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If a dog ever caught a truck, what would he do with it? - Or ... be careful what you wish for…

Posted: 10.06.09

Remember the old joke, we lose money on every unit, but we make it up on volume? Sometimes, I wonder if that’s what we’re doing in the electronics business.

Last week, at two conferences, on two different coasts, we got the lowdown on big to really big systems and the really small systems. At both conferences a senior person commented on the scale of things.

Numbers impress folks, and big is always better. Somehow investors, fans, bloggers, reporters, and product managers translate the bigger numbers in markets to automatic growth. Look at the color of the grass over there they say, reminding me of “Pay no attention to man behind the curtain,” the basic move of all magicians.

And in addition to moving into what they call adjacent markets, they want to continue to dominate the ones they’re already in, but which somehow no longer represent the pot of gold they once did. PCs are nice says Intel but look at those GPUs and mobile phones. Games are OK says Nvidia, but look at those supercomputer and mobile phones. CPUs are fine says AMD, but what about graphics and CPUs together, wouldn’t that be better? Mobile phones are great says ARM, but have you seen those netbooks? And all of them look at the staggering large number of embedded systems and wonder how they can either enter that market or get more of it—tens of billions of units they drool, TENs of billions, and then they fall on to the floor shaking with wild wide open eyes. Tens of billions, every year, holy cow.

Who are the semiconductor companies in this tens of billions market? Well of course Intel is there, as is Samsung, Renesas/NEC, Freescale, TI, and Microchip to name the top players. And many of them use ARM microcontrollers or processors. All these companies and more have a market worth about $30 billion or less. Microchip for example, one of the big names in embedded is a $900 million company. The combined sales of Renesas and NEC, both losing tons of money BTW, for embedded is about $10 billion. Freescale gets about $4 billion of its revenue from embedded. Samsung maybe gets $3 billion out of embedded.

Embedded systems include everything from your watch to your dashboard, your refrigerator to your alarm system, toll booths and ATMs. The categorizations of what is and isn’t an embedded system vary from company to company depending on how good they want to look in that market. For example, are SoCs in STBs embedded systems or CEs? Are SoCs in handheld military systems embedded systems or government & military?

The point is the Embedded Systems market is so vast and so ill defined you can make it whatever you want to hide loses, build up sales on your financial statement, or start a new business. You might just as well call it Electronics, it’s about as meaningful. But there’s tens of billions of them, whatever they are.

And, the tinier and more ubiquitous these things become, the smaller the ASP and subsequently the margin. Now why would any sensible CEO go after a market with lower ASPs and margins – because they can make it up on volume? Did I mention there are TENs of billions of them!?

Device Annual shipments Direct connect display Semi ASP GM
Supercomputers 1,000 1 to 3 (more remote) $15,000 35%
PCs & servers 300,000,000 1 to 2 $400 25%
Handheld devices 1,000,000,000 1 $100 20%
Embedded devices 10 to 15,000,000,000 1 $10 15%