Fear, Uncertainty And Mobile Phones: Is The Industry A Blackhole?
By Mike Masnick, Fri Jul 30 23:00:00 GMT 2004

The semiconductor industry is suddenly afraid that mobile phones with ever-increasing features will represent an "inescapable blackhole" for the chip business. Apparently, they haven't paid attention to history.

There's just something about the "c" word: commoditization. Writer Nicholas Carr touched off a firestorm in the tech industry by suggesting that IT doesn't matter any more because it was becoming commoditized. While his ideas have been ably torn apart by many, it appears that some are modifying the argument into another area, as well: semiconductors and mobile phones. Ron Wilson, of the EE Times, is getting plenty of attention this week for claiming that the mobile phone is a "catastrophic vortex" destroying the semiconductor industry. It makes for some unique imagery, but it fails to look beyond a bit of fear mongering from those within the industry to realize, like every other time in history, commoditization opens up many more new opportunities for each aging industry it hits.

For anyone in the semiconductor industry, this should be no surprise at all. After all, this is an industry that cannibalizes its own products every few years. They should have learned by now that commoditization is an opportunity, not a threat -- and most certainly not a situation with "no escape" and "no return" as the article claims. The difference, of course, in this situation is that Wilson is no longer describing commoditization within the semiconductor industry itself, but in the mobile phone industry. The fear is that as the phones get more features, there will be fewer standalone devices that will require chips. At the same time, since the phones are often sold by carriers who are more focused on recurring service fees rather than hardware costs, the costs of the hardware are being continuously pushed down. Thus, there are fewer devices, all of which are under intense downward pricing pressure.

There are many problems with this argument. First, these is no clear evidence that people view mobile phones as a commodity in any way. In fact, sales of higher end phones have been driving the market lately. However, even if the premise is granted, and the phones are commodities, whose only purpose is to "suck in a good portion of the industry, [via] convergence," the conclusions do not make sense. They assume a constant world. They assume that as various electronics devices, from mp3 players to digital cameras to electronic organizers, get converged into the mobile phone, that all of those losses are permanent, and there are no other changes in the world. That, simply speaking, ignores the impact of putting all of those devices together and connecting them to the rest of the world.

Right now, the mp3 players, the PDAs and the digital cameras really are "standalone" devices. They can be plugged into a computer, but on their own, they are disconnected from the world. The impact of putting them into a phone, and making them connected all of the time isn't a "blackhole"; it's a huge opportunity. As these devices get connected, there are more opportunities for things to connect them to. The convergence of all of these functions into a single device makes them more useful to consumers, and gives them more reasons to use them for other purposes as well. With the rise of things like Zigbee, home control and home automation become new worlds of opportunity -- controlled from that very mobile phone that was supposedly killing off the entire market. It's only fitting, of course, that just days after Wilson wrote that system-on-chip companies "will be drawn in... to their doom," ATMEL Corporation came out with the first Zigbee ready chipset. Certainly, as Wilson suggests, a company that had planned to make its money forever going forward based on the same electronics devices they supply chips for today, would be doomed. However, any company that believes markets don't change, or that it will have to adjust its business model and find new customers over time doesn't deserve to be in business in the first place. Wilson's doomsday scenarios may come true for companies that sit still and assume the world will too. However, for a company that recognizes the what's happening in the market, the world appears to be full of gigantic opportunities.