Thursday, November 17, 2005

Outsourcing at Conexant

The handwriting is on the wall...

NYT: Dwight Decker, Conexant's chief executive, said that half the semiconductor design and other high-tech engineering work is now done at Conexant India, the division in Hyderabad.

The operation there employs 700 engineers, nearly as many as headquarters does. That is up from 10 percent of such work last year, and Mr. Decker says that figure will jump to 65 percent by the end of 2006, leaving just one-third of the work to be done by the engineers in the United States.

"We are placing a very large bet on our ability to shift a significant part of our development to Asia," Mr. Decker said. "We are doing that more aggressively than any semiconductor company." He emphasizes that no layoffs are planned for Newport Beach, where engineers will work on the "innovation and architecture" of the firm's semiconductor systems.

Conexant's step is enormous, proportionate to its middling size. Giants like General Electric and 3M routinely assign high-tech research to laboratories they own in India and China. And the sprinkling of such work among their global systems is increasing. But most of their research remains in the United States.

Conexant is a fraction of their size, with only 2,400 employees and $900 million in sales of computer and communications equipment last year. Yet it is a technological powerhouse - the inventor 50 years ago of the computer modem - and a major investor in research and development.

Conexant will spend about $250 million this year on research and development because it must keep coming up with new microelectronic wonders for demanding customers like Samsung Electronics, DirecTV and others that are striving to bring movies, music, medical diagnoses and every conceivable service via Internet television to the digital home. Conexant is a strong and rising competitor in the electronics that make possible broadband Internet reception through D.S.L. telephone lines.

In 1955, as a division of North American Aviation, Conexant developed the transistor modem for communicating data over telephone lines, under a contract from the Defense Department. In the early 1980's, as part of Rockwell International, it brought out high-speed fax modems, and in 1996, it introduced high-speed Internet connectivity.

"We have adapted time and again," said Mr. Decker, who has led Conexant since it was spun off from Rockwell in 1999. "And we will continue to adapt and play our part in an expanding world market as long as we innovate." Conexant is putting emphasis on India to keep ahead of it main competitors, the Broadcom Company and the Swiss-based giant, ST Microelectronics Group, said Mr. Decker, a physicist and mathematician with degrees from McGill University in Montreal and a doctorate in math from the California Institute of Technology.

Mr. Decker said that besides financial reasons the export of research jobs is motivated by a looming dearth of engineering talent in the United States. Engineers in India earn one fourth of the pay of their American counterparts, roughly $25,000 a year in salary and benefits, compared with $100,000.

"If we can get two-thirds of our product development at one-fourth the cost, we come close to cutting our overall costs in half," Mr. Decker said. In the first year of large-scale work in India, he said, Conexant reduced costs by $36 million.

Conexant may be a harbinger of developments at corporate research departments across America. "There is a lot more research work being done in India these days," said Shivbir Grewal, a lawyer in Irvine, Calif., who works with companies in America and India.

The attraction is "the huge pool of talent" from the Indian Institutes of Technology - seven major institutions established over the last 54 years - and regional engineering colleges, Mr. Grewal said. But "visas to the United States have been extremely restricted since 9/11," Mr. Grewal said, "so the graduates are staying home and finding work in India." The increase in research overseas is arousing concerns in the United States. The fear is that good jobs will migrate to India and China and that the innovative wellspring of new technology will slowly dry up in the United States.

Terry Opdendyk, a venture capitalist, disagrees with the second concern, but concedes the first.

"It is extremely difficult to achieve and manage innovation in collaborations across oceans and time zones," said Mr. Opdendyk, who has backed more than 100 start-ups as head of Onset Ventures, a Silicon Valley firm he founded in 1984. "But I worry because we're educating too few engineers in America and I don't see us pursuing change-the-world ideas as we used to," Mr. Opdendyk said.

Mr. Decker agrees that at fewer than 60,000 new engineers a year, the United States may not have enough skilled people to handle all the work to be done. However, he said, the United States still leads in information technology, and "we can sustain our world leadership if we continue to innovate."


Anonymous said...

Turing good jobs into bad ones won't stop that.

Anonymous said...

I agree that the failure of US policy to emphasize education and training in science/engineering is detrimental to the long-term standard of living for the average US citizen, but India and China can not simply supply trained workers. A sophisticated infrastructure is needed and the lack of this may counterbalance these low cost alternatives. The Economist (9/22/05) reports that electrical power in India is notoriously unreliable.

"Power cuts are a way of life in India, at least in parts of the country lucky enough to regard them as an interruption rather than the norm. There is a worsening shortage. Over the past decade, electricity generation has grown at a compound annual rate of 5.5%, but demand has grown even faster. Peak demand exceeded supply by 11.3% in 1998 and by 12.1% in the last financial year (ending this March)." [Economist 9/22]

So when a chip fab facility (or any power intensive operation) is located in India, the corporation must hope there is a steady reliable supply of energy (contract with the power company for priority, build & operate a power plant,…). A call center and some computers are one thing, but advanced technology production is not so easily transplanted. Admittedly these are not insurmountable obstacles, but paying a premium for infrastructure sets a high threshold for entry.

In a broader sense, as China and India’s commercial, industrial, and economic might grow, the widening gap between the rural/agrarian and affluent populations may become a problem. While many praise the vast numbers of highly trained Chinese and Indians, this ignores the MUCH larger numbers of poor in these countries. The interests of the poor may become an imoportant issue if they are increasingly upset that corporate interests receive higher priority in the infrastructure. This could trigger a reshuffling of priorities and impact the value and wisdom of the current round of corporate investments.

Anonymous said...

well, Mr anonymous, I agree with u abt the situation of power cuts in India, i am an Indian, but ur overall conclusion regarding the outsourcing of R&D stuff to India is simply too shortsighted. The infrastrucure situation in countries like India and China is rapidly improving, and the centres of technological developmet in India like Bangalore, Hyderabad, the power situation is extremely good there. And regarding the dearth of talent in India, u r not familiar with the quality of engineers produced in India. Yes, forget the numbers for sometime, but the technical talent produced thru IITs and some elite institutes matches if not betters that produced by the Ivy league institutions in the US, and that too at a fraction of the salaries available to similar people in the US. So it makes obvious sense to outsource high end R&D work also to nations like India and China where u get quality along with the obvious cost benefits. Anyways, for the record, I am a techie from India from a premier institute here, and Conexant is coming to our college for recruitment tommorrow, though I am not interested in that job since the job profile does not match my interests, and just chanced upon this blog while I was searching for Conexant's profile to decide whether to sit for the company or not

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