From Silicon to Systems: Redefining Competitive Advantage-Part 1

In today's episode, Advantest's Dong Ong sits down with Salah Nasri, CEO & Co-Founder of ISIG  (International Semiconductor Industry Group), to discuss how the semiconductor industry is redefining competitive advantage. ‪@SemiconductorLeadershipPodcast‬

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Transcript

Welcome And Why Systems Matter

SPEAKER_00 0:00

Hello and welcome to Avantez Talk Semi Podcast. I'm Don Hong. And today we're going to talk about from silicon to systems and how the chips industry is redefining competitive advantage. Joining us today is Salah Nazri. He is the author of the book Games of Chips. And he is also the CEO of ISIG, the International Semiconductor Industry Group, an organization bringing together semiconductor leaders across the US, Europe, Middle East, and Asia to foster collaboration and strategic dialogues around the future of the industry. And joining us today is Salah Nazri, the author for the book Games of Chips, and he's also the CEO of ISIG, the International Semiconductor Industry Group, an organization bringing together semiconductor leaders across the US, Europe, Middle East, and Asia to foster collaboration and strategic dialogues around the future of the industry. And today, the conversation we're going to have is not just about chips, but about the systems and partnership that is shaping the future of technology itself. Welcome, Salah.

SPEAKER_01 1:15

Thank you for having me on the Advanced Test semi-talks. You know, Advanced is a vital member of our association. We have 500 members globally covering the whole ecosystem, IDMs, foundries, design houses, end user. And you know, without Advanced, you know, there isn't the testing element, the ATE world won't be as enabled as it is today. So we appreciate the backing and the support that we've had with Advanced for nearly two decades now. So we go back a long time ago since the beginning, and you know, it's been a joy for us to grow together with Advanced in the industry. So thank you for having me on this show, Don. No problem.

SPEAKER_00 1:57

We're very happy to be part of the whole semiconductor value chain. For decades, the semiconductor industry was driven by a very simple idea: make transistors smaller, faster, and cheaper. And for a long time that was enough. But today, something fundamental is changing. The industry is no longer competing only at the level of silicon. Increasingly, competition is happening at the level of systems, ecosystems, and integration. So the winner are no longer defined solely by who has the best chips, but by those who can orchestrate design, manufacturing, packaging, software, supply chains, and partnerships all into a coherent systems of value creation. So, in many ways, semiconductors are evolving from a product industry into an ecosystem industry. So in this first episode, we will explore how the definition of competitive advantage itself is changing and what that means for the future of the semiconductor world.

After Moore’s Law The Race Changes

SPEAKER_00 3:06

So for many years, leadership in semiconductors was closely associated with transistor scaling and Moore's law. From your perspective, what changed and why technology leadership alone is no longer sufficient?

SPEAKER_01 3:20

Great question. I mean, look, if you go back, if we go back in time, you know, 20 years ago, right? Um, this is when I came into the semiconductor industry. Uh still look young, rest assured, but uh, you know, 20 years ago is a different time to be in the game. Um, the answer uh to your question would have been almost embarrassingly simple. And the answer would be two words, Don. Transistor density, right? So whoever shrinks fastest wins, right? As you mentioned, and you know, Moore's law was the rule book at that time. And now what you see is that the whole industry organized itself around it. But I mean, you have to take into consideration is what's changed, you know, it's not a fundamental shift, um it's actually a transition. And as we've pushed closer to the physical limits, if you look at simple physics of silicon, that single axis race has given way to something far more multidimensional, right? So you have to look at it from today's perspective. What is it about? It's about how well you orchestrate across design, across manufacturing, packaging, software, and uh where we are in the game, ISIG and ecosystem partnerships. So what you have to take into consideration is that the companies uh pulling ahead aren't necessarily the ones with the best individual chip. That's what we're seeing. Um, it's the ones that we've actually built the most coherent system around it. Whether you talk about TSMC or NVIDIA or Intel or all of these types of companies, you know, there is a constant, and the constant is the ecosystem around it. And the numbers back this up. You know, you we specialize in the advanced packaging world, and that market alone is projected to grow if the numbers are around 25 to 30 percent Kago. And that is also take into consideration that there is a potential reaching limit of uh the numbers around about 80 to 100 billion dollars by 2030 to 2033. So uh, you know, this market in specific, if we just talk about advanced packaging, for example, barely existed at meaningful scale when transistor density was the only game in town done. And we took a huge risk in totally focusing in this area of advanced packaging 15 years ago. The design houses they weren't interested in working with us, right? They were and then all of a sudden, when the AI inflection point came into play just about post-COVID, everyone, every design house is now heavily focused on advanced packaging. So this is uh uh uh an overall perspective as an example or as a case study based on what you're asking me right now.

Ecosystems And Leadership Brands As Moats

SPEAKER_00 6:27

Exactly. And and moving along the train of thought that you just mentioned, so today, some of the most valuable semiconductor companies do not necessarily own FAPs or equipments or even manufacturing capacity. How has the definition of competitive advantage evolved over time?

SPEAKER_01 6:47

Well, I mean, it's not I mean, it it goes back to what I was referring early on. If we look at competitive advantage today, right, it's all about balancing that whole ecosystem done, right? Competitive advantages is you know, you have the design community with you, you have the foundries, the fabs working with you, you have the packaging, you have the EDA side working with you, the ecosystem perspective working uh uh uh aside with you. That is the competitive advantage that is into play. And you know, uh the other key perspective that one needs to take in consideration is there is a talent issue as well, right? You know, getting the best talent. How do you get the best talent, right? It's now whereby you look at leaders in the semiconductor ecosystem today, more than ever, the personal brand is more than more than important, right? You know, why are we doing this podcast is a question that you want to question as well. Why does why does Jensen Huang jump on every podcast that you can see on earth? You know, all of these top leaders are on that perspective. So it's you know, you you have two multiple facets in this site. The first facet on is the ecosystem structure, and the second facet is that the perception of leaders today being represented on that perspective. You know, how do we get this knowledge shared? How do we spread the uh the vital element that semiconductors is the backbone of any industry globally in the world? You know, it's still underrated, to be frank with you. It should be even more important with you done, right? Um, of course, now I mean, you know, everyone's getting all huffy puffy because the semiconductor stocks are looking great lately, right? You know, the uh the 2x, 3x. No one imagined that. No one would have pictured that to happen um, you know, five years ago or 10 years ago, for example. Um, so I think you know, the competitive advantage is two elements as a recap to conclude on this is one, an ecosystem perspective of solidifying that area. And the other perspective is that leaders today have to work on their personal brand more than ever. And companies need to also solidify their brands perspective on a global side of things at the end of the day.

SPEAKER_00 9:14

Yeah, yeah, I like that. I agree with that a lot because as we're moving with AI, Jan AI specifically, things are changing really quickly and becoming so new. And so there's the need for people like us and Jensen to talk more about AI and what AI is going to do for us. Correct.

Interdependence Costs And Diminishing Returns

SPEAKER_00 9:32

The semiconductor industry, like you mentioned, it's an ecosystem. It's it's becoming, it's probably one of the most globally interconnected industry, right, that human mankind has ever built. So is this interdependency ultimately a strength or a vulnerability or both?

SPEAKER_01 9:53

Fair question. Um we have to look at the look at the end of the a few forces are converging at once. And I think it's worth being uh direct and transparent about each of them rather than pointing uh to a single cause, right? Um, I think um, you know, first the cost and complexity of advancing to each new process node has grown ridiculously now. Uh the the return on pure silicon innovation is without a fact diminishing for many players today, Don. So you know, you can spend billions, right? Billions chasing a node shrink and see incremental gains when the same investment in packaging or software co-optimization could actually deliver far more dramatic outcome.

The AI Bottleneck Is Capacity

SPEAKER_00 10:42

I like to twist this around a little bit. So, as you know, AI infrastructure scales globally and the technology improves, and you alluded to advanced packaging being the bottleneck. Everyone is focusing on that right now. So, where else do you think is the real bottleneck? So is it like compute, memory? We talk about energy, packaging supply chain, or it or is it the coordination across the entire ecosystem? Where is the real bottleneck?

SPEAKER_01 11:13

We hosted the ISIG USA Summit, which gathered the whole ecosystem together, right? Um, you know, what caught me by surprise, I went in there with the same mindset that you basically have told me right now, Don, saying that the bottleneck could be the power perspective, memory perspective, um, advanced packaging perspective, uh, you know, even the talks of co-package optics coming into play. You know what my biggest takeaway was, Don, from the whole summit that we had in those two days? And bear in mind, this summit has it only has the leaders driving the RD roadmap of these semiconductor companies. You'd be surprised what the takeaway was. What was it? I'm gonna tell you capacity, capacity, capacity. It caught me by surprise. I was like, wow, capacity is the biggest bottle there, you know, and looking at that situation from a capacity standpoint of view, whether we talk about memory, we can we can talk about memory, for example. Most of the memory manufacturers are all sold out, you know, they're all sold out to the end of the year. They can't, you know, they can't deliver. TSMC can't deliver all the wafers that it wants to all of its customers. You know, Nvidia is frustrated by this situation, right? Because TSMC has to fulfill the other customers, has to fill AMD, has to fill Apple, has to fulfill Marvel, has to fulfill Broadcom. And these are not small companies, these are titans in the game, right? So, you know, I think the the capacity element was the biggest takeaway from the summit that we had two weeks ago, and this is the biggest bottleneck. So until the capacity element is sorted, then we can talk about further elements on how AI workloads can generally fundamentally change what performance really means.

SPEAKER_00 13:08

Wow, I wasn't expecting that, but okay, that's that's a really good insight. It's a really, really interesting insight.

SPEAKER_01 13:15

I mean, Don, I mean, I mean, I mean, Don, I mean, you you if you read I mean if if anybody listens to any of the last earning releases from any of the semi-connected companies, right? The backlogs are insane. Yes, the backlogs are unimaginable, right? And you know, let's go a little bit targeted. Let's talk about co-package optics, right? Um the question, why did NVIDIA invest $2 billion in Marvell? Why did Nvidia invest $2 billion in uh um uh lamentum? Why did NVIDIA invest $2 billion in Coherent? Purely to secure Indian phosphide wafers. Capacity. It goes back to capacity again, right? Who would have imagined these Indian phosphide companies who are supplying the wafers, even the materials, to be blowing up like the way they are today? Right? So if we're finding out solutions on how to make this um these bottlenecks sorted, the biggest problem is capacity.

SPEAKER_00 14:17

So

How Regions Specialize And Why Geopolitics Hits

SPEAKER_00 14:18

pushing along this a little bit, because you know you guys organized a lot of uh semiconductor executive summits and globally, not just in the US and but globally. So are you seeing differences in the US, how the US, the Europe, Middle East, and Asia think about the future of semiconductor besides capacity? Like you just mentioned, everyone's talking about capacity, but besides capacity, do you see any difference between the regions?

SPEAKER_01 14:44

I think now more than ever, um, you know, semiconductors is without a sovereign initiative. You know, it's very sovereign focused now. And um any country that wants to focus on national sovereignty must have some sort of semiconductor ecosystem in play. Um, when we look at it from a geographical point of view, not one country can dominate the whole ecosystem, right? The uh in the US, they'll be the masters at design, without a doubt, from an innovation standpoint of view. Europe will be the masters at you know, legacy node products, whether we talk about power semiconductors, mems, or sensors. Um, if we look at Southeast Asia, you know, Singapore from a foundry standpoint of view, Malaysia more so on the assembly and test point of view, on conventional packaging. Taiwan will be one of the key places for advanced packaging and foundry perspectives because you know TSMC is there at the end of the day, right? Um, China is has to do everything because of the situation that it's in on the global status. Japan will remain the leader in materials, period. Right? So every region will have its forte from a strength standpoint of view. Um, and every region needs to find out how to work effectively from a uh supply chain standpoint of view, right? You know, the Middle East, I mean, you know, we just you know, as uh I'm talking to you out of Dubai in the UAE. You know, 10 miles across from me is the Hormuz Strait. So, so for example, so so so you know, uh uh the impact of just the blocking of the Hormuz Strait has magnificently changed the supply chain element around the global perspective, Don. You know, whether we talk about the pricing of gas, the pricing of helium, you know, all of these key elements uh uh associated in the ecosystem for semiconductors is all gonna have an impact. So, you know, uh geopolitically, for the semiconductor system for the semiconductor ecosystem to be effective, we have to work in a way of peace between each other and work some sort of coalition between each other. I mean, Don, do you know that the Middle East, the GCC, invested in total when Trump came here last year, $1.4 trillion in the US data center market? So that $1.4 trillion doesn't just go to the data center only. It trickles down to our ecosystem because we're the ones who are behind our community, our people that we work with, that we rub shoulders with, that we talk to on a regular basis, are the ones that are behind the structure of data centers today, right? And I'm not going to talk about the automotive side and you know, cellular side and et cetera. But if we talk about what's the you know, the so-called bubble, I won't call it a bubble, but this AI bubble per se, you know, every region around the globe that has some sort of fundamental presence on a global perspective has to find a way to kind of work along with each other. Because one way or another, something cracks in part of the uh global ecosystem, uh, we will be impacted without a doubt.

SPEAKER_00 18:16

Yep, I like where this is going.

The Mindset Shift For New Leaders

SPEAKER_00 18:18

And moving towards the end of our episode one, and and you were alluding to this, but I'd like you to say that in in one sentence uh or or two, if possible. If you were advising the next generation of semiconductor leaders today, what mindset shift would you encourage them to adopt in order to succeed in this increasingly interconnected and challenging industry?

SPEAKER_01 18:44

The mental shift required here is significant. And uh, you know, I've seen a lot of smart companies struggle with it. Um, that's half a sentence, Don, right? Uh no brought a sentence. I'm counting on myself. Um, look, the old instinct in this industry was to own as much of the stack as possible. You know, vertical integration as a competitive moat. Um, that logic hasn't disappeared, but it's been complicated by the sheer specialization required at every layer done. So no single company can be world-class at EDA or at Foundry or Advanced Packaging or at system software simultaneously. So the question becomes this is where do you re where do you create irreplaceable value? And where do you build deep trust-based partnerships to cover the rest? And I think another question that they should ask themselves without me telling them the answer, is what's striking is that the most resilient players to date are those who are very clear about their role in the ecosystem and very intentional about the alliances they form. So at the end of the day, Don, I mean, look, it's not about being the biggest player anymore. Now, today, more than ever, which is why our businesses like this, as of late, it's about being the most integrated one. That is the key takeaway. I like that a lot. You're welcome. And stay tuned for episode two.