Semiconductors and Simplicity - building blocks for a global community.
Keynote speech ETRE Athens
Mr Chairman (Alex Vieux of Red Herring), (fellow panelists), Ladies and Gentlemen,
It's a great pleasure to join you in Athens for this year's Roundtable Exhibition, and to take part in the discussion on building a global community in the field of advanced technology. Addressing such a distinguished group of builders should be easy ... ... because we make the bricks.
These bricks are the semiconductors that lie at the heart of every technology enterprise in aerospace, information technology, healthcare, automotive, telecommunications, and identification. You name it; our semiconductor industry delivers the bricks from which ALL advanced technology is made. We call them chips.
But there's a problem that any house-builder would recognize: bricks -- or chips -- just don't get enough recognition. You might build a whole house out of them, but once it's finished they become almost invisible.
We think that will change as people understand just how smart tomorrow's semiconductors will be. We think people need to understand the vital role played by the semiconductor industry in the creation of a more integrated global community of technology providers, focused on the needs of end-users.
What I hope to show you this morning is rather more than the simple truth that semiconductors are important. I have three themes:
- First, I want to give you a vision of the future based on the enhanced power of new-generation semiconductors. Step-changes in technology and miniaturization are building ever-greater intelligence and value into semiconductors.
- Second, an enhanced research and design capacity for semiconductors is essential to the wider European economic and social project. This is vital if you are to create winners - winning products, winning businesses - and above all a winning European Community in the competitive global scene.
- Finally, my presentation is entitled "Semiconductors and Simplicity." Simplicity is our shorthand for focusing on the needs of users. This is the route to true innovation on which the future of technology depends.
A Vision of the Future
Because semiconductors are small - and with the advent of nanoelectronics getting smaller all the time - it's easy to forget them. But this $213 billion a year industry is the underlying resource for almost all other advanced industrial areas, so it carries a lot on its shoulders; such as the $1,200 billion-plus electronics industry; such as the $5,000 billion-plus telecoms, internet and broadcast industry. So we are at the inverted base of a pyramid representing 10% of the world's GDP.
What's happening today is that advances in miniaturization, in on-chip intelligence and the advent of pervasive technologies such as ambient intelligence will make semiconductors highly visible "stars" in their own right. Bio-sensors are a great example of this. In reality, they are chip-sized healthcare devices able to detect chemicals in the human body that are indicators of disease.
Today, Semiconductors are already pervasive:
- Take the automobile industry, where electronics now comprises 20% of the production cost of each car. Not just for the comfort and in-car entertainment. Semiconductors control the safety systems and airbags, immobilizers and alarms, power train systems, tyre pressure gauges, instrumentation and navigation.
- Take mobile and personal communication. That includes mobile phones with TV, MP3 and FM radios inside, or phones that combine fixed line and VoIP (about which you heard yesterday from Skype's Niklas Zenström).
- Look around the home: there's TV on the PC, new set-top boxes that will link your home to systems for health monitoring, security, information and - of course, entertainment.
- In your pocket you've probably got a fob or card using RFID or NFC that gets you into the office - or onto the subway. Semis are increasingly important in identification for government and secure banking.
Now let's take a quick tour of what's coming down the line in terms of design-led innovation involving semiconductors. The easiest way is for me to give you a brief taste of two recent exhibitions by Philips.
Just a month ago Philips laid on a show of technology concepts in Paris, which was called the Simplicity Event. This exhibition showed vision of the near future - 3 to 5 years out - and the types of products that will surround us. What struck me was how the new functionality of semiconductors is driving change.
- Take lighting: the new wave is all LEDs - and these of course are semiconductors. Lights that change color when you squeeze them; that change like a chameleon to match the color of furniture or even your clothes.
- Take wellbeing in the home. Solar-powered air sensors driven by semiconductors can track air quality, humidity, pollen count. There are even devices to help grow your kitchen herbs
- Communication between family members changes too: All those yellow Post-It notes and To Do lists on the refrigerator make way for an electronics bulletin board that connects to each person's mobile phone. Smaller, more powerful chipsets make this possible.
Next, I would like to give you a peek at this summer's Corporate Research Exhibition at Philips. Four months ago we invited 175 strategic customers to see some of our "work in progress". The show was organized around the themes of Healthcare, Lifestyle and Technology, so I'll just pick one example from each.
- In Healthcare there's Hands-free Interaction in the Hospital - a system allowing surgeons to control medical equipment by speech recognition. This is already being tested at Karolinska University Hospital in Stockholm, Sweden.
- In Lifestyle we are developing photonic textiles - interactive textile lighting systems that weave inorganic LEDs into fabrics for glowing cushions or pixellated floor mats.
- In Technology researchers are developing passive keyless entry systems for cars, which can detect the presence of the owner's key fob.
Creating Winners for Europe
This - and much, much more - is what the future holds. Or can hold. I say can because none of this is actually a done deal.
Fifteen years ago, few could have guessed that Europe's troubled microelectronics industry -- then clearly trailing its US and Japanese competitors - would even survive. Today Europe has three semiconductor companies in the global top ten and sets global standards in GSM mobile telephony, in smart cards and automotive security. All thanks to years of heavy investment from private industry and national, regional and EU programs.
If we want Europe's technology champions to continue as winners, then we must make sure that Europe's own semiconductor industry continues to be a winner too. As I said before, this is an industry that carries a lot on its shoulders -- because we make the bricks from which all advanced technology is made.
The thinking enshrined in the Lisbon Commitments remains valid - even if the timetable has slipped. Europeans are still in broad agreement that ICT is the fundamental engine of innovation, competitiveness and future growth.
But we need something more energetic than broad agreement. At present, a proper European policy for semiconductors is a bit like apple pie: no one's against it, but no one's exactly for it either. There isn't a popular consensus that semiconductors are central to the future in the same way that Europeans are proud of - and willing to fight for -- Airbus or the automotive industry.
Getting to where we are today took huge effort - and now more effort is needed. The hard facts are that doing research of the kind you've just seen, consumes 20 - 25% of all sales revenues of the average semiconductor company. This year for example, the semiconductor industry in Europe is investing EUR 3.5 billion purely in R&D.
It costs up to US$ 4 billion to build a single plant making silicon wafers. Europe may represent 20% of the world semiconductor market - but just 10% of investment in production is here.
You have all seen the drift of manufacturing plants to Asia, where two thirds of the 300-mm wafer facilities under construction are now being built. The reason is that Europe's strategic competitors (like Asia, USA) are rolling out the red carpet in the shape of incentives that lower the cost of capital.
And European wage levels are very high, while our labor productivity does not make up for these high costs. On the contrary, the average European works around 1,300 hours per year compared to around 2,000 hours for Asians.
In passing I must say Europe would do well to consider returning to 40+ hour work weeks.
Let's face it, the transfer of commodity manufacturing to Asia is not going to stop any time soon. Certain R&D activities will also be established in the East, not in the West. Let's not forget that each year 2 million engineers graduate in China and another million in India. This is an eager workforce for future R&D work, and not at all of fundamentally lesser calibre than Europeans.
So the question is: "how can the European semiconductor industry maintain and enhance its competitiveness?"
Philips Semiconductors is a global company with R&D and manufacturing in Europe, the US and Asia. Yet our roots are here
in Europe, so we feel the dilemma very keenly. We battle to cut costs to keep our European research and our manufacturing
plants viable. But we are a global business with 60% of our sales in Asia and need to face the realities or work to make
the future realities acceptable to stakeholders. We have to think about this on a daily basis - and we think Europeans should
start doing the same. Our answer is to focus on knowledge. Europe's destiny is to be part of the future "knowledge
economy" and the consequence of our high standard of living is that we have to specialize in high-end, knowledge-based
jobs.
Foremost, we need to retain excellence in R&D. And while maintaining competitiveness isn't the same as keeping
all manufacturing jobs, it is also important that the competencies of manufacturing on nanotechnology scale are preserved
in Europe - as R&D and manufacturing on this level are highly interdependent.
Philips Semiconductors spends 19% of annual sales in R&D. And of that global total, around 80% is spent right here in Europe.
In terms of innovation, Philips certainly plays its part. We have over 115,000 registered patents and last year we were first on the World Intellectual Property Organization's ranking of new patent winners for the third consecutive year.
The European Commission has promised to commit 3% of the EU's GDP to research. But if Europe is to meet this target it is time to move from promise into action. Recently Günther Verheugen, the EU's industry commissioner, acknowledged that the EU is not competitive enough as a location for research.
The US and Japan attract more R&D spending than Europe - while India and China are fast catching up. In the US, the state of New York is subsidizing Albany Nanotech to the tune of around US$ 750 million this year, plus another $ 250 million from other sources. Albany Nanotech claims US$8 billion in investments since 2002. This benefits large companies like IBM and AMD.
European companies are playing their part through intensive investment and over the last decade have put € 30 billion into production and research facilities in Europe. But the gap between industry's spending and public investment in Europe is widening.
This is where we need help. The European Semiconductor Industry Association's 2005 Competitiveness Report sets out clearly what policy initiatives are needed to confirm Europe's status as a winner in the technology stakes:
- Tax credits for R&D spending
- Closer ties between education and industry
- Strengthening of transnational and EU-supported programs like Medea+, ARTEMIS, and ENIAC
- Policies to create "high-tech ecosystems" where researchers generate more innovation.
- Public-Private partnerships to create "centers of excellence" where industry receives special support.
- A level playing field with incentive schemes, IP protection, and less red tape.
We must recognise that the new battlefield of international competitiveness is intellectual property. To win, Europe needs a research infrastructure and skilled people capable of delivering standard-setting innovations. A strong R&D base, combined with enhanced labor productivity can keep some high tech manufacturing jobs in Europe. Not all jobs, but enough to retain "critical mass."
Just as many of the world's PCs are today badged to show they carry a well-known US chipmaker's products inside, so in future many of the products assembled in Asia could carry a "Europe Inside" badge. In fact it's already happening: Philips originated the Nexperia platform for flexible chip design. This chipset is used in 28% of all DVD recorders and 7 out of 10 DVD+RW recorders. Nexperia is a driver of mobile communications too...
Semiconductors and Simplicity
Of course, none of this makes sense unless the semiconductor industry delivers applications and technology relevant to our customers. Making technology that's advanced, easy to experience, and designed around the needs of users is the Philips answer to the question of how to build the future. Our word for this is simplicity - part of our brand promise of sense and simplicity.
We think simplicity will also help European industry address mounting competition in the global knowledge economy.
Let me explain. Retaining technology leadership demands a deep understanding of customer needs to develop new categories around a vision of a world where technologies are intangible, invisible and seamlessly integrated in our environments. Simplicity means getting researchers and marketers working together sooner, and breaking down barriers between corporates and educational institutions.
Simplicity is also about adapting business models to fit these changing needs. Global enterprises need to become truly flexible by adapting their design, marketing and technology capabilities to regions and markets. So the very heart of our new business model is flexibility.
It may no longer make sense to own production facilities for all categories, whether located in Europe or in other countries. Instead, excellence in technology and marketing are the keys to sustained profitability, with only high-end manufacturing still part of the business. That explains much of the business renewal that has been going on at Philips Semiconductors.
In fact, our journey toward simplicity has meant a transition from a largely verticalized manufacturing organization to centers of excellence focused on people, sales, and technology. Flexibility is about the switch from manufacturing to marketing, with a strengthened commitment to innovative partnership.
For example, In the Eindhoven/Aachen/Leuven region a series of private-public partnerships has created hotspots for cooperation in areas like automotive, microelectronics and healthcare. Companies in these "ecosystems" share resources, exchange views and ideas, and inspire each other through a process we call open innovation. A successful example of this model is located at Crolles near Grenoble.
The Crolles model works so well that a number of companies are planning a similar Pôle de Compétitivité (PdC) based on nanoelectronics to be located the Netherlands. Later this month a team from the Netherlands will be holding talks with French officials at Crolles. Together, the private and public sectors could invest up to EUR 5.5 billion to build a research-based PdC for nanoelectronics. Next month we are launching a EUR 118 million pilot program involving about 40 companies. Come and join us!
Conclusion
Ladies and gentlemen,
The success of the knowledge economy we all want so badly, will in the end be measured by the
real innovation it has produced. That's where we believe European industry should focus its efforts.
Building a global
community is not about transferring benefits from one side of the planet to another. Globalization is not a zero-sum game
or just a tussle about where to locate manufacturing plant. It is about creating win-win situations where all countries
benefit from increased international flows of capital, goods and services.
Europe's technology industry - with its strong record in research, design and marketing - has much to gain from this process. But for this effort to be crowned with success we all need to value and nurture the health of the underlying industry on which all this is based - the semiconductor industry.
Thank you.