Semiconductor Socket Wars – I

September 2015 Corporate, Pricing

A Beginner’s Guide to Sockets:

So what does a semiconductor company do? At a base level they manufacture integrated circuits (ICs) that are commonly called “chips” and are used to build electronics products and applications. What do these chips do? Well the range is huge. It could be something as simple as storing some data to something as exotic as controlling the world’s fiercest weaponry. Consistent innovations in-terms of both product improvement and cost improvement have helped unlock new markets for these chip companies. In today’s world, electronics are not limited to phones, computers other such traditional applications rather it is creeping into all possible applications including apparels, health and fitness products, automobiles and musical instruments to name a few. Market trends foresee that the list will only expand in the coming years … so the times will continue to pose new challenges and excitements to the chipmakers.

To understand this article you need not be an expert in understanding chips. What I am going to talk about is not concerning the technical nitty-gritties at all, instead it focuses totally on the challenges that chipmakers face to sell these chips and most importantly survive in the industry.

What you need understand is the battleground. In the semiconductor world a battleground is called a socket! Why? In the days of history, semiconductor chips were inserted in actual sockets (a natural or artificial hollow into which something fits or in which something revolves) on a board. Today in most cases these sockets are no longer seen, instead the chips are directly soldered to the circuit board. The word, however, has survived the test of time and is still very much a part of semiconductor business lingo.

For a company, a socket means a business.  When they talk about winning a “socket” they mean winning a new business. For example let’s say a product uses a microcontroller – all microcontroller companies would be fighting to win the microcontroller socket inside that product and all other such products that use a microcontroller. Rest assured that when it comes to selecting suppliers for a socket, an electronics company is never short of options – thus it can be well understood that each such tiny socket is a fierce battleground where all the warriors are fighting for a single goal –Design win!

Types of Socket Wars

Based on my experience I would classify socket wars into three broad categories –

  1. Invader-Defender type of war- In this type of socket war there is an incumbent chip seated tight in the socket. A competing chip would have to fight it out to replace the incumbent and place itself in the socket. So in this sort of war there is one defender and multiple invaders. Consider an electronics product that has been in production for many years. All the sockets inside the product are having an incumbent chip. To win a place in these sockets, all competing chips would have to be the invader and on invasion the incumbent chip would have to play the role of a defender.
  2. War between the new world conquerors – Sometimes the design may be totally new and all sockets are up for bid. In such a war there is no defender, instead every chip is fighting it out to conquer the new world. For example when apple was deciding the chips for the first iPod each socket was a new world for all the competing chips.
  3. Alien attack – What if a socket suddenly disappears from the board? Consider that there is a memory socket in a board and another microcontroller socket. If an advanced microcontroller is released which has integrated memory, the good old memory socket may disappear totally. I call such an instance an alien attack – where a memory chip doesn’t lose to another memory chip rather all the memory chips lose out because the battlefield itself has disappeared.

The first two war types are fought between similar chips. A chip company is more or less aware of all the possible invaders to its land. More often than not they study their competition wisely and have default strategies pre-decided to counter invasions. To win a war against such invaders arsenal at disposal could include great price offers, product benefits as well as continuous engagement with the customer. At the end of the day the winner of such a war is not objectively decided but instead chosen by a customer. When the decision is left to a human choice more often than not it’s the relationship that can lead to a win.

In the case of an alien attack the attack comes from an unforeseen angle. The competitor may not be someone who is studied at all or as a matter of fact known at all. No trick from the book can best explain how to fight out an alien attack. However it would definitely be useful if in advance an “alien attack” is accounted as a valid risk during business plan stage and there is a sort of mitigation strategy in place.

Sun Tsu had summed it all more than thousand years ago: “It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.

So knowing the type of war you are in and the enemy you a facing is critical. It is also critical to know the terrain of the battleground …

The Socket War terrain

In a war that is fought on a flat battleground the mightier army (more soldiers and more ammunition) wins or let’s has a better chance to win. On the other hand terrain is hilly and one army is positioned at the hilltop then irrespective of might – the army on top has a clear advantage. In a socket war too, the terrain might be flat or hilly.

What would be a flat terrain socket war? Let’s say there are two chips that are competing for the same socket. The chips are identical in functionality and in outward shape and size. A customer would have to not undergo any design changes to replace one chip with another and there is also no effect on the final product. Let’s assume that the both are chips are also qualified for the socket. Which chip would be chosen? The above situation is a classic example of a perfectly flat terrain. From the customer’s perspective choosing between two identical chips is often based on price and supply commitments. If both suppliers were ready to put in similar supply agreements, then the socket war would definitely become a price war!

However, all socket wars are not price wars! That proves that the terrain is not always flat. Imagine that there is an incumbent chip in the socket and the customer gets a great price offer from another supplier who is selling an identical chip. Is the business under threat if the incumbent supplier doesn’t meet or beat the price offer? Not at all if there are other roadblocks to replacement. Roadblocks can vary. Maybe this new supplier is not an approved vendor. Maybe the application requires each chip to go through rigorous qualification (even if it is an exact replacement). Maybe the customers will not approve of a chip change (e.g. any change that an automotive tier-1 wants to make to even the simplest socket needs to be approved by the end OEM). The incumbent supplier may need to make a counter-offer, but the offer would not focus on meeting competition price — rather it would focus to nullify the incentive that the customer has to qualify the competing chip.

Unfortunately if the incumbent supplier didn’t understand the terrain and did not understand its position, it might end up crashing prices for no reason.

Thus to fight the socket war the three critical prerequisites are as follows:

  1. Know the type of war you are in
  2. Know the terrain
  3. Know your position

I will talk about strategies for fighting socket wars with examples in the sequel to this article.

About the author

Anirban is a core-team member at Lifkart (an Early stage Indian Construction Start-up). Prior to the current gig he worked for about 5 years as a pricing manager at Cypress Semiconductor. He holds a BE in Electrical Engineering from National Institute of Technology , India and an MBA in Marketing from Symbiosis Centre for Management and Human Resource Development (SCMHRD), Pune, India.

Anirban Sengupta
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