The Future of the Microprocessor Business

COVER STORY The Future of the Microprocessor MICHAEL J. BASS Hewlett-Packard Co. Business & CLAYTON M. Customization and speed-to-market will CHRISTENSEN Harvard Business School drive the industry from the bottom up n a century in which technology left few aspects of life ance prophesied by Moore’s Law. Named for Intel Corp.’s unchanged in some countries, the microprocessor may cofounder, Gordon E. Moore, it describes how engineers every have been the most transformative of all. In three 18 months or so have managed to double the number of tran- decades it has worked itself into our lives with a scope sistors in cutting-edge ICs without correspondingly increasing and depth that would have been impossible to imagine the cost of the chips. For microprocessors, this periodic dou- Iduring its early development. bling translates into a roughly 100 percent increase in per- If you live in a developed country, chances are good that formance, every year and a half, at no additional cost. The sit- your household can boast of more than a hundred micro- uation has delighted consumers and product designers, and processors scattered throughout its vehicles, appliances, enter- has been the main reason why the microprocessor has been tainment systems, cameras, wireless devices, personal digital one of the greatest technologies of our time. assistants, and toys. Your car alone probably has at least 40 or In coming years, however, this seemingly unshakable 50 microprocessors. And it is a good bet that your livelihood, industry paradigm will change fundamentally. What will hap- and perhaps your leisure pursuits, require you to frequently pen is that the performance of middle- and lower-range micro- use a PC, a product that owes as much to the microprocessor processors will increasingly be sufficient for growing—and as the automobile owes to the internal combustion engine. lucrative—categories of applications. Thus microprocessor Throughout most of its history, the microprocessor busi- makers that concentrate single-mindedly on keeping up with ness has followed a consistent pattern. Companies such as Moore’s Law will risk losing market share in these fast-grow- Intel, Motorola, Advanced Micro Devices, IBM, Sun Microsys- ing segments of their markets. In fact, we believe that some tems, and Hewlett-Packard spend billions of dollars each year of these companies will be overtaken by firms that have opti- and compete intensely to produce the most powerful proces- mized their design and manufacturing processes around other sors, which handle data in 32- or 64-bit increments. The capabilities, notably the quick creation and delivery of cus- April 2002 April MATTHIAS RIETSCHE/AP PHOTO RIETSCHE/AP MATTHIAS • astounding complexity and densities of transistors on these tomized chips to their customers. ICs—now surpassing 200 million transistors on a 1-cm2 die— The changes portend serious upheaval for microprocessor confer great technical prestige on these companies. The chips design, fabrication, and equipment-manufacturing firms, are used in PCs, workstations, and other systems that, for the which have been laser-locked on Moore’s Law. Executives lose most part, have been lucrative, high-volume markets. sleep over whether they can keep on shrinking line widths and IEEE SPECTRUM As with other ICs, microprocessors have for the past few transistors and fabricating larger wafers. We don’t blame them, 34 decades been undergoing the exponential rise in perform- given their history. Nor do we see blissfully peaceful slumber in their near future: this is not another article forecasting the engines. Finally, digital signal-processing chips, a key com- imminent demise of Moore’s Law. ponent of cell phones, DVD players, and other entertainment On the contrary, we believe that the top IC fabricators will products, had sales of $4 billion last year. have little choice but to invest ever more heavily so as to keep With their exponentially increasing performance, micro- on the Moore trajectory, which we expect to go on for another processors might seem unique and unlikely to follow the 15 years, at least. We don’t see these investments as sufficient broad evolutionary pattern that has played out in the past in for future success, however. most other technology-based industries. After all, the Moore’s Will semiconductors hit a physical limit? They surely will, Law phenomenon is unprecedented in industrial history. But someday. But this is probably the right answer to the wrong strong evidence shows that the same evolutionary pattern that question. The more important question is: as technological occurred in mainframe computers, personal computers, progress surpasses what users can use, how do the dynamics telecommunications, banking, hospitals, and steel production of competition begin to change? is indeed occurring in the microprocessor business. The pattern begins with a stage in which available products Bottom to top do not yet perform up to most customers’ needs. So, not sur- The stakes are high. The microprocessor market, which totals prisingly, companies compete by making better products. In about US $40 billion a year, has several main tiers. At the top are other words, competition during this stage is basically driven the most powerful chips, which are used in servers and work- by performance. As engineers design each successive gener- stations. Then there’s the PC market, dominated by Intel micro- ation of product, they strive to fit the pieces together in ever processors. These relatively high-end chips were a major com- more efficient ways to wring the most performance possible ponent of a category that rang up US $23 billion in 2001, after out of the technology available. peaking at $32 billion the year before, according to the Semi- conductor Industry Association (San Jose, Calif.), a trade group. Microcontrollers were another important category, with Hundreds of Athlon microprocessors, from Advanced Micro sales totaling $10 billion in 2001. They are generally less com- Devices, are fabricated on 200-mm wafers at a new plant in putationally powerful than high-end microprocessors, and Dresden, Germany [below]. Though designed for PCs, the exert real-time control over other systems, such as automobile 1-GHz chips perform beyond the levels most PC users need. IEEE SPECTRUM • April 2002 April 35 COVER STORY Typically, major subsystems need to be interdependently Too much of a good thing? designed—and, as a result, a competitor needs to make all the This is precisely the juncture at which the microprocessor product’s critical subsystems. During this phase, the compet- market has now arrived. Price and performance, fueled by the itive advantage of vertical integration is substantial, so manu- industry’s collective preoccupation with Moore’s Law, are still facturers do almost everything themselves. This is the way it the metrics valued in essentially all tiers of the market today. was in the earliest days of the PC industry, for example. Even so, there are signs that a seismic shift is occurring. The The next stage of an industry’s development begins when the initial, performance-dominated phase is giving way to a new era performance of its products has overshot the needs of cus- in which other factors, such as customization, matter more. tomers in the less-demanding tiers of the market. These cus- Perhaps the best evidence that this shift is under way is the tomers won’t pay premium prices for more performance, of fact that leading-edge microprocessors now deliver more per- course, but will pay extra for a product that is extraordinarily reli- formance than most users need. True, emerging applications able, or one that has been customized to meet their specific like three-dimensional games, the editing of digital-video files, needs—especially if they can get that ultra-reliable or cus- and speech-to-text tax the fastest available microprocessors. tomized product quickly and conveniently. Ease of use is another However, few people who regularly run such applications do feature that customers typically reward with a premium. so on a single-microprocessor PC. And that fact is unlikely to To compete on the dimensions of customization, quick change. In the future, as now, many of these taxing applica- delivery, and convenience, product architectures whose pieces tions will run on special-purpose or separate processors. are strongly technologically interdependent tend to give way to In any case, the users who run these applications regularly modular ones, in which the interfaces among subsystems are are few compared to the masses who use their PCs mainly for standardized. This modularization lets designers and assem- word processing, scheduling, e-mail, and Internet access. For blers respond quickly to changing customer requirements by this majority, high-end microprocessors—Intel’s Itanium and mixing and matching components. It also lets them upgrade Pentium-4, and Advanced Micro Device’s Athlon—are clearly certain subsystems without redesigning everything. overkill. Running common benchmark programs, these chips But perhaps the most important repercussion of modularization is that it usually spurs the establishment of a The Impact of Disruptive Technology cadre of focused, independent compa- As the performance of conventional microprocessors improves [red line], they first nies that thrive by making only one com- meet and then exceed the requirements of most computing applications [dotted ponent or subsystem of the product. lines]. Initially, performance is key [blue area]. But eventually, other factors—reliability, time-to-market, convenience, and customization—become more important to the Think Seagate Technology in hard-disk customer [green area]. And when a disruptive technology [orange line], such as drives, or Delphi Delco in automotive customizable processor cores, is introduced, it inevitably takes over market share electrical systems. from performance leaders. One of us (Christensen) has studied how industries that are in transition between the two stages present peril for established firms—and opportunity for upstarts.

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