U.S. chip manufacturing in the age of the iPad

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Behind the fly-off-the-shelf popularity of products like Apple's iPad and iPhone are hundreds of thousands of manufacturing jobs--mostly overseas. Is it possible to create more of those jobs here in the U.S. to combat chronically high levels of unemployment?

Andy Grove's Stanford class examined the state of manufacturing in the U.S.

(Credit: Intel)

Personal computing is moving rapidly beyond the laptop. And there's no better example than Apple, whose most popular products are now the iPhone and the iPad. The surging demand for anything Apple is causing a seismic shift in chip manufacturing to Asia, the hotbed of new silicon ecosystems. Though companies like Hewlett-Packard and Dell also play a role, they are still primarily Intel-centric PC makers, while Apple is morphing into a maker of smartphones and tablets, which is creating the alternative non-Intel silicon manufacturing ecosystems overseas. Thus the focus on Apple.

So, is there anything a U.S. gadget supplier like Apple can--or should--do to help maintain a chip manufacturing base in the U.S.? Seeking an answer to that question I recently sat in on a Stanford University class taught by Andy Grove, the former Intel chief executive, and talked to Vivek Wadhwa, director of research at the Center for Entrepreneurship and Research Commercialization at Duke University's Pratt School of Engineering.

My premise was pretty simple. The tablet and high-end smartphone are pushing chip manufacturing outside of the U.S. and away from PC chip stalwart Intel, which has always maintained a large manufacturing base here. My question: If all things are more or less equal technologically, is it a feasible business decision to source silicon from companies, when possible, that have manufacturing bases--and create jobs--in the U.S.?

One of the most prominent examples is Micron Technology and its flash memory chip joint venture with Intel, IM Flash Technologies. Micron is a scrappy Boise, Idaho-based chip manufacturer that survived Japanese chipmakers' takeover of the lion's share of the DRAM (Dynamic Random Access Memory) business in the 1980s and is still alive and kicking despite Asia's--primarily South Korea's and Japan's--preeminence in the memory chip business now.

Toshiba, in particular, is emerging as a strong presence in flash memory now. Thanks, increasingly, to Apple. In fact, to date, a sizable chunk of the flash that went into the iPhone and iPad was sourced from Toshiba. Most pointedly, Apple announced publicly in 2009 that it had cut a $500 million deal with Toshiba to supply flash.

And flash is now prominent in the new MacBook Air, which is offered with 64GB, 128GB, or 256GB flash drives. In the popular 11.6-inch MacBook Air, for example, an iFixit teardown reveals a 64GB solid-state drive supplied by Toshiba.
Cost breakdowns by firms such as iSuppli show that the flash memory component of iPads and iPhones, as percentage of a total bill of materials, ranks very high and is--depending on whether it's 16GB or 64GB--sometimes the largest single component in terms of cost.

Is this business that Micron and/or Intel--who manufacture flash at facilities in Lehi, Utah, and Manassas, Va.,--could get a bigger piece of? That's a business decision Apple has to make. But my point is that the opportunity to make that choice could vanish if trends continue.

U.S. manufacturing clusters
Grove's Standford University graduate business class focused in part on "industry clusters," which are described as "a geographic concentration of interconnected businesses, suppliers, and associated institutions focused on a particular field (i.e., Silicon Valley)," in the class handout. And one of the questions for open discussion was, "How do we make Silicon Valley an industry cluster for manufacturing technology?"

I didn't hear any good answers to that question. What I did hear were more needling questions such as, "Can you control what you don't produce? We say, no." Or statements about America's lack of focus on maintaining a manufacturing base, such as, "America is not fighting right now, at least not very hard." And, of course, the usual warnings about major disincentives: the stratospherically high U.S. corporate tax rate--a point Intel's current CEO Paul Otellini is not bashful about making--was cited as second only to Japan's at 40 percent.

The corporate tax rate is an important issue because, when it's globally competitive--that is, low--it draws business to the U.S. naturally, in the spirit of Adam Smith's oft-quoted maxim of the Invisible Hand. The U.S. government can't plan a manufacturing base into existence--capitalism doesn't work that way--but a country can do everything possible to make the conditions favorable.

Grove asserts that the U.S. government should be aggressive on all fronts to keep the international playing field as level as possible. "Is China following WTO (World Trade Organization) rules? Should you be worried about being accused of protectionism?"--Grove asked the class. He was posing questions that seemed to imply that the U.S. needs to do more to help itself.

And product giants like Apple can also do their share by turning to existing U.S. sources. "Yes, let's put pressure on Apple. If Apple bought flash from Intel or Micron, that's a great example," said Duke University's Wadhwa.

But not all manufacturing is created equal. "The vast majority of manufacturing is destructive to the environment. Like paint and toy manufacturing. And if you build more manufacturing plants here like Foxconn--which build Apple's iPhone in China--Americans wouldn't want to do those jobs. It's mindless, grunt work," he said.

Wadhwa continued. "Germany (for example) is all very high-level manufacturing. It's very high-level technology products and they pay very high salaries. It's not grunt work. By all means let's get high-end high-tech manufacturing in the U.S. Flash memory is a good example. Manufacturing the most critical ingredients of solar technology is a good example. And clean-tech manufacturing," he said.

Some manufacturing, surprisingly, is coming back to the U.S. The Stanford class cited cases of "re-shoring" of manufacturing by General Electric, Caterpillar, and Ford. In some cases, unforeseen complications make manufacturing abroad simply impractical. And China's cost of living is rising too, which will work against low-cost manufacturing in that country in the future.

Let's hope that the U.S. remains as hospitable as possible to high-quality high-tech manufacturing jobs and that companies like Apple do their share to source from U.S.-based suppliers when possible.

Brooke Crothers
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Malaysians are not ready to host big games

By ANN TAN anntan@thestar.com.my

Malaysains have to discard freebies mentality, says sports minister

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GEORGE TOWN: Malaysians are not ready for any major multi-sports event like Asian Games despite the country being the host for the Commonwealth Games in 1998.

Youth and Sports Minister Datuk Seri Ahmad Shabery Cheek said the people’s mindset and attitude have to be changed before the country decides to bid to be the host for any such games.

“Malaysians are still looking for freebies such as complimentary tickets. They are also always asking to be paid despite volunteering to help out in a sport events.”

Citing the 590,000 volunteers during the recently concluded Asian Games in Guangzhou, China, as an example, he said over a million people had volunteered themselves to help out in the event without asking for anything in return.

“Those who were picked were only given a uniform each and food coupons, and they even made their way to Guangzhou on their own.

“We need such a spirit before we can even consider hosting an international sport event but I am sad to note that we have yet to reach such a standard,” he told reporters after officiating the 2nd Malaysia Youth Sports and Cultural Carnival at the Universiti Sains Malaysia last night.

It was earlier reported that the Cabinet had rejected an attempt to bid for the 2019 Asian Games, which was estimated to cost of RM1.7bil.

To this, Shabery said the cost, which excluded the budget for infrastructure, was estimated before they witnessed the Asian Games in Guangzhou.

“China has set a very high standard and if we were to host a similar event, we will have to use them as a benchmark.

“We must think of something more creative and more advanced with better co-ordination and manpower as the Asian Games will definitely cost more to host than the Commonwealth Games,” he said.

Shabery said it would not be a wise to bid for the games when the Government was cutting subsidy on petrol and sugar.

“This is not an impossible task but we will need to wait until the country is more financially sound.”

Proton and a terribly flawed Malaysian Automotive Policy

A QUESTION OF BUSINESS BY P.GUNASEGARAM

Once we realise that people and productivity come first, it will be easier to solve the myriad headaches facing the car industry in general and Proton in particular.

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THE problem with Proton Holdings Bhd is that it feels that Malaysia owes it a living. It wants to continue to make profits at the expense of Malaysians. It does not realise that 25 years is too old for it to be babied.

And now it wants to marry its competitor, Perodua or Perusuhaan Otomobil Kedua, which has surpassed Proton in sales and become number one, so that its future will be sort of assured by larger scale and access to a foreign partner.

But Perodua is a reluctant bride and its top management has openly, and understandably, expressed opposition against the merger because it gives no benefit to Perodua while being potentially rather harmful.

A forced marriage is a recipe for disaster, and it is high time that the Government stood up and took notice of these objections and examined clearly how irrational the reasons are for the proposed merger. The reality of the situation is that Proton, or for that matter any other Malaysian manufacturer, including Perodua, is unable to have the scale and technological expertise to be a viable world manufacturer of cars on its own.

That leaves Proton with no other choice but to find a technological partner, or merge with a reputable, large manufacturer. The first alternative would mean that it will never become competitive and will rely on the partner for its survival.

The second alternative, the only viable one, was very near to completion a few years ago when it was completing a deal with the world’s fourth largest car company Volkswagen in 2007 (and again earlier this year) but the deal was scuttled at the last minute by vested interests.

If that deal had materialised, Proton would have been well on the road to a bright future full of promise as Volkswagen geared all Proton’s excess capacity up to become a regional manufacturer.

By now, Malaysians and South East Asians could be driving the Volkswagen engineered cars at a fraction of their current price.

We could have seen the local parts manufacturing industry getting a boost from increased volumes and expertise from the German manufacturer which helped the Czech manufacturer Skoda become a major automotive power in a relatively short period of time.

The price to be paid would have been to surrender majority control of Proton to Volkswagen, but even there arrangements could have been made to keep Malaysian distribution and service operations under local majority control (as with Perodua) and let Volkswagen take majority control of manufacturing and regional operations.

That would have been win-win for both parties but pride and vested interests dictated otherwise. Since then the attractiveness of Proton and what it has to offer has diminished in the eyes of international car companies and the national car manufacturer has been unable to strike a deal with any of them.

Proton realises that it is in desperate straits because its local, home-grown models have been unimpressive, as a result of which it lost the lead to the much more reliable Perodua with its popular Myvi range of models. Perodua has not looked back since.

But the baby still wants its milk and now it is looking to Perodua to mother it and provide it with a badly needed lifeline after it desperately did a deal with Mitsubishi to re-badge the Lancer as the Inspira – hardly inspiring stuff.

Now it is turning the screws on Perodua and is applying pressure for a merger. Perodua has built itself a successful niche operation with technological help from Toyota-controlled Daihatsu and has become a regional manufacturer of sorts. Its models are more in demand simply because quality and performance is better than Proton’s.

It is a merger that Perodua clearly does not want. But will it have a choice at the end of the day? Both Proton and Perodua are essentially controlled by the Government or by Government-linked companies, with only Perodua’s manufacturing operations under Japanese control.

The Japanese, through Toyota and Mitsui and Co, can raise their objections here, especially since Toyota has already more or less made its regional plans here in Indonesia, Thailand and elsewhere.

Malaysia lost out because of – yes, Proton and a terribly flawed National Automotive Policy which favours inefficient local manufacturers and assemblers and some favoured franchise operators who rely on approved permits for their trade.

The business solution is very clear – wean the Proton baby off, and ensure that the punitive import duties on cars are progressively removed so that Malaysians don’t have to subsidise the profits of the likes of Protons and can enjoy cheaper cars.

Perodua is likely to survive that move as it has a solid technological and equity relationship with Daihatsu and is fast becoming a regional manufacturer but Proton will have to merge or go extinct. The sooner Proton is weaned off the faster it will see its predicament and sort something out.

Surely that solution cannot be pulling under the water another perfectly well established national car project which is currently flourishing under the only workable model under which a national car project will survive.

Proton lost its chance with Volkswagen. Let it go out there and find an alliance with a world manufacturer like Perodua did a while ago. Let it leave Perodua well alone.

>Managing editor P. Gunasegaram says we should not throw good companies after bad.

PROTON :  [Stock Watch]  [News]

Penang houses are just ‘not affordable’

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"Developers prefer to cater to investors and  speculators who buy for rent or to flip over and make money"

Making their point: Mohd Idris (right) and Dr Lim showing a chart on the percentage of the vacant house units in some states in Malaysia.

THE average price of a house on Penang Island in 2009 was RM550,000 — the highest in the country and RM160,000 more than the average price of a house in Kuala Lumpur.

State government think tank, Socio-Economic and Environmental Research Institute (Seri), said the price was eight times the average household in-come.

Its senior fellow Dr Lim Mah Hui said the house price should be between three and four times the average household income.

Dr Lim added that most houses that were built did not cater to the need of the majority of people.

“The building of super luxurious condominiums should not be encouraged. There are too many empty houses in Penang. The demand is there but it’s not affordable,” he told a press conference yesterday.

Consumers Association of Penang president S.M. Mohd Idris said house prices have soared to exorbitant levels in major cities of the country.

“Even the middle class cannot afford to own a house or apartment, let alone the lower income group,” he said.

Mohd Idris said that it was time for the government to start a public housing policy that provided affordable housing, particularly in urban areas, to people from the lower income group.

“A good example worth studying is the Singapore Housing Board where the government spearheads the building of affordable housing for a majority of its citizens,” he said.

He said the majority of Malay-sians want affordable homes but developers are supplying houses that they cannot afford.

“Developers prefer to cater to investors and speculators who buy to rent or to flip over and make money.

They also go overseas to aggressively market properties as they are still cheap by international standards.

“Unlike Indonesia, the Philippines, and Thailand, Malaysia is one of the few countries in Southeast Asia to allow foreigners to own landed property,” he said.

Source: The Star

Tun Dr Lim Chong Eu Hightway, a tribute to him, holds many important lessons for Malaysians

Tun Dr Lim Chong Eu Expressway, Penang 
 

Tun Dr Lim Chong Eu Expressway (23 April 2009)
© Timothy Tye using this photo

Tun Dr Lim Chong Eu Expressway (Federal Route 3113) is a 17.84 km expressway that runs along the eastern coast of Penang Island. It starts at the junction with Prangin Road Ghaut, across from Weld Quay, and ends in Batu Maung, at the junction with Jalan Batu Maung and Jalan Permatang Damar Laut. The expressway includes the entire lengths of the former Jelutong Expressway and Bayan Lepas Expressway.

Chief Minister Lim Guan Eng announced the renaming of the expressway in honour of Dr Lim Chong Eu, the second Chief Minister of Penang who passed away on Wednesday, 24 November, 2010. The renaming of the expressway is meaningful to many Penangites as a tribute to the man who personally ushered the state into becoming one of the most developed in the country.

This the full name is quite a mouthful, I will henceforth call it the Chong Eu Expressway. This is the second road in Penang named after the Lim family, as Tun Dr Lim's father had his name immortalized when Prangin Road was renamed Jalan Dr Lim Chwee Leong.

The Penang Brige and Bayan Lepas Penang from the air:
 


CERITALAH by KARIM RASLAN 

A Tribute to Tun Dr. Lim Chong Eu, Holds Many Important Lessons for Malaysians

His personal journey from wealthy Penang scion, to doctor, Independence activist, politician and statesman, holds many important lessons for Malaysians on both sides of the political divide.

WE lose something as a nation when our great men and women pass away. The late Tun Dr Lim Chong Eu – Penang’s Chief Minister for over 20 years – was a remarkable leader and a great Malaysian.

Dr Lim’s personal journey from wealthy Penang scion, to doctor, Independence activist, politician and statesman, holds many important lessons for Malaysians on both sides of the political divide.

Foremost was his intellectual prowess.

Dr Lim excelled as a student.

Notwithstanding his privileged background, he distinguished himself by securing a prestigious Queen’s Scholarship to read medicine at Edinburgh University.

Many Malaysians, in their haste to be egalitarian, have tended to down-play the importance of educational excellence for politicians.

This aggressively anti-elitist stance is both foolish and dangerous.

An elite dominated by the anti-intellectual or poorly-educated is clearly ill-equipped to formulate and execute policies in a complex and ever-changing global environment.

Next, Dr Lim’s leadership of Gerakan to victory in Penang during the 1969 general election was to thrust him back into the very heart of national politics, at a time when Malaysia was at its lowest ebb.

Indeed, the creation of Gerakan itself was a remarkable achievement.

The party rejected racial politics, instead seeking to combine social democracy with liberalism.

It brought together an eclectic group of activists, ranging from academics (Syed Hussain Alatas and Wang Gungwu), trade unionists (V. David and V. Veerapan) and politicians (Tan Chee Khoon, Dominic Puthucheary and Lim Ee Heong).

Despite its current weakened state, it was – until the rise of PKR – one of the most successful multi-racial parties in Malaysia’s history.

One can only imagine what Dr Lim must have been thinking in May 1969 as he observed Malaysia descend into chaos. He was clearly shaken by the riots and killings.

Perhaps inevitably – given his background – he found himself more comfortable with the Alliance’s conservative milieu. He hence brought his party into the embrace of the much-weakened Alliance, later to be reincarnated as Barisan Nasional.

It was a historic, much-criticised decision, but he stood firm. Moreover, having chosen to side with Barisan, he remained loyal to the end.

As Malaysia emerged from the trauma of 1969, Dr Lim quickly grasped the challenges facing Penang.

The removal of the island’s free-port status and the closing down of British military bases were seen as death blows to its prosperity.

However, Dr Lim was creative and resourceful. Having made peace with the Federal Government, he crafted and implemented policies (often via the Penang Development Corporation) that were to attract scores of global electronic companies to the island.

He could be dictatorial but he certainly delivered on his promises.

He modernised the island-state, turning it into an industrial hub that was to generate hundreds of thousands of jobs for its people.

These achievements were all the more remarkable considering that he had to stand up to strong opposition from within and outside Barisan.

On one hand, he had to battle DAP supremos like Karpal Singh and Lim Kit Siang, and on the other, he had to manage Penang Umno with emerging nationalist voices like Anwar Ibrahim.

However, as many have pointed out, one of Dr Lim’s mistakes was that he compromised too much vis-a-vis Gerakan’s position in Barisan. This in turn sowed the seeds of the party’s collapse in the 2008 polls.

But one thing which cannot be taken away from him was his loyalty to his state, to Gerakan and the coalition.

He never once spoke ill of his successors or Barisan colleagues.

Indeed, his silence and forbearance after he lost power was a mark of his humility and dignity.

He understood that the younger generation of leaders had to be allowed to make their own mistakes and learn from them.

Dr Lim’s distinguished political career is an important reminder that politics is fluid and impermanent.

In 1990, after decades of hard work, he was swept away by an unexpected groundswell.

To Barisan Nasional, he is a symbol of its lost multi-racial and service-bound past; something they must regain to win back Penang and the nation in the next elections.

For Pakatan Rakyat – especially the DAP which currently governs Penang – he is a reminder they must bridge the divide with the Federal Government while managing their own, sometimes fractious, allies.

Nonetheless, Penangites are determined and inventive.

Even without federal funds, they’ll craft an alternative future that will no doubt be as ground-breaking as Tun Dr Lim’s prescriptions were all those decades ago – all testament to his dedication, perseverance and brilliance.