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The changing demand for talent in the semiconductor industry

Market-savvy talent is a scarce resource in the semiconductor sector. But if

you’re thinking of recruiting talent from only the competition, think again.

Spencer Stuart

Spencer Stuart is the foremost privately held, global execu-

tive search firm, spanning over 50 offices in 25 countries.

Since 1956, we have been providing select clients with a

range of human capital solutions, including senior-level

executive search, board director appointments, strategic

leadership services and middle-management recruiting.

We conduct nearly 4,000 assignments each year, partnering

effectively with clients ranging from the Fortune 500, to

mid-cap, to emerging growth companies across a broad

range of industries and sectors.

Widely regarded as the firm of choice for CEO, board director

and other top-level executive searches, our worldwide

consultants have the judgment, insight and expertise to find

the ideal fit for each company’s unique circumstances and

business goals. Clients choose to establish long-term

relationships with us based on our exceptional client service,

unmatched access to the most sought-after leaders and

consistently successful results.

We are committed to adhering to the same firm policies,

procedures and professional standards worldwide in order

to provide a service of the highest caliber to our clients.

Global forces are changing the semiconductor industry. After the tremendous

growth of the late 1990s, demand dropped by more than 30 percent — making

2001 and 2002 the worst years in the history of the industry. The resulting

build-up of inventory eventually drove down prices with chipmakers retrenching

operations to meet a new financial reality. Though the industry was battered,

the worst was behind. Today, the industry is recovering and showing many of

the signs of entering another “boom” phase. However, to take advantage of this

coming upswing, chip manufacturers will need to think and act in new ways,

especially as massive foundries, globalization and demands for increasing

functionality continue to reshape the industry.

To succeed in this new environment, chipmakers are, once again, expanding

the boundaries of performance and functionality. Yet to remain focused and

competitive, companies will need to hire and train the most capable talent and —

most paramount — reach out and bring talent into the sector. With the stakes

this high, the winners in this market will know how to obtain top-notch talent and

use human capital to their advantage to change the rules of the game.

Spencer Stuart recently reached out to 700 leading semiconductor executives to

learn how the industry was evolving and to uncover the type of talent needed to

meet the myriad challenges.

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Strategic backdrop

Change. It’s the mantra of the semiconductor industry. Today, chipmakers are experiencing

major changes as the industry seeks to capitalize on expanding markets, avoid commoditi-

zation of products and address the increasing complexities of product development and

manufacturing. Add to this the disaggregation of the traditional semiconductor model (e.g.,

foundries and fabless design centers), and the magnitude of change is even more

pronounced.

The most important industry changes:

> Increase in systems and software content

> Increase in globalization of markets

> Increase in research and development requirements

> Increase in capital requirements

> Increase in industry disaggregation

From a structural standpoint, chipmakers are adapting well to these new challenges. Fabless

design houses are crafting ever-more sophisticated SoC (system on a chip) offerings.

Technical barriers continuously are overcome and Moore’s Law remains in effect. Capital-

intensive foundry operations are being outsourced to 300 mm fabs that can leverage

massive economies of scale. The whole industry is embracing the global environment.

However, as much as the industry is surmounting the technical and operating challenges,

upgrades in human capital are sorely lacking. New skills are required to effectively compete

in today’s market — skills that our survey respondents almost universally indicated are in

short supply.

Experience with end-equipment companies 1 4 (tie)

Global knowledge and experience 2 3

Analog design and management capabilities 3 2

Alliance management 4 7 (tie)

Business complexity management 5 7 (tie)

Software design and management capabilities 6 6

Consumer insights 7 9

Product planning and life-cycle management 8 4 (tie)

Digital design and management capabilities 9 1

Program management 10 10

Ranked by Need Ranked by Current Capability

What skills will your company need?

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But where will these skills come from? In our study, almost 80 percent of respondents

indicated that they hoped to find these skilled individuals within the industry. Yet, if

executives are relying on recruiting talent away from their competitors, they had better

think again. Our study revealed that everyone in the industry is looking at the competition

for world-class talent — the old “grass is always greener” assumption. Well, the grass is

not greener; the talent pool simply is very limited. To succeed, the semiconductor industry

will need to expand its available pool of talent through selective industry hiring, savvy

“outside industry” hiring and strong internal development.

Skills as differentiators

While the demands of business and technology management in the semiconductor world

always have been high, tomorrow’s leaders will need to embrace, organize and manage

around a new set of skills.

Think like your customersOne of the most critical skills identified by respondents is experience with end-equipment

companies, which have historically “owned” the customer relationship. Winning organi-

zations are developing the talent and systems to move up the value chain to deeply under-

stand their customers’ equipment businesses and gain deeper knowledge of end-user

trends. In our survey, more than 90 percent of executives said they recently had comple-

ted or were in the process of preparing initiatives to get them closer to equipment

manufacturers. These activities included developing embedded software tailored for

specific end-uses, identifying the needs of consumers and locating design centers across

multiple continents to be closer to the end-user market. However, the type of competency-

based experience required to accomplish these initiatives rarely is found within the

semiconductor industry.

Consider the example of ATI, a leading manufacturer of graphics chips. The company

serves multiple market segments including personal computers, cell phones, set top

boxes and HDTV. Understanding the needs of leading companies in each sector is a linch-

pin of ATI’s success. The company relies heavily on architects who understand both the

technical and business drivers of industry leaders like Intel, Microsoft, Nokia, Motorola,

Samsung, Sony and others. “Having architects who can talk to customers is absolutely

“Our handheld bus ines s is becoming quite succes s ful because lead architectstalk to cus tomers…and lis ten. There is a difference.”

David Orton, chief operating officer of ATI

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critical,” said David Orton, chief operating officer of ATI. Orton actively seeks outward-

facing technical leaders who understand overall market dynamics and use this knowledge

to synthesize common requirements across ATI’s customer base. “Our handheld

business is becoming quite successful because lead architects talk to customers…and

listen. There is a difference,” he said. “Even in this tough job market, these broad-skilled

individuals are extremely difficult to find and attract.”

Manage ever-growing business complexity Our survey revealed that the No. 1 action companies are taking to better position them-

selves is to develop a broader, more diverse product mix that can be tailored to specific

consumer applications. This combination of additional products and greater customization

implies that a more sophisticated set of business complexity management skills is needed

to handle the increasingly multifaceted product mix and to maximize the life-cycle value

of a product.

To succeed, leaders will need to navigate through a forest of challenges: multiple customer

segments, a broad array of product offerings, decreased time to market, enhanced cus-

tomization, shorter product life cycles, accelerated product roadmaps and increased

competition as a result of lower barriers to entry. All of these issues will need to be dealt

with quickly by executives who possess both technical know-how and strategic thinking.

While business complexity management skills always have been key for the semiconductor

industry, today, this complex skill-set is in much greater demand.

As one venture capitalist summarized, “Semiconductor companies used to be able to

focus on just turning out high-performance products. As we move to a greater consumer

focus, not only do the products have to be high performance, but they also have to be

delivered in time for the holiday season, the back-to-school season, etc. Missing a market

deadline may be even more deadly than missing a [technical] performance target.”

Becoming even more globalGlobal knowledge and operating experience have become requirements, not nice-to-haves,

and they are components of complexity that demand specific attention. Creating design

centers across the globe and moving manufacturing to low-cost areas is a common theme

among the survey respondents. In addition to the cost-savings advantage, the international

locations put the company in closer touch with emerging markets. However, according to

our survey, nearly half of all respondents felt they needed additional talent to enhance

cross-cultural leadership.

Many leaders acknowledge that building a business to capitalize on emerging markets

presents unique human capital requirements. In the case of China, in which approxi-

mately 86 percent of respondents cited as a high area of growth, it still remains an essen-

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tially closed market. Semiconductor companies will need to devise the most effective way

to penetrate the market, both from the perspective of the customer and of their talent.

As a senior human resource executive at a major multinational semiconductor company

said, “We really set up a nearly mutually exclusive set of requirements. We want people

who are comfortable working for a Western company but operating in an Eastern culture.

We want the Western-focus on results, but with an Eastern sensitivity to the employees

and customers. And it’s not easy to find!”

This opinion is all too common and the semiconductor industry will need to become

more creative in staffing international operations. Based on specific business needs, some

companies may opt to establish competencies across a team of people versus trying to

fulfill all requirements with a single individual; other companies may look to recruit a

native-born executive with vast business experience in the Western world. Either way,

when expanding into new markets, managers will need to integrate global systems and

adapt them regionally, taking into account cultural differences.

Remember, the world is still analogAs Mark Twain famously quipped, “Rumors of my death have been greatly exaggerated.”

This aptly describes the spirit of the analog design community, which has operated in the

shadow of digital design for the last two decades. As mixed-signal/analog processing

becomes incorporated into more semiconductor solutions, management faces the very

practical challenge of finding enough analog talent. Compared to digital skills, analog

skills were ranked “most critical” twice as often, yet respondents indicated a preponder-

ance of digital design talent but a clear shortage of analog design and management skills.

China

Other Asia Pacific

North America

Europe

Latin/South America

Japan

In what regions do you see semiconductor growth?

0% 20 40 60 80 100%

moderate growth high growth

The shortage of analog talent can be attributed to a number of factors. First, analog design

is much more of an art than a science and good analog designers develop over time through

on-the-job training. Second, it is more expensive to develop curriculum in analog design

as the necessary design tools are costly and true training requires developing actual proto-

type chips. This makes it difficult for electrical engineering schools to create analog

classes, whereas digital semiconductor design courses are much easier to produce. Finally,

there traditionally have been more digital jobs in the marketplace, with skill-sets that can

be applied to a wide range of positions. These variables, in combination, make finding

analog talent a real challenge for most semiconductor companies.

To overcome this challenge, many in the industry are beginning to fund analog design

coursework at universities, with the hope of recruiting directly from these schools.

Others are beginning to acquire companies that are rich in analog engineers.

Are they your partner, competitor or customer?Semiconductor companies increasingly are turning to alliances with partners, competitors

and customers to cover as much of the market as possible. Alliance management skills are

one of only three areas in our survey for which a significant number of respondents

described their company’s expertise as being “below industry average.” The increasing

magnitude of investment needed to stay competitive in the industry, combined with

continued disaggregation of the semiconductor business, has led to more occurrences of

technology alliances.

Perhaps no other company takes its alliances farther upstream than Intel. The company

initially forged relationships with other chipmakers and steadily has moved up the value

chain through customers, which include board and systems manufacturers. Today, Intel

invests heavily in relationships with leading independent software vendors who have

market-making enterprise software products. The goal is simple: optimize these applica-

tions for platforms based on Intel technology and create ready-made solutions for end-

users. Intel creates demand and fills its fabs; independent software vendors gain benefits

from Intel’s technical knowledge, sales/marketing might and valued brand.

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“We need s trategic thinkers who can not only s tructure the deal, but who alsohave the hands -on experience to s trategically influence the organization at thesenior executive level and are able to manage a win-win s ituation.”

Neil Blecherman, director of business operations, sales and marketing for Intel

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Neil Blecherman has managed Intel’s relationships with several leading independent

software vendors as the director of the business operations, sales and marketing group.

A Wharton M.B.A. with more than a decade of experience in sales and marketing for

Intel, Blecherman stressed the need for strong leadership in alliance management. “Many

alliances are sales-focused,” he said, “and, as a result, you find that these relationships are

managed by lower-level staff with limited organizational knowledge and influence. Our

alliances are extremely complex, encompassing a mix of technology transfer, marketing,

sales and large budgets. The business issues are mind boggling. We need strategic

thinkers who can not only structure the deal, but who also have the hands-on experience

to strategically influence organizations at the senior executive level and are able to

manage a win-win situation.”

The human capital roadmap

Capturing and institutionalizing a complex mix of technical, business and market skills is

not a trivial matter. Some skills can be developed in-house, while others must be brought

in from outside sources. Organizing this wide variety of competency-based resources to

work together is a daunting task in itself. However, success can be achieved by following a

structured, long-term human capital roadmap.

1. Know where you need to go.

Our study revealed that many semiconductor companies are lacking several core capabili-

ties required for future growth: end-customer skills; business complexity management;

global knowledge; analog skills; and alliance management. Companies must continue to

take a hard look at their businesses and markets to determine what additional competen-

cies and experiences are required. In addition, leadership cannot overlook how each

strategic priority and skill-set relates to each function within the organization.

2. Know what you have and what you don’t have.

It is critical to benchmark your current talent against where you need to go. By identifying

those key skills, competencies and experiences that exist in your organization — and

which ones do not — you will know what you need to acquire. As part of that benchmark-

ing process, it is imperative that semiconductor companies look beyond the industry. In

many cases, the equipment manufacturers possess superior marketing skills or are better

able to tap into cross-cultural talent.

3. Know how to close the gap.

Finally, a comprehensive human capital roadmap is needed to close the talent gaps. This

transition plan is the most complex part of the process because, as our survey indicated,

the needed talent is not prevalent in the semiconductor industry — even though our

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survey respondents stated that they believed their competitors were somehow richer in

talent. Identify the competencies to be developed in-house and determine where to acquire

outside talent. Integrate this plan into day-to-day operations and follow through over the

long term.

Conclusion

Chip companies will have to expand their human capital options if they hope to attract and

recruit the talent necessary to lead the industry. Traditionally, semiconductor talent has

been promoted up through the ranks. Yet, today, with the landscape changing so rapidly,

industry leadership has had difficulty adopting a new mindset when it comes to recruiting

from within the industry. With the skill-sets lacking, companies must begin focusing on

hiring from outside the industry, making greater investments in internal development

and/or conducting targeted recruiting of top prospects from competitors. When looking

outside of the sector for talent, companies also need to identify other industries that have

undergone similar changes and apply those “lessons learned” to their individual situations.

In fact, we are seeing many semiconductor companies adopt this approach when recruit-

ing outside board directors. These semiconductor companies aggressively are recruiting

directors from their customers in order to bridge the gap of knowledge and experience.

Over the past year alone, we have recruited numerous directors from equipment manufac-

turers to the boards of semiconductor concerns. We expect this recent boardroom trend to

become more common at the executive and middle-management organizational layers as

leading chip makers adapt to new market drivers.

At the end of the day, it’s all about adding value to your customers, and that value only can

be delivered through talented individuals. Everyone wants to own that value: you, your

competitors and — yes — your customers. The resulting talent shortfall shows no sign of

ebbing, and is only expected to grow in the near-term. And the fight for value will not

easily be won, and your ability to execute the human capital roadmap will be a key to

continued success.

About the study

Spencer Stuart recently completed an industry study focusing on leadership in the semicon-ductor industry. After identifying leading global semiconductor companies, we reached outto more than 700 of the leading industry executives — including CEOs, sales executives,human resource executives and business-unit leaders — and achieved an approximate 10percent response rate.

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Integrated device manufacturer 57% >$1 billion 60%

Fabless semiconductor company 34% $999 million – $251 million 14%

Semiconductor equipment manufacturer 11% $250 million – $51 million 10%

Foundry or assembly/best provider 4% $50 million – $6 million 8%

Design software company 4% <$5 million 8%

Other 4%

respondent profile

Sector % Respondents Company Annual Revenue % Respondents

surveyed companies

3dfx interactive

altera

amkor technology

analog devices

ati technologies

atmel corporation

broadcom corporation

cirrus logic

creative labs

gennum corporation

ikanos communications

intel

invensys plc

motorola

nucore technology

pmc-sierra

qualcomm

sandisk corporation

siliconix

sirf technology

texas instruments

usa high tech industry

vantis corporation

wavecom

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About the authormichael lynch san mateoMike is a member of Spencer Stuart’s Technology, Communications & Media

Practice and is based in the firm’s Silicon Valley office. A technophile at

heart, he is focused on senior general management assignments in a variety

of technology sectors, including semiconductors, electronics manufacturing

services, security and professional services. Within these industries, Mike

successfully has completed assignments in general management, marketing,

sales, professional services and R&D. His clients range in size from large

multinationals such as Cisco, Hewlett-Packard and Solectron, to early-stage,

venture-backed businesses. He began his career as a systems engineer with

IBM Labs in Toronto, where he worked on early-stage distributed computing

services. After completing his M.B.A., Mike moved into management

consulting with EDS and Accenture, and also held the position of vice presi-

dent of operations at two early-stage startups. He earned a degree in electri-

cal engineering form the University of Victoria and an M.B.A. from UCLA.

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