Superficially, the present downturn is similar to the “technology” crash of 2001. I put technology in quotes since very little of that first internet boom involved true technology, and many people who called themselves programmers were writing plain HTML. As somebody, I forget who, said to me at the time: “surely one day technology will count again.” Of course some companies, like Amazon, Webvan, eBay or Napster, had a differentiated technology foundation to go with what was mainly a business model play but most did not.

But undeniably the boom of investment created a huge number of jobs. When the crash finally came, large numbers of them were destroyed. A lot of those people had come to the bay area attracted by the boom, and when their jobs went away they went home again. The SoMa warehouses in San Francisco emptied out as fast as they had filled and apartment rents came back down. Many people who had left the EDA industry to make their fortune returned to a place where their knowledge was still valued. As is often the case, the people in EDA (at least the ones I know) who made it big in the internet companies were people who left early, before it was obvious that it was a good idea. People who joined Yahoo before it was public, who formed eBay’s finance organization or founded small companies that built important pieces of the plumbing.

This downturn seems different. Many of the people being laid off (and I don’t just mean in EDA, in silicon valley in general) are people who have been here for decades, not people who came here in the last few years as part of the gold rush. Of course, veterans have been laid off before and then immediately re-hired when the eventual upturn came.

But again this downturn seems different. I don’t think that many of these jobs are coming back again. Ever. EDA in particular is undergoing some sort of restructuring, as is semiconductor. We can argue about precisely what we will see when the dust settles, but I don’t think many of us expect to see the 2007 landscape once again.

I’ve pointed out before that it is obvious that EDA technology is required since you can’t design chips any other way. But the EDA industry as it was configured will not be the way that tools continue to be delivered. It is hard to imagine that Cadence will employ 5000 people again any time soon, to pick the most obvious example.

The many dozens of EDA startups that used to employ significant numbers of people in aggregate aren’t coming back either. Any startups that do get formed will be extremely lean with just a handful of people. Partially this is driven by technology: with modern tools and open infrastructure, it doesn’t take an EDA startup half a dozen people and a year or two to build (duplicate) the infrastructure they need on which to create differentiated technology. It takes a couple of guys a couple of months. Partially size is driven by investment. With public markets closed to EDA companies (to everyone right now but to small software companies probably forever) then the only investments in EDA that makes sense are ones that still make sense with $25M as a target acquisition price, not $250M.

A recent report by Accenture (it’s called "How Semiconductor Companies Can Achieve High Performance by Simplifying Their Businesses” but you have to pay lots of $ to read it) reveals that some semiconductor engineers are "disenchanted" in their work, and "fearful of losing their jobs." That’s the kind of revelation that really makes you want to reach for your wallet.

Facetiousness aside, the report also points out that as semiconductor companies go fabless (or at least fab-lite in the meantime) then the dynamics of what is valuable change. Most obviously if you are in technology development (i.e. semiconductor process development), which is no longer required. And as I’ve pointed out, once you don’t have a fab, there is often not a lot of justification for the particular combination of businesses that find themselves in the same semiconductor company. The weak nuclear force has gone to zero and all those nuclei are going to fly apart.

Silicon Valley is a unique ecosystem, the center of the unverse for technology. But it is changing in form in ways that are not yet clear.

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