such as Micromax, Lava, Karbonn etc. However, price war is not an optimal answer to competition. The challenge is to pursue price reduction and customer value creation simultaneously. The current factors of competition revolve around price, battery life, performance, apps. So, it is difficult for OEMs to differentiate their offerings in the smartphone market. In such scenario, what Intel and ARM would do, so that both the price comes down and end-users value creation occurs? I believe that technology push cannot penetrate much in Indian market; a new factor of competition has to evolve. It may happen in future, we may not need high performance smartphones at all. The phone will be a stripped down version of current smartphone with excellent connectivity network. All the processing will be done in a remote cloud server. The phone shall just act as a virtual desktop providing remote connectivity to the cloud server. The memory requirement in smartphone will reduce drastically as most of the stuff shall be offloaded to the private cloud. I believe that technology enhancement may not be the only factor of competition in smartphone market. Firms should explore using technology to address customer experience in an economical way. Else, feature phones may still continue to rule the mass market in developing nations.

Both ARM and Intel are well positioned in the microprocessor market in terms of their capabilities. I believe the way further in this competition should be inclined towards understanding new emerging market trends and addressing the user needs in an economical manner. Technology push may not decide the dominant firm in long term.

My post is an attempt to understand the complex reactions and actions that firms take in a market space to gain revenue and market share. I tried to explore this using the case study of microprocessor market competition. I am not an expert either in microprocessor domain or in competitive market strategy. I just write my views with my limited understanding. I would really love to hear comments on my post.

ARM vs Intel – Not a tech war

There are numerous articles available online that analyze the competition between ARM and Intel in the mobile phone microprocessor segment. I believe that technology may not play a vital factor in deciding the ultimate winner. I sincerely welcome your feedback on this post.

ARM is a design house for microprocessors. It license its microprocessor IPs that the SoC vendors integrate with other modules to develop SoC. ARM has a fabless mode of operation, in which the IPs are procured by the SoC vendors. These vendors design the complete SoC and outsource the manufacturing to the fabrication units. Revenues for ARM are generated by licensing fees and royalty. The SoC vendors supply the chips to the OEMs of mobile phones. Thus, ARM is at the top of the value chain. The eco-system is created by the SoC vendors, fabrication units and the OEMs. The profit generated distributed over the value chain. Thus, the margin of profit for ARM is less; however, this business model emphasizes on fair distribution of the profits in the eco-system, thus ensures the long term sustainability. ARM offers two types of licenses: standard and architectural. In the standard license, ARM provides a standard offering with a specified cost, performance figure and power consumption. These offerings can then be used in the SoC development. In contrast, the architectural license provides flexibility to the SoC vendors to customize the microprocessor IP as per the cost, performance and power requirements. However, this flexibility comes with an extra price. A particular combination of cost, power and performance of the microprocessor IP can be termed as a design point. Thus, ARM with its ecological business model involves a host of other companies. The success of the entire eco-system drives the revenues of each firm. This business model has also developed a host of complementary business such as ARM simulation tool providers, third party solutions, debuggger support etc. Thus, ARM acts as a platform and generate huge cross side network effects. On one side of the platform, the SoC vendors directly interact with ARM. This constitutes the money side of the platform. On the same side, further interactions takes place with the fabrication units, OEMs etc. On the other side, the third party application providers, simulation tools developer and debugger support firms are present. This side can be likened to the subsidy side of the platform with an exception that the other side can interact with this side without the intervention of ARM. ARM has become a dominant design in the microprocessor industry with a pervasive chain of mutually dependant businesses catering to different needs of the eco-system partners. The cross side network effects is developed as more SoC vendors adopt the ARM IPs, the more tools and application development happens on the other side.Thus, ARM sits in the top of a tightly coupled eco-system. ARM has around 90\% of the mobile computing microprocessor market share. From the inception, ARM designs are inclined for low power consumption. In a mobile computing, power consumption is very crucial as it decides the battery life without charging. This is one of the USPs for mobile devices. The low power consumption of ARM IPs along with its eco-system partners has managed it a dominant position in this industry.

In contrast, Intel is vertically integrated by involving in the entire chain of activities for developing microprocessors starting from the design to the manufacturing of the chips. This has provided Intel tight control over the process and reduces time to market of its products. It can also synergize the actions among the different activities and thus achieve maximum control over cost and technology. Changes in technology can be rapidly adopted and collective experience with the interactions of various units can lead to good chip design. However, there are flaws of a vertically integrated approach. The most important flaw in this business model is that the formation of an eco-system may not be possible. Intel performs all the activities in the microprocessor value chain, thus it is highly unlikely that the benefits will spread out of the firm. This restricts the possibility of formation of a sustainable eco-system. Thus, the network effect can never boost the sales of Intel unless Intel can form some alliance for sharing the benefits and thus increase the adoption of its microprocessors. Unless, the adoption has reached a critical mass, further adoption is questionable and also the complementary services such as simulation and debugger tools has to be developed within Intel. This business model restricts the spread of Intel offerings. However, with a vertically integrated model Intel margin of return in the microprocessor market is high. Intel directly supplies chips to the OEMs. Due to high margins of profit of Intel, the products with Intel powered chips are higher in price. In case, the OEMs reacting to competitive actions reduce price, then the margins of OEMs become thinner. Thus, this relation is not symbiotic, the scales weighs more towards Intel. However, the technical capabilities of Intel cannot be neglected. With decades of experience in chip development, Intel has crossed the learning curve. This experience helps Intel to have maximum control over cost  and technology.

ARM with its eco-system model is also well placed to bring out new innovations with less lead time in case all its partners are in sync. Summing all these up, technological innovation is just one of the facets of competition between ARM and Intel. The crucial decisive factor is the business model. ARM’s business model is already matured and massively adopted. In such a scenario, Intel has to disrupt this eco-system by dominating atleast one player in ARM’s eco-system consisting of SoC vendors, fabrication units, and third party application developers for ARM or even ARM itself.

N-WinTel

The nearly monopolistic player of the erstwhile mobile phones market of the years is loosing market share at a tremendous pace. Samsung & Apple are eroding the market share of Nokia in last few quarters and I believe if Nokia does not pursue something fundamentally different soon, its market shares will further plummet in the future. The other problem for Nokia is that the emerging market is also taken by the competitors. I am aware that this issue is bitten around in many forums; however, I want to propose a business model that may create a new eco-system in the mobile computing market.

There are many reasons that have led to failure of Nokia, and I believe some of the following points hurt Nokia hard are –

  • The over reliance on Symbian OS with a proprietary model rather than making it an open platform so that apps would have been developed.
  • Android coming up with open platform so that apps would be developed easily
  • Android is free
  • Price competition from entry segment Android based mobile phones of Samsung competing against similar phones of Nokia
  • Late realization of the value of consolidation in the mobile phones segments that was launched by Apple with iPhone

So, currently Nokia is almost struck in the middle. It neither provide a low cost benefit in the entry segment nor does it have premium differentiator product. The lower segment is taken up by Samsung Android phones. The superior segment of smart phones is shared by both Apple and Samsung. The strategy of Apple is to focus on loyal marquee customers that pay a premium for the differentiated features and the Apple experience. In contrast, Samsung offers mobile phones at each price segments addressed to customers with different price sensitivities. Each strategy has its benefits. While Apple’s strategy focuses on only innovators & early adopters by launching phones with incremental features in succession; Samsung focuses on entire spectrum of customers from innovators to laggards. The laggards are mostly price sensitive. By providing phones at low prices, Samsung attracts the laggards of its smart phones to enjoy the Samsung experience. Once the laggards are hooked on to the Samsung experience, there is a natural inclination for the current laggards to move in to the late majority and subsequently become the early adopters for the next high end Samsung phones. Samsung is benefited by the step wise ascent of the customers. Nokia is not able to address any of the market and mostly following an imitation strategy to come up with new phones with some sort of distorted positioning. Going forward, Nokia should do something different to address this issue. I believe the solution is not straightforward especially in a market dominated by network effects; however, Nokia should attempt to utilize its current internal capabilities and alliances to form a sustainable eco-system where both the aspiration of Nokia and its allies are fulfilled.

Strengths Aspirations Existing relations
Nokia solid mobile phones OEM experience check the loss of market share to Apple & Samsung Nokia phones with windows OS
Microsoft strong experience in OS lead the mobile phone OS segment
Microsoft strong experience in OS lead the mobile phone OS segment WinTel
Intel strong expertise in chip manufacturing lead the mobile phone SoC segment

In the above table, it is evident that each of the firm is aspiring to dominate the mobile phones & tablets market in their respective segments. Nokia wants to stop the falling market share of mobile phones, Intel aspires to gather share of the microprocessors segment of this market, which is currently dominated by ARM and further Microsoft is competing against Android for prominence in the mobile phones OS segment. All these players have a common purpose of dominating in their individual segments in various spheres of mobile phones and tablets industry. I believe an alliance among these firms can provide them effective competing grounds against the incumbents or market leaders. Microsoft is the connection between Intel and Nokia. This connection should be leveraged by forming a multi partner alliance. Isolated technology may not be able to crack the market; an eco-system has to be developed among these firms to attract market attention.

I believe there will be many counter arguments for this strategy; however, it is a basic theory that to compete in a market dominated by network effects, a late entrant or a loosing firm should focus on its existing strengths and consolidate its efforts to a niche segment, in which it has an edge over the dominating incumbents. It is easy to get off track and believe that as the market is expanding, the entrants should launch wide variety of products. The rationale for this wide product portfolio is the belief that the expanding market will consume small quantities of each product and thus the market share will increase. Apart from the fact that network effects cannot be countered with such a strategy, there are other vital points that the firms missed in this strategy. First of all, a variety of products will increase the development cost. Second, multi homing cost is increased for the complementary offerings such as apps. For e.g, app developer can develop apps for iOS on an ARM platform. However, for Windows, an app developer has to develop for both Windows RT (ARM based) and Windows Phone 8(x86 based). So, I believe a striped down approach is better than competing in all segments of the market.

How the alliance would benefit each player?

For any mobile phones to succeed, an ecosystem has to be present around it. The platform should provide large number of apps and the app developers should be willing to creating new apps continuously. Currently, Android has a huge app developer base that is increasing the number of apps at a tremendous pace. In order to counteract the growing prominence of Android, a focused approach by the new alliance on increasing the number of apps will pay off. I believe that now each firm is focusing on increasing the compatible app base independently. Intel wants x86 compiled apps, Nokia & Windows wants windows apps; however, this leads to additional efforts for the limited app developer community due to high multi homing cost. The developers needs to provide various flavors of apps to accommodate the needs of each firm such as Windows + ARM compiled apps, Windows + x86 compiled apps. Further, due to limited spread of Windows based phones, there is less incentive for developers to concentrate on Windows rather than concentrating on iOS and Android. With a coherent strategy among Intel, Microsoft and Nokia, each of the firm will invest in developing apps for the Windows + x86 platform and this may lead to enhanced app base in less time. The focus should be on reducing the lead time for creating the app base as currently the migration to smart phones from feature phones is happening at a rapid rate. Customers will choose among the current offerings in the market that is dominated by Android based products on ARM platform. Once, the adoption has reached a critical mass, it is difficult to displace the dominant product offering factoring the value addition to the money side of the platform, i.e, end users and the subsidy side of the platform, i.e, app developers, third party support tools service providers etc. The endowment effect will also go against the entrants as the customers may not be influenced for switching unless the price of the new product is much below the price of the existing product. Thus, time is critical for Nokia, Windows & Intel.

Currently, ARM dominates more than 95% share of the microprocessor segment for mobile phones and it has partnered along with many SoC vendors by licensing its IPs. ARM has developed a sustainable eco-system around its IPs with the debugger tools and simulation environment. So, there is a huge network effect favoring ARM. There is a fundamental difference in the business model of Intel and ARM. ARM license its IPs to SoC vendor firms such as Qualcomm, Nvidia, MediaTek etc. Intel is vertically integrated and markets its chips to the OEMs directly bypassing the SoC vendors. However, most of the OEMs have partnered with the SoC vendors and thus procure SoC from them. It is a good question to ask how Intel would loosen up the ties and get attraction from the OEMs. Taking a pragmatic view, it is difficult for Intel to succeed in the mobile computing microprocessor market with the current market structure. WinTel has created hegemony in the PC industry; however, due to dwindling PC market and rising prominence of mobile computing, it is natural for Intel to enter the mobile computing microprocessor market. However, with the current prominence of ARM platforms, Intel is yet to provide a tangible value proposition to switch to x86 platform. It is highly likely that the OEMs shall still continue using ARM platforms. So, in my view Intel should start with limiting the OEM partnership to a small section. Recently, Intel has entered into agreement with Lenovo, Motorola, Samsung and may be few more OEMs for its x86 processors on mobile phones; however, it is questionable that Intel would soon overtake the ARM based offerings of the OEMs. Nokia is struggling with dwindling market share. I believe Intel should partner along with Nokia to establish its x86 platform. Nokia still has good brand value; the only lacunae of Nokia + Windows smart phones is the absence of large number of apps that an Android platform can provide. Microsoft, on the other hand, should focus more on continuing its ties with Intel for developing Windows phone OS compatible to Intel’s platform. I suggest that these 3 firms should form an alliance focused on cracking the mobile computing market by having dedicated actions on developing their offerings complemented by the offerings of the other firms. All these players are classic examples of how big firms are driven by inertia of past success misses to align to the new emerging trend. The synergies among these firms may complement each other offerings by enhancing the value proposition of the bundled offering, i.e, Nokia phones on Windows phone OS with x86 platform having a large number of apps.

I am yet to address the fundamental question on what is it’s for end users? Why the end users will be inclined to buy a Nokia phone with Windows OS on an x86 platform? What difference does it make for the end users whether it mobile phone has an x86 based SoC or an ARM based SoC? The success of the alliance hinges on these questions. A one on one comparison of features among the latest smart phones may not give many differentiators. The innovation cycle has diluted means now most smart phones have features that the users may not use. The demand of the features has fallen behind the supply. The entire focus is shifting towards convergence of utilities. The smart phones is not just a phone, it is a panacea for all needs. Apps are the major differentiator that makes this possible. Walk into any mobile phone store, the key pitch of sales person for Android based phones is the number of apps. I believe currently Nokia, Windows and Intel are working independently to increase the compatible apps for their respective platforms. Such a narrow strategy of focusing on its own platform will not close the gap created by the late entry in the smart phone market. A cohesive strategy among Nokia, Intel and Windows will definitely fulfill aspirations of each of the firm. Intel and Microsoft should expand their WinTel alliance to encompass Nokia and thus forming N-WinTel.

I am not an expert in this domain; however, with my limited understanding this is my view point. I would really love to get critical comments on this, so that I can further improve my logic or completely trash out my thoughts.