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Despite severe shortages, chip innovation remains hot

Posted by: Yoyokuo 2022-10-26 Comments Off on Despite severe shortages, chip innovation remains hot

A global semiconductor shortage has clouded the plans of automakers and other companies. But for Silicon Valley executives like Aart de Geus, there is a silver lining.

He is chairman and chief executive of Synopsys, the largest supplier of software used by engineers to design chips. The position gives Mr. Geus an accurate view of a 60-year-old industry that has only recently shown its roots.

Now, everyone seems to want Geus’s opinion, as he showed in the dozens of emails, phone calls and comments he received from a recent online meetup for clients. Synopsys said 408 companies attended the webinar, more than double the number at the last in-person event held in 2019, and many were not traditional chipmakers.

They come from cloud services, consumer electronics companies, defense contractors, auto parts providers, U.S. government agencies, universities, bitcoin miners, and furniture manufacturers. Their first question was: How to develop chips faster?

Even as the chip shortage spells trouble for all walks of life, the semiconductor space is entering an era of surprising innovation, with venture capital funding that has traditionally eschewed chips proliferating, from industry giants to innovative start-ups.

For example, Taiwan Semiconductor Manufacturing Company and Samsung Electronics have tackled the difficulty of packing more transistors per silicon wafer. IBM announced another 2nm chip on Thursday, signaling the continued strength of the U.S. in the technology race.

Perhaps most strikingly, new chip companies are flooding in. For years, equity investors thought semiconductor companies were too expensive to set up, but in 2020, 407 chip-related companies raised more than $12 billion in venture capital, according to CB Insights.

Although 12 billion is only a small part of venture capital, the total investment has doubled compared to 2019 and is eight times that of 2016. Synopsys tracks AI chips designed by more than 200 startups and covers everything from smart speakers to self-driving cars.

For example, Cerebras, a startup that sells full-silicon-sized artificial intelligence processors, has attracted more than $475 million in funding. Groq, a startup whose CEO previously helped Google design an artificial intelligence chip, has raised $367 million.

“It’s a miracle,” said veteran chip designer Jim Keller, whose resume includes work at Apple, Tesla and Intel, and now works in AI. Chip startup Tenstorrent. “Ten years ago, you couldn’t do a hardware startup.”

This trend isn’t necessarily good news for chip customers, at least in the short term. Scarce supplies of many chips have manufacturers scrambling to increase output and adding to Washington’s concerns about reliance on foreign suppliers. The additional demand could exacerbate the shortage, which is expected to continue into 2022.

The chip company’s earnings showed high demand in the last quarter to the end of March. For example, revenue rose 27 percent from NXP Semiconductors, a large maker of automotive, communications and industrial chips, despite the temporary closure of two Texas plants due to the cold snap.

Historically, the industry has been notorious for booms and busts, usually due to fluctuations caused by the purchase of specific products such as PCs and smartphones. Global chip revenue fell 12 percent in 2019 before rebounding at a 10 percent pace last year, according to estimates from research firm Gartner.

But there is growing optimism that the cycle should ease, as chips are now used for so many things. Philip Gallagher, chief executive of Avnet, a large electronics distributor, cites examples such as sensors tracking cows, flow meters for taps and utility pipes in beer kegs, and thermometers. The number of chips in major products such as cars and smartphones has been growing, he and other executives said.

“This is a long-lasting growth cycle, not a short-lived spike,” said NXP CEO Kurt Sievers.

Longtime industry watcher Handel Jones, who heads consulting firm International Business Strategies, expects total chip revenue to grow steadily to $1.2 trillion by 2030, up from about $500 billion this year.

This growth is likely to come as the industry fundamentally changes. A growing number of companies have concluded that software running on standard Intel microprocessors is not the best solution to all problems. So companies like Cisco Systems and Hewlett Packard Enterprise have long designed specialized chips for products like networking equipment.

Giants like Apple, Amazon, and Google have all jumped in on the action recently. Google’s YouTube division recently unveiled its first in-house developed chip to speed up video encoding. Volkswagen even said last week that it would develop its own processors to manage autonomous driving.

Pierre Lamond, a 90-year-old venture capitalist who joined the chip industry in 1957, said: “Chip design teams are no longer just working for traditional chip companies. They are breaking new ground in many ways.”

Keller and others have said that almost no activity would have been possible without advances in design software from Synopsys and its biggest rival, Cadence.

Chip-design software became popular in the 1980s to simplify the task engineers once used to do with pencils and drawing sheets and meticulously draw transistors and other components on chips. Software tools are constantly evolving, Mr. de Geus said, and some automakers now use the simulation capabilities provided by Synopsys to simulate the workings of future chips in order to write software for them in advance.

Synopsys, which he co-founded in 1986, has grown steadily through acquisitions, bringing its valuation to $36 billion.

The new growth comes from what appears to be a problem, de Geus said: Moore’s Law is slowing, and some companies are using Synopsys tools to design entire systems as well as aggregates of smaller chips that work like individual processors.

In a recent presentation, Mr. de Geus demonstrated how artificial intelligence enhancements enable Synopsys tools to automatically determine the best placement and connection of circuits on a chip. With artificial intelligence, a system managed by a single engineer can work two to five times faster than a team of designers, Mr. de Geus said.

“It’s pretty cool to use artificial intelligence to design artificial intelligence chips, it’s like science fiction,” he said.

Industry veteran Rick Lazansky, founder of Silicon Catalyst, which provides startups with donated design software and other services in exchange for equity, said EDA software is the biggest expense facing startups.

The company estimates it has assessed more than 400 such businesses and selected 38 to help. One of them, Sonical, is developing chips to power an earbud computer that uses artificial intelligence to mix sounds around a user with those delivered by devices such as smartphones, said Gary Spittle, CEO of Sonical, one of them.

Spittle said that despite the startup’s success, he’s still having trouble attracting venture capitalists who continue to favor businesses like software. Aron Kirschen, CEO of Semron, echoed this sentiment. Semron is a German startup working on an augmented reality chip that can be attached to contact lenses.

He is helped by Berkeley Skydeck, a UC-affiliated business accelerator that assists 130 startups every six months. So far, it has picked only seven semiconductor-related technologies, but it wants to pick up the pace as more investors flock to the field.

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