Wow. Judging from the response (in the blog comments, emails and phone calls I got) to the earlier post I think I hit a nerve. Nobody in semiconductors or EDA likes to be told they are not innovating. But the VCs that responded, as well as some people in EDA, where generally in agreement with me. I think it may come down to the definition of the term.
I did some looking and found a blog that actually puts it in a way that meets my definition. It's called Broken Bulbs. Simply put, it is the "the profitable implementation of ideas."
That's where I think the semi industry is missing it, because they have not been profitable in a long time. The reason it isn't profitable, from the top end custom chip all the way down to the EDA tool, is because they are not concentrating on innovation. They are patching holes and it may be time just to throw the cloth away.
But let's look at the profitability issue. Let's look at the big daddy, Intel. Since 2000, Intel's stock is down 50 points and there hasn't been a stock split in over a decade. If you want to make a growth investment, Intel is not the place you want to do it. Over the same time frame, Apple's stock has split twice and is not multiplied in value 6 times over 2000 prices. Google hasn't done as well as Intel over the past decade. It's value has dropped rather precipitously and not its valued only 300x that of Intel. So strictly from perception, Intel is not seen as a very innovative company -- except by people in the semiconductor industry.
Semiconductor profitability as an industry is starting to rise again, with the economy. I'm sure EDA will also see a rise of revenue. But there are many companies that have not just survived, but thrived during the economic downturn. They did it through innovation. That's a catch phrase even in the semi industry. good companies innovate their way out of bad markets. The semi industry did not. They just held the line.
Here's another way of looking at it: My partner in Austin, Joe Basques, said the other day. If you don't know what the problem is, you can't innovate. The semi industry is dealing with lots of problems, but the haven't figured out THE problem. They are a sales driven industry -- the entire industry-- not market driven. So every time a customer bitches about a glitch, they throw their 30 percent R&D budget at the glitch, hoping to keep the customer happy... until the next glitch hits.
In the meantime, when they get approached with a revolutionary way of doing something--in other words, something that solves THE problem -- They kick it to the curb because it might kill their core product line.
Intel use to be good at solving THE problem. They would just, as a matter of culture, obsolete the previous product. They have been trying to do this for a while, but they haven't figured out what THE problem is to make that possible. ARM, on the other hand, has been doing pretty good by having systems designers (their customers) figure out how to innovate with their platform. But ARM isn't the innovator. their customers are.
There is a large semi firm (I mean like one of the top 5) that has been talking with an innovative company about what could be defined as THE problem in the semi company's world. The little company has the answer. All the engineers say the innovator has the answer. The bean counters say that's the answer. But for two years, they bean counters and engineers have been hunkered down trying to reverse engineer the answer so they don't have to pay for it. They estimate the 2-year wait has cost them $1B in sales. But still they haggle over the price of the answer, that would be 0.0001 percent of that loss.
There is a large semi-equipment company that developed a new technology for testing semiconductors. It would reduce the cost of test by a factor of 10. And when I say cost, I mean reduction of manpower, slashing the cost of equipment and making the entire process more efficient. There were customers who had purchased the first generation of the product and are still using it. But the company realized that the new tech would kill their primary product line that was, essentially, 20 years old. So they killed the project, destroyed the remaining stock and have locked the patents away.
I have a bunch more examples that essentially would make the semi industry profitable, and I mean like 50 percent increases in revenue, in two years. But they won't do it. They are too comfortable with the way things are.
That's not a culture of innovation. That's survival mode in my definition.