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Format Wars, Overseas Investment and Apple iPods - February 06,
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February 06, 2006
Format Wars, Overseas Investment and Apple iPods

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Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Jack Horgan - Contributing Editor


by Jack Horgan - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!


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Introduction

Over the last couple of months I have observed several items in the industry press and elsewhere which I felt had some interest and relevance to EDA bit which did not warrant dedicating an entire editorial individually.

Format Wars

As philosopher George Santayana is often quoted as saying "Those who ignore history are condemned to repeat it." In the nineteen seventies there was something that some have called the "VHS-Betamax war" where two incompatible formats for video cassettes fought for market dominance.

Sony introduced the Betamax home video system in 1975. The name Betamax is derived from a Japanese word "Beta", which apparently means quality plus "Max" to imply maximum quality. Betamax was an extension of the professional and industrial U-Matic format that Sony released in 1971 in Japan. VHS (Video Home recording System) was introduced by JVC in 1976.

Consumers, content providers , duplication and distribution firms, manufacturers and others were impacted by this "war". One could hedge one's bet and invest in both technolgies, pick a horse to ride with the inherent risk that that entails or wait on the sidelines until the market decided.

Some seem to remember that Betamax was techncially superior. Both firms leaped frogged one another in terms of maximum recording time, a key metric for end user satisfaction. Eventually VHS won out. Betamax machines were considerable more expensive than VHS machines. Many people prefered to rent the VHS machines because they were cheaper and more available than the Betamax and because they feared that they would buy an expensive machine that might be obsolesced. Another major factor was that JVC was more open and aggressive in offering licensing deals.

No such war occurred in the case of the CD (Compact Disc) that was introduced in the nineteen eighties.

Representatives of major manufacturers met at the High Sierra Hotel and Casino in Lake Tahoe, NV, in 1985, to come together on a common standard for data CDs. This format was nicknamed High Sierra Format. It was later modified slightly and adopted as ISO standard 9660. CDs were initially used for audio recordings. Later CD-ROMs were introduced for software distribution and computer backups. For the computer industry CDs offered greater capacity and faster transfer speeds than the floppy.

Various formats of compact discs have been derived from the original audio CD. Specifications for these CD formats are listed in a series of books named after the color of their covers. The Red Book describes audio CDs, also called compact disc-digital audio (CD-DA).The Yellow Book describes the compact disc-read only memory (CD-ROM) format. The Orange Book is for write-once CDs (CD-WO), the photo CD and compact disc-recordable (CD-R). The Green Book describes compact disc-interactive (CD-I), and the White Book is for video CDs (CD-V).

Compact Discs were initially called WORM for write once read many. Later came the CD RW that could be written and re-written. In between these two types there is a multi-session as opposed to a single-session CD-R where different parts of the disc can be written at different times but not overwritten. Over time the speed at which CDs could be read and written increased considerably. Older CD Players may have difficulty reading discs produced from later models.

The CD was followed by the DVD (Digital Versatile Disc) which offered more capacity (~7x) that would be needed for video recording. Again there were two sides, namely Warner/Toshiba with their SD (Superdisc) and Philips/Sony with their MMCD (Multimedia CD). However, this time a compromise on the specification was reached thanks in part to intercession of Lou Gerstner then IBM CEO.

There were still two camps when it came to recording format that we can refer to as the plus (+) and the minus (-). Initially the DVD (R) were recorded once and played or read repeatable. Later re-recordable or write many times (RW) became available.

Most DVD hardware will play audio CDs and CD-ROMs whose physical dimensions are identical.

DVD+R and DVD+RW formats are supported by Philips, Sony, Hewlett-Packard, Dell, Ricoh, Yamaha and others. DVD-R, DVD-RW and DVD-RAM formats are supported by Panasonic, Toshiba, Apple Computer, Hitachi, NEC, Pioneer, Samsung and Sharp. There are also dual layer (DL) versions of both formats. Initially a burner would be either + or - and require corresponding media. Most late model DVD burners support multiple formats as do DVD players.

The DVD+RW Alliance is a voluntary group of personal computing manufacturers, optical storage and electronics manufacturers including Dell, Hewlett-Packard Company, MCC/Verbatim, Philips Electronics, Ricoh Company Ltd., Sony Corporation, Thomson multimedia and Yamaha Corporation. The group seeks to develop and promote a universally compatible, rewritable DVD format to enable true convergence between personal computing and consumer electronics products.

The DVD Forum is an international association of hardware manufacturers, software firms, content providers and other users of Digital Versatile Discs. The Forum's purpose is to exchange and disseminate ideas and information about the DVD Format and its technical capabilities, improvements and innovations. The DVD Forum was founded in 1995 under the original name DVD Consortium by:

Hitachi
Matsushita
Mitsubishi
Pioneer
Philips
Sony
Thomson
Time Warner Inc.
Toshiba Corporation
Victor

In 2003 Sony introduced a multi-format DVD burner (also called a combo drive or DVD-Multi) and today many manufacturers offer multi-format DVD burners which are compatible with multiple DVD formats.

As Yogi Berra said "It's Deje Vu all over again." This time it is High Definition Television (HDTV). Obviously, people will want to record HDTV programs and content providers will want to offer pre-recorded materials (movies, videos, games) to be viewed on HDTV.

Technical standards for black-and-white television are established by the National Television Standards Committee (NTSC), the FCC engineering group formed in 1940. HDTV represents significant improvements over normal TV. HDTV has approximately twice the vertical and horizontal picture resolution of today's NTSC TV, which essentially makes the picture twice as sharp. HDTV offers an image with 720 progressive or 1080 interlaced active scan lines versus 525 lines interlaced. HDTV also has a screen ratio of 16:9 as compared with most of today's TV screens, which have a screen ratio of 4:3. HDTV offers reduced motion artifacts (i.e. ghosting, dot crawl), and 5.1 independent channels of CD-quality stereo surround sound.

Federal legislation dictates Feb. 17, 2009 as the transition date from analog to digital TV broadcasting. The bill contains a provision for a $1.5 billion digital-to-analog converter subsidy program, which will enable consumers who still own analog TVs to receive two $40 coupons towards the purchase of converters. Once the transition is complete and digital broadcasts begin, the government plans to auction off licenses for the remaining analog airwaves to wireless and broadband services, and reserve a small amount for emergency responders.

Some shows are already being broadcast in HDTV format and satellite TV providers like DirecTV and DISH Network offer some programming

There are two competing formats for the next generation of optical discs, namely, Blu-ray also known as Blu-ray Disc (BD) and HD-DVD. No, I did not misspell Blu-ray. The character "e" was intentionally left out so that the term could be registered as a trademark. Also the "r" in "ray" is not capitalized.

The technology underpinning Blu-ray is based upon the 405nm blue-violet laser that reads and writes the data. The name is a combination of "Blue" as in blue-violet and "ray" as in optical ray. The Blu-ray specification was developed by a group known as the Blu-ray Disc Founders which included Dell, Hewlett-Packard, Hitachi, LG Electronics, Matsushita (Panasonic), Mitsubishi, Pioneer, Philips, Samsung, Sharp, Sony, TD, Thomson and Twentieth Century Fox. This was announced in February 2002. In October 2004 the group was renamed the Blu-ray Disc Association (BDA) as a voluntary membership group open to any corporation or organization with an interest in creating, upholding and/or promoting the BD format. Today there are over 150 members from the computer, consumer electronics, video gaming, optical media, disc replication, authoring and content industries. The association is responsible for establishing format standards and promoting and further developing opportunities for Blu-ray Disc.

The following formats are part of the specification: Both Blu-ray and HD DVD systems use the blue-violet laser which has a shorter wavelength that a red laser. This makes it possible to fir more data than on a CD or DVD even though it has the same physical size.

The two approaches differ in terms of track pitch. Blu-ray has a tighter track pitch and consequently can hold more data than a HD DVD disc of the same size. This difference in pitch translates into a difference in pickup aperture - 0.85 for Blu-ray and 0.65 for HD DVD. This difference makes the two pickups technically incompatible. The larger aperture value means that Blu-ray will require less recording power and lower disc rotation speed to achieve the same transfer rate. Further the two disc have a different surface layers. HD DVD uses a 0.6mm thick layer which is the same as the DVD. Blu-ray, on the other hand, has a much smaller 0.1mm layer to help enable the laser to focus its aperture.

A DVD has a capacity of 4.7GB and can hold about 2 hours of standard definition (SD) television images.

Type Single Layer Double Layer
Blu-ray 25GB 54GB
HD-DVD 15GB 30GB

Since history has consistently shown that content will expand to fit available space, Blu-ray with its larger capacity should be the winner. However, there are additional factors, namely costs. HD-DVD is seen more as an extension of DVD rather than a technological revolution. It uses the same physical disc structure as the DVD. Supporters of HD-DVD claim that this will keep initial investment low for disc replication and media manufacturing operation to modify existing production equipment used to create the discs. Further a special coating must be applied to protect the 0.1mm surface layer of the Blu-ray Discs. The consumer price for Blu-ray recorders and the discs themselves will be higher than the HD-DVD version.

On December 16th HP, who is a member of the Blu-ray group, announced it will also support the HD-DVD high-definition DVD format and join the HD-DVD Promotions Group. HP had requested that the Blu-ray Disc Association adopt two customer-friendly technologies, Mandatory Managed Copy and iHD, which are already included in the HD-DVD format. Only the former was adopted.

There is little likelihood that one side will unilaterally withdraw from the marketplace for the greater good. Too much has been invested and the revenue opportunity at stake is too great for such a grand gesture. Also there is no organization in place that can dictate a solution.

None of the firms mentioned above are EDA companies but they are among the largest end users of EDA tools. Moreover, there are lessons to be learned that can applied to the EDA arena. Being first and/or having superior technology, format or specification is not a guarantee of success. To ensure widespread adoption it is better to be open than to be proprietary. One needs to form alliances even with existing or potential competitors to promote adoption of what you have to offer even if you have to donate it to the alliance. If you developed it, you will have an advantage through that experience that others will not. There are a number of alliances and consortiums in the EDA arena.

Salesforce.com Oops!

In earlier columns I have covered Software as a Service (SaaS) as an alternative to traditional sale and delivery model of software wherein a vendor hosts their software modules and client access them through an Internet or Intranet. Salesforce.com is best the best known SaaS provider. The firm offers Customer Relationship Management (CRM). According to their latest report they have 18,700 clients. Unfortunately, Salesforce.com had a 5 hour disruption of service on December 20th and several slowdowns near the peak demand at the end of the month. What is an acceptable level of accessibility? Stated another way, what is an acceptable level of downtime?

%
Accessible
Days
Accessible
Days
Down
Hrs
Down
Mins
Down
99 361 4 96 5760
99.9 364.6 0.4 9.6 576
99.99 364.96 0.04 0.096 5.76
99.999 364.996 0.004 0.0096 0.576

According to Murphy's Law any disruption will come as the worst possible time. Add to this the fact that it seems to be human nature to wait to the last possible minute to do something. This means that user demand will not be evenly spread over a given time period but will have significant peaks such as month end, quarter end and year end.

The cost for the vendor to provide greater accessibility, approaching 100%, is considerable. Think of redundant systems. What is the benefit to the clients and how much extra would they be willing to pay to add another decimal place? Of course, if one relies totally on internal IT resources, there is no guarantee that the accessibility will be any higher or even as high.

How much will concern over potential outages impact the growth of SaaS and Salesforce.com in particular? Many customer and prospects particular small firms may not have a reasonable alternative if they wish to use CRM capabilities.

Apple

In a recent editorial I commented about customer electronics becoming a primary driver in the semiconductor industry and about the convergence of many devices into multifunctional platforms. As evidence of this trend consider Apple. On January 18th Apple announced financial results for its fiscal 2006 first quarter ended December 31, 2005, reporting the highest revenue and earnings in the Company's history. Apple posted revenue of $5.75 billion and a net quarterly profit of $565 million.

1Q06
Units K
RevM 1Q05
Units K
RevM Delta
Units K
RevM
Desktops 667 $912 623 $1,001 7.1% -8.9%
Portables 587 $812 423 $604 38.8% 34.4%
CPU Total 1,254 $1,724 1,046 $1,605 19.9% 7.4%
             
iPod 14,046 $2,906 4,580 1,211 206.7% 140.0%
Other Music   $491   $177   177.4%
Peripherals   $303   $284   6.7%
Sw/Service   $325   $213   52.6%
    $4,025   $1,885   113.5%
             
Total   $5,749   $3,490   64.7%
Table Apple's Financial Results for 1QF2006

From the table we can calculate that Apple sold 11 times as many iPod as computers during the quarter and generated 2.3 times as much revenue as from the computer product line. We can also see that sales of portable computers were up nearly 40% in terms of units and up 34% in terms of dollars while desktop units grew only 7% while desktop revenue declined 9%.

Although other vendors have developed and many more will develop MP3 players to compete with the iPod, Apple has already captured the mind set of the American people. Retail customers ask for iPods by name not by a generic phrase. Apple also has the iTunes webstore for purchasing downloadable songs.

A significant cottage industry has spring up around the iPod phenomenon offering cases, speakers, chargers, FM transmitters and so on. If the product bears an iPod label, a licensing fee must be paid to Apple.

Steve Jobs, Apple's CEO, said "We are thrilled to report the best quarter in Apple's history. Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can't wait to see what our customers think of them."

On another front Apple had announced in June that it was switching from IBM Power microprocessor to Intel's dual core microprocessor. About six months later on January 10 Apple unveiled the new iMac featuring Mac OS X running on the new Intel Core Duo processor, delivering performance that is up to twice that of its predecessor. The iMac design now features dual-core processors, a built-in iSight video camera for video conferencing out-of-the-box, and the media experience of Front Row with the Apple Remote for a simple, intuitive and powerful way for consumers to enjoy their content from across the room. Starting at just $1,299, every new iMac comes with iLife. '06, the next generation of Apple's suite of digital lifestyle applications featuring major new versions of iPhoto, iMovie HD, iDVD, GarageBand and introducing iWeb, a new iLife application that facilitates the creation of websites with photos, blogs and Podcasts and publish them on .Mac for viewing by anyone on the Internet with just a single click. The new iMac is shipping today, and is the first of a new generation of Macs featuring Intel processors that Apple will roll out during 2006.

The audio in a new advertisement from Apple says "Intel chips for years have been trapped inside PCs, inside little dull boxes, dutifully performing dull tasks when it could have been doing so much more. Starting today the Intel chips will be set free and get to live inside a MAC. Imagine the possibilities!"

Overseas Investment

Last November I did an editorial on India. There has been a considerable amount of investment activity in India and China since then, especially by Intel.

In mid June Intel announced the establishment of a US$200 million venture capital fund to invest in Chinese technology companies developing innovative hardware, software and services. Intel Capital, made its first strategic investment China in 1998 and since then has invested in close to 50 Chinese companies across nine cities in mainland China and Hong Kong.

On Dec. 5, 2005 Intel Corporation Chairman Craig Barrett unveiled a multi-year investment plan for India totaling more than US$1billion.

Barrett said "This investment demonstrates Intel's long-term commitment and builds on the foundation we have created during our 10 years operating in India. We will grow our local operations, boost venture capital investments and work closely with the government, industry and educators to increase the impact of the country's information and communications technology (ICT) industry."

Intel's US$1 billion-plus, multi-year investment roadmap includes plans to invest US$800 million over the next five years to expand business operations in India. Investments will focus on expanding the research and development center in Bangalore in addition to marketing, education and community programs.

Barrett also announced the creation of the US$250 million Intel Capital India Technology Fund to help stimulate local technology innovation and growth. The investments will focus on Indian hardware and software companies to nurture technology development for local use. The fund will also selectively invest in technology-oriented service companies that target overseas markets.

Along with Intel's investment of over US$700 million in India over the past 10 years, Intel Capital has provided funding to more than 40 companies in seven Indian cities since it started investing in 1998.

To grow its business operations in India, Intel will increase its development activities and staffing at the Intel India Development Center (IIDC) in Bangalore over the next five years. The IIDC focuses on hardware and software engineering for Intel products sold globally and has grown to 2,800 employees since it opened five years ago.

Intel is hardly alone in its investment in India and China.

One of the reasons cited for US and European firms moving design and engineering activities to India and China is the large number of engineering graduates in those countries compared with the number in the US. Is this comparison valid?

In December 2005 a study on "Framing the Engineering Outsourcing Debate: Placing the United States on a Level Playing Field with China and India" was conducted and published by graduate students of Duke University's Master of Engineering Management Program under the guidance of Dr. Gary Gereffi, and Vivek Wadhwa.

The report says that typical articles in the press have stated that in 2004 the United States graduated roughly 70,000 undergraduate engineers, while China graduated 600,000 and India 350,000.

According to the report these massive numbers of Indian and Chinese engineering graduates include not only four-year degrees, but also three-year training programs and diploma holders. These numbers have been compared against the annual production of accredited four-year engineering degrees in the United States. Additionally, these numbers include not only engineers in traditional engineering disciplines, but information technology specialists and technicians.

The Duke study makes its own estimates of the number of graduate engineers as shown in the table below.

  US India China
Bachelors Degrees 137,437 112,000 351,537
Subbaccalaureate Degrees 84,898 103,000 292,569
Total 222,325 215,000 644,106
Table Degrees in Engineering, Computer Science and IT
Source Duke University

These numbers are more favorable to the United States than the often quoted numbers. However, the US accounts for only about 20% of the total for the three countries combined.

Given the quality of education and the career opportunities available in their native land coupled with US immigration policy, it is less likely that foreign student will come to the US and if they do, it is less likely they will remain here after graduation. This deprives the US of a badly needed talent pool especially in engineering and the physical sciences.

In October the National Academies' Committee on Prospering in the Global Economy of the 21st Century presented a report to the US Congress entitled "Rising Above The Gathering Storm: Energizing and Employing America for a Brighter Economic Future". The report said that the US losing its competitive edge because of a lack of investment in education and research. It points to the fact that fewer than 1/3rd of US 4th and 8th grade students performing at a level called 'proficient' in mathematics and 12th graders performing below the international average for 21 countries in mathematics and science. While America produced 70,000 engineers in 2004, China graduated over 600,000. And India produced 350,000.

The committee made a recommendation they called "10,000 teachers, 10 million minds" which proposes increasing America's talent pool by vastly improving K-12 science and mathematics education. The proposed program would annually recruit 10,000 of America's brightest students to the science, mathematics, and technology K-12 teaching profession. Over their careers, each of these teachers would educate 1,000 students, so that each annual cadre of teachers educated in this program would impact 10 million minds. Additional recommendations include increasing the federal investment in long term basic research by 10% a year over the next seven years.


The top articles over the last two weeks as determined by the number of readers were:

Mentor Graphics Announces Record Fourth Quarter Revenue and Bookings Mentor announced record fourth quarter revenue of $221.3 million, up 3% from the prior fourth quarter. Diluted earnings per share were $.19 on a GAAP basis and $.42 on a non-GAAP basis. Bookings were up more than 5% from the fourth quarter of 2004.

TransEDA announces the first production release of Assertain™ TransEDA announces the availability of Assertain production release, the next generation verification closure solution that delivers, in a single environment, total measurement and control of the digital design verification process. Packaging includes Assertain HDL, Assertain ABV and Assertain VCM.

Industry Verification Expert Harry Foster Joins Mentor Graphics Mentor announced that Harry D. Foster, Chairman of the Accellera Formal Verification Committee, Chairman of the IEEE-1850 PSL Working Group and pioneer of assertion-based verification methods, has joined Mentor Graphics' Design Verification & Test Division as principal engineer.

Calypto Transitions to Next Stage of Growth with Addition of Tom Sandoval as CEO Sandoval joins the founding team to lead the company as it capitalizes on its early stage success and expands the market presence of its breakthrough IC verification products, SLEC RTL and SLEC SYSTEM. He most recently directed LSI's worldwide ASIC and RapidChip engineering organization. Mr. Sandoval also served as LSI Logic's VP and GM of Communications Products where he was responsible for the strategic marketing, definition and development of the company's communications products including IP cores, standard products, and its structured ASIC product.

Cadence Unveils Advanced Manufacturing-Aware Chip-Optimization Technology; Three-Dimensional Space-Based Optimization Approach Addresses Customers' Most Pressing DFM and DFY Challenges Cadence announced its new manufacturing-aware chip optimization product Chip Optimizer, an innovative, silicon-proven full-chip optimization system. Cadence Chip Optimizer is used after conventional place and route and before design tape out to improve the yield, manufacturability and performance of complex IC designs.


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-- Jack Horgan, EDACafe.com Contributing Editor.