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May 11, 2016
Greetings: In this issue: China's plan to build its own chip industry. What's next for mobile laser technology? Big bets on smart cities. Drone consultants. The birth of quantum cloud computing. How to make your older car smarter and safer. China's Potentially Disruptive Plan for Chip MakingU.S. chipmakers are bracing for China's plan to bolster its chip making prowess. Citing national security concerns and semiconductor trade deficits, China's government is embarking on a lofty goal: Building a self-reliant chip industry. By 2030, China wants to be a fully independent designer and manufacturer of all types of semiconductors, including sensors, radio frequency chips and microprocessors. But China's efforts will collide with the realities of today's chip industry, which relies on a complex web of international partners. Andrew Olney, director of quality for chip maker Analog Devices, notes that just one of its chip plants in Wilmington, Mass., utilizes 3,500 suppliers for chemicals, gas and other materials. "It's not an accident that the industry is global," says Ram Tamara, vice president and senior economic adviser at Nathan Associates, who presented a recent report on the global chip industry. Over the past five decades, the now $335-billion industry has created pockets of specialization that span the globe. China's strategy could lead to a global overcapacity of chips, similar to what happened with steel and solar panels when China ramped up production of them, says Tamara. Overcapacity would sap the profits of chip firms, which typically plow such earnings back into research and development to stay on the cutting edge. About 20% of sales go back into R&D, one of the highest amounts of any industry. Moreover, a new chip plant costs north of $5 billion, a price tag that includes robotic tools, optical equipment and testing machines. The odds are fairly good of overcapacity in at least some parts of the chip industry. But chances are China will fall short of its ambitious scheme in coming years and will be forced to dial it down as it falls behind on key aspects of chip innovation. "China is taking on a monumental challenge. It took 50 years to build this industry," says John Neuffer, president of the Semiconductor Industry Association, the leading U.S. chip trade group. Still, China will continue to gain impressive knowledge of innovative chip design as it forges ahead by investing tens of billions of dollars in new manufacturing plants. Chinese chip manufacturers, such as SMIC-Semiconductor Manufacturing International Corp., will become bigger global players. But the nation will be hard-pressed to keep up with leading chip manufacturers, such as Intel, Taiwan Semiconductor Manufacturing Co., GlobalFoundries and Samsung, especially when it comes to cutting-edge chip designs. They and other manufacturers will spend heavily on state-of-the-art chip manufacturing equipment provided by firms such as Applied Materials, ASML and Lam Research. China's pursuit of chip autonomy is sure to roil international relations. Rising tensions will lead to battles over sharing intellectually property and stoke fears over cyberespionage. Plus, China is increasingly forcing foreign tech companies, including chip firms, to partner with local Chinese companies in order to tap the country's massive market. Expect more tussles over trade deals, too, as China becomes more protective of its chip business. "The semiconductor industry is incredibly dependent on free trade," says Neuffer. "We're supportive of China building their industry, but we have some concerns about their efforts to create an island in itself." Meanwhile, the U.S. chip industry will point to China's high-tech ambitions to lobby for more federal funding of basic research. Chip makers will step up efforts to increase research funding to help build ubiquitous sensors and brain-inspired microprocessors. The U.S. high-tech industry also has other agenda items for the next president of the U.S.: Thirteen tech trade associations have banded together to call for reduced trade barriers, immigration reform, strengthened cybersecurity and more. Mobile Laser TechTechnology that uses lasers to measure distance for 3-D mapping and data collection, known as lidar, is getting smaller and on its way into more cars, drones and robots. Bulkier models have long been used for surveying construction sites and other areas, but newer mobile laser sensors are getting cheap enough for industries to adopt them in spades. Look for the mobile units to replace the big, costly lidar equipment that's seen on top of today's autonomous vehicles in road tests, for example. California-based Velodyne has a hockey-puck-size device for $8,000 that is being tested in drones that inspect cell towers and wind turbines. Other firms selling mobile lidar tech include Quanergy, Sanborn and Scanse. As sensors get more accurate and production costs continue to fall, they'll become ubiquitous in the next three to five years. The auto industry will be the biggest adopter, leveraging its economies of scale to drive down the price of lidar technology. Increased collection of data will also give rise to improvements in data-mining software. Each hour of imaging data currently takes up to 10 hours to process, a task often offshored, says Brent Gelhar, CEO of consultants Spatial Initiatives. But that time will be reduced with tools that can automate the task of interpreting the data. Sellers of such tools include Applied Imagery, Orbit Geospatial Technologies and SimActive. "Smart Cities" on the RiseMore and more cities, including small cities and towns, are getting smarter, using sensors, Internet connectivity and data analytics to track traffic flow, air quality, waste collection needs and more. Sensors on traffic lights in Pittsburgh, for example, have reduced rush hour commute times by 25%. Other projects aim to lower crime with improved street surveillance and to better target waste collection and other city services. The testing and tweaking of "smart city" technology in large cities such as Chicago, Dallas and Boston will make it easier for small cities and towns to adapt the technology to meet their own needs. The White House doled out $160 million last year for 25 new projects across the U.S. that are already starting to gain traction. Many of the projects are public-private partnerships that will share findings widely so that other cities can copy the results and tailor the tech to their specific needs. AT&T, IBM, Cisco, General Electric and Microsoft are among the tech companies making big bets on smart cities. Costs of products and services will fall as technology is standardized, making adoption easier. "We need to make technology more accessible," says Jeff Brueggeman, vice president of global public policy at AT&T. Software makers will fine-tune apps so they are easier to use, cheaper to deploy and provide better information. Expect fertile ground for start-ups, too, that are keen to mine city data. Tech TidbitsDrones could replace $127 billion worth of business services and labor in the near future, according to a new report by PwC. The top industries for drone use are construction, agriculture and transportation. But drones will also lead to a new job category for people: Drone consultant. IBM is stepping up its quantum computing ambitions with a new Web tool. The company calls the service, which lets users tap into a quantum computer via a Web connection, "the birth of quantum cloud computing." IBM expects the tool to eventually be used by all sorts of businesses for mining huge amounts of data. Your older-model car doesn't have to lack the latest gee-whiz automotive tech. My colleague David Muhlbaum, online editor at Kiplinger.com, writes about a collection of worthwhile aftermarket gadgets, including backup cameras and infotainment systems, in his recent column "How to Make Your Older Car Smarter, Safer." Sincerely, View the archive of past Alerts issues
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