I cannot stress enough that where the manufacturing is, is where much of the research and development eventually goes - it is already happening. China/Taiwan effectively built a Trojan horse (with the mfg) and now is slowly but surely receiving the higher end jobs as R&D centers are now being built left and right. At current pace we're going to be a country of administrators and CEOs... and Walmart greeters (but you'll never take away our Facebook).
Anyhow... via Bloomberg:
- Silicon Valley has lost its appetite for silicon. While venture capitalists are pouring money into social networking, e-commerce and online-game companies, investments in chipmakers are close to a 12-year low. And yet semiconductors -- made from silicon wafers -- provide the brains for everything from computers and mobile phones to nuclear missiles.
- At issue is the expense to get a startup off the ground. Chipmakers spend millions developing and testing their designs before they even know if an idea is viable. Those costs have pushed the industry abroad to countries that offer tax incentives and subsidies unmatched in the U.S. Meanwhile, the expense of starting software and Internet companies has actually gone down, thanks to cheap Web-based programs and services.
- “There are no lack of ideas, but it’s becoming harder and harder to find investors,” said Ken Lawler, a general partner at Battery Ventures in Menlo Park, California. “It takes too much money and too much time.”
- That contrasts with China, whose role as a manufacturing hub for semiconductors is helping it play a bigger role in design and innovation. The country’s worldwide share of chip- related patents is expected to rise to 33 percent this year from 22 percent last year.
- “The U.S. has got a lot to be concerned about from a global competitiveness perspective,” said Matt Cown, co-founder of venture capital firm Bridgescale in Menlo Park, who formerly worked in corporate development at Intel Corp.
- Venture financing of U.S. semiconductor companies dropped 36 percent through the first three quarters of this year to $894.9 million, down from $1.39 billion in the same period in 2008. Last year, venture capitalists invested a total of $863.8 million in chip companies, the lowest level since 1998. First-time venture investments in chip companies accounted for 1.1 percent of total initial funding this year, the smallest category among 16 industry groups tracked by the NVCA.
- Software companies received the highest amount, with 17 percent. In the past two years, venture capitalists and other investors have piled hundreds of millions of dollars into social-networking companies such as Facebook Inc. and Twitter Inc., online-game maker Zynga Game Network Inc. and Web-coupon provider Groupon Inc. Each is valued in the billions.
- “Semiconductors aren’t as sexy, you don’t get the valuations, and you don’t get the multiples,” said Manuel Hernandez, chief executive officer of Hercules Technology Growth Capital Inc., a Palo Alto, California-based firm that provides debt financing to startups. (very true - do you think Americans would be stepping on each other to bid up the "Applied Materials of China!" IPO to the moon as they did Youku and Dangdang? Nah!)
- The term Silicon Valley was coined in the 1970s and refers to the 50-mile stretch between San Francisco and San Jose, where companies such as National Semiconductor Corp., Intel and Advanced Micro Devices Inc. were using silicon to create computer components. Nowadays, a state-of-the-art chip plant costs more than $4 billion and has a useful life of about five years.
- Most companies don’t even consider manufacturing their own products, choosing to outsource to Taiwanese businesses instead. Taiwan surpassed the U.S. in terms of production in 2005 and has been adding to its lead ever since.
- “It used to be that we started companies here and we didn’t think about going offshore until we were substantially big,” Banatao, 64, said in an interview at his office in Palo Alto. “At the outset now, as we fund the company, we think about going outside right away."