Friday, November 28, 2014

High Tech "State of the Union" - Q3 2014 Supplement #2

The Inheritors of Charlemagne


A full century before the officially recognized end of the Roman Empire in 476 AD, the western borders of the Imperium had already broken down before a host of Germanic tribes. Alani, Quadi, Marcomanni, Alamanni, Franks, Saxons, Angles, Lombards, Ostrogoths, Visigoths, Vandals, Huns - the list of individual tribes in this horde is lengthy and filled with names that even today inspire a certain level of awe and dread. The collapse of Roman authority over its western and northern territories brought a reign of terror, oppression and chaos that in certain areas would last upwards of half a millenium - a period of barbarism and despair that earned the very appropriate epithet of The Dark Ages. 

The Romans brought this upon themselves, of course. Centuries of warfare against Gallic tribes in northern and western Europe and subsequent defensive conflicts against early Germanic tribes such as the Teutons and Cimbri strained the citizen-soldier composition of the Legions past their breaking point. Consisting almost entirely of independent farmers from the Italian countryside, service in the Legion would take what were the middle class workers of Republican Roman times far from their farms for years, forcing their families into debt in order to survive and ultimately losing their land to the avaricious patrician class of the Senate, who would then organize their new holdings into vast latifundia tilled by slave labor.

This concentration of wealth and power in the hands of the Patricians ultimately led to the end of Republican constitutional government and ushered in the age of the Caesars, who took the throne mainly thru the support of a professionally composed force of Legionary soldiery that were in effect mercenaries belonging to whatever patrician paid them best. The necessity of keeping nearly half a million soldiers and sailors continually under arms to defend the distant borders of the Empire drained the imperial treasury, forcing an increasingly onerous and eventually confiscatory tax burden onto the citizenry.  

Emperors frequently found themselves defending their throne from wealthy and ambitious members of the Senate as well as successful commanders from the border provinces, making the threat or outbreak of civil war an endemic plague accompanying Imperial rule. Already vested with absolute authority, emperors sought to ameliorate the consequent exhaustion of imperial finances caused by conflicts from within and without, along with their attendant waves of economic destruction, by exerting ever greater command over the economy, to the point of nationalizing whole industries such as wine and olive oil production, as well as instituting erosive price control mechanisms. To make matters worse, the Emperors - starting with Nero - began diluting the precious metal content of gold and silver coins with base metals in order to manufacture more of them. After 150 years, coins that were once 95% pure contained only 5% or less of the actual monetary metals. This was naturally accompanied by an inflationary spiral that over the course of time made the currency so worthless in trade that it reduced the Imperial economy from a cash basis to one of barter under Diocletian.

Source: Wikipedia

Thus, when the barbarians finally and definitively overran the frontiers of the Danube and the Rhine in the 5th century, little was left of the once energetic and dynamic society that paved roads, built aqueducts and bridges, founded cities, promoted and supported trade, prosperity and the rule of law across most of Europe, North Africa and the Near East.Yet amidst the plundering and ravaging swarms of barbarian conquerors were a few individuals who beheld in the decaying remnants of once mighty Rome an echo of what once was. Awestruck and inspired by these wispy, fading remnants of a previous golden age, they sought a way to bring this dream back to life in a new, invigorated form for the benefit of their own people.

The first of these was Clovis, who took leadership of the Franks and established a kingdom that stretched from the western and northern parts of what is now France into central Germany. The dynastic rule of his family, known as the Merovingians, lasted for three centuries until displaced by the even more successful Carolingians, of whom Charlemagne was the most famous of their line of kings. Charlemagne's rule extended across all of modern France, down to the northern bank of the Ebro river in Spain and as far east as the banks of the Elbe in eastern Germany, south thru Bavaria and Austria and all the way to the Bay of Naples in Italy.

What is much more significant than his territorial holdings, though, is the initiatives Charlemagne pursued to create an organized, functional society out of a fragmented amalgamation of nomadic warrior tribes and sedentary peoples across western and central Europe. His efforts included reforms in the military, political, economic, educational and ecclesiastical spheres. A man who did not take imperial or royal trappings seriously and dressed most often in common apparel, Charlemagne devoted his energies and intellect to building something that would far outlast him and be of multi-generational benefit to all those under his reign. His labors launched western Europe towards a recovery of civilized life and established the roots of what would one day become the nations of France and Germany.

In what Arnold Toynbee termed a "Palingenesis" stemming from the final demise of Greco-Roman civilization and the birth from its ashes of a nascent European culture, the beginnings of this new epoch were reflected in the legends and myths that sprang from the period. Characterized as a Dark Age when compared to what came before and after, it was also looked upon by later generations as a Heroic Age that appropriated folklore passed down by oral tradition from the many Germanic tribes and transformed them into tales of valor, chivalry and sacrifice replete with meaning to Europeans of later centuries. These sagas were captured in epics such as the Nibelungenlied, the Song of Roland and other stories.

Sources:, pinterest,

Another time of great change is sweeping across the European continent, its ultimate outcome uncertain. The circumstances are ominous. Much of Europe has de-industrialized, with many national economies dependent by and large on services, tourism, highly specialized agriculture and high finance. Coupled with a prevailing 'socialism lite' socio-economic model that has traded away future prosperity for current consumption paid for with stupendous piles of sovereign debt, this hollowing out of europe's economic base portends very dark times ahead for a populace most of which is as far removed from the experience of such duress as can be.

For my part, I have a personal window through which I see Europe's extant travails, as I have extended family in Northern Italy. The disquiet that pervades their lives is palpable in letters, emails and phone calls as they confront the prospect of striving for a happy and settled future that currently seems beyond a distant and perhaps unreachable horizon.

There are, however, those in Europe who carry the banner of Charlemagne, unwittingly for the most part. Captured by a vision of a better tomorrow, inventive and inquisitive engineers across the continent pursue High Tech dreams with energy and creativity. Of all the technology firms in Europe, I have picked three to represent their aggregate status - Infineon, NXP and STMicro. Each of these companies has experienced tumultuous, wrenching change over the last decade or more and are endeavoring to define a place for themselves in the global arena.

Infineon was spun off from Siemens in 1999. Over the past 15 years, the firm has discarded certain capabilities such as memories and broadband but also acquired International Rectifier to bolster its position in power management ICs and components. The company already has a global footprint, with offices in Europe, the USA and the Far East. The firm is vertically integrated, with its own fabs in Germany and assembly & test facilities on the continent and across the Pacific Rim.

Based in Germany, Infineon has some peculiar advantages. At variance with the great majority of Europe, Germany has managed to preserve much of its industrial base. Furthermore, German companies have a marked tendency to prefer dealing with each other over sourcing from outside suppliers - a fact which those of us who have tried to sell to German enterprises are well aware, though German firms are still scrupulously fair and, in the end, quite reasonable. 

These factors, combined with very solid engineering work on the part of Infineon technical staff, have provided the company opportunity to build superlative strength in automotive, industrial control and power management applications. Infineon has also developed a solid presence in the smart card market with identification and security applications for credit  and charge cards, electronic ID for both products and documents, electronic tickets and so forth. As a result, the microelectronic engineering expertise of the firm encompasses analog, mixed signal, power, wireless and security.

NXP was spun off from Philips in 2006. Based in the Netherlands (one of my favorite places in the world, with the most hospitable people and, quite frankly, some of the most stunning looking women on the face of the earth), the company echoes its rival Infineon to the south, with fabs in Europe and assembly & test facilities in APAC. NXP is in some ways even more global than Infineon, as it has twice as much business in China as in Europe, in addition to having 1/3 of its employees there.

The companies also overlap and contend with each other in market segments and applications they serve - automotive, industrial control, power management and smart cards/security. However, NXP favors the wireless communication and entertainment portion of automotive, whereas Infineon's solutions show greater strength in drive train, braking and engine monitoring applications. The companies also differ in their smart card & security work - whereas Infineon is heavily involved in card payment applications, NXP has carved out strong positions for itself in RFID for product tags and NFC (near field communications) for electronic passports.

NXP differentiates itself in other ways as well. The company evidently still has close ties to Philips and is involved in the nascent smart light bulb market. Despite a considerable retrenchment from the consumer market and the divestiture of several business lines, NXP continues to maintain a presence in STB and HDTV segments. The firm is clearly making an extended strategic push in its MCU business, relying almost exclusively on the Cortex M series. A heritage of the Signetics acquisition in the 70's, NXP is also a leading player in CMOS/TTL logic components.

A primary strategic direction for NXP is in the Smart Home, where all of its capabilities - RF, mixed signal, MCU, power management, wireless and so forth - can be brought to bear. Naturally, this puts the company on a head-on collision course with the IoT. The NXP executive management team is rather obviously aware of this, as can be seen in the following announcement concerning the company's latest acquisition:

STMicro, headquartered in Geneva, was born in 1987 from the merger of Italy's SGS and France's Thomson. The company has many acquisitions under its belt which were used to expand the company's presence in wireless and wireline networking as well as consumer electronics. STMicro also seems to have a knack for launching joint ventures. Its favorite partner is NXP, though the company has also entered in the past into ventures with Intel, Ericsson and Freescale.

Like its northern cousins, STMicro participates in the automotive and industrial markets, with sensors, analog, mixed signal, power management, SSI/MSI logic and MCU product lines. The company has had some interesting microprocessor ventures, including production of a Pentium competitor with Cyrix and a three-way agreement with MIPS and China's Institute of Computing Technology (ICT) to manufacture the Loongson MPU. Neither of these efforts, however, really went anywhere.

Again, like its Dutch and German brethren, STMicro is vertically integrated, with fabs on the continent and assembly & test plants in China, Malaysia and the Philippines. Several of the fabs are joint ventures - clearly something of an obsession with the company.

Where STMicro begins to diverge from its northern counterparts is in its presence in the SoC and memory markets. The company supports both NVRAM and EEPROM products. On its line card is also an extensive selection of video processing and STB ICs.  

How They Stack Up   

Quarterly revenues are offered below back to Q1 2008. The Infineon numbers are a bit of a fudge, as they report results in Euros; to allow for as much of an apples-to-apples comparison as I could create, I multiplied all the Infineon numbers by the current conversion rate of roughly 1.25 USD per Euro.

From the above chart, we can see that STMicro was mauled in the 2008-9 financial crisis but recovered powerfully, leaving its rivals in the dust. However, a long term decline in the company's fortunes appears to have set in beginning in q1 2011. Infineon has been flat for the last four years, while NXP seems to be on a mild but steady upward trend starting in Q4 2011.


He has learned much who knows the pain of struggle. - Le Chanson de Roland

Then the soldiers began the song of Roland so that the martial example of this man should excite them, and calling upon God's help, they began the fight and most bitter battle, with neither side yielding until late in the day. - a description of the Norman side at the Battle of Hastings (1066 AD) by William of Malmesbury

Scrutinized at a first order of detail, these three European semiconductor heavyweights appear to be near mirror images of each other, generally pursuing the same markets (automotive, industrial and power management) and organized in nearly identical fashion. Even STMicro, though seemingly the most diversified in terms of technologies and offerings, seems far more focused on the same markets as its two cousins and significantly less committed to consumer and mobile computing applications. 

Putting it another way, the three appear to have consciously chosen to avoid slugging it out with international competitors in the ultra high volume smartphone, tablet, HDTV and STB markets in order to focus their value-adding strengths on more niche-like sectors of High Tech.

How do they compare in terms of productivity, efficiency and profitability? One somewhat useful measure of those is the revenue generated (on average) by each employee. On this factor as well, the three do not differ from each other that much - in 2013, STMicro was $160k, NXP at $200k and Infineon halfway between the two. All three look decidedly weak when contrasted with mighty Intel, however, a vertically integrated company like the above three but who was able to generate just under $490k per employee that same year.

Yet a deeper contemplation of each company's numbers, product portfolio and stated positioning suggests a more unsettling situation. STMicro in particular looks befuddled and adrift, seemingly content to follow in the footsteps of the other two without any clear purpose beyond that. Infineon at least has a focus, sticking to its strengths while reliably and steadily releasing new and enhanced offerings geared for its specific target markets and customers.

But NXP is markedly different. It is conspicuous in its adherence to a principle espoused in the classical era of Greece - that of 'arete', which means to pursue excellence in all things with all one's energy. The company has also plainly and decisively proclaimed its long term strategic goals - that of becoming a dominant force in the Internet of Things thru mastery of the Smart Home and Smart Car applications spaces. Stated differently: NXP has heard the call of Roland's horn at Roncevaux.

All that is human must retrograde if it does not advance. - Edward Gibbon, "The Decline and Fall of the Roman Empire"


The axes of political, military and economic power are turning on a global scale, shifting into new alignments and configurations. The Post-War period is at its final curtain call, marking the end of an historic era. If Europe continues on its present course, it will be unable to retain its first world status and most of it will become a decaying backwater. Will NXP set an example for Infineon, STMicro and the rest of Europe's High Tech sector to follow, like Charlemagne did twelve centuries ago for all of Europe? Will the peoples and government institutions of Europe follow suit and remove the chains that restrain their technology inventors, innovators and engineers, or will they shrink from the challenge?

I watch from afar with trepidation at what my distant cousins will do or not do, and observe with a troubled brow the tribulations of my immediate cousins, nieces and nephews in the old country from where my mother immigrated and where my father's parents were born.

Next week, we will revisit the Stone Masons - with a new lineup of companies. :-)