Outsourcing services put chip designers on edge

Outsourcing services put chip designers on edge
By Ed McNamara, EE Times
July 25, 2003 (3:03 p.m. EST)
URL: http://www.eetimes.com/story/OEG20030725S0018

MANHASSEt, N.Y. — The acceleration of overseas outsourcing of information technology services in recent years has some circuit designers worried about the security of their once-sheltered position. Those concerns are not without merit.

"I absolutely have witnessed circuit design work being moved overseas," said Phil Lowe, a staff engineer ata company that he asked not be identified. Lowe said he has observed outright fear among electronics engineers engaged in chip design who believe their positions have become vulnerable to a possible move overseas.

While research and development positions associated with new products appear to be remaining in the United States, Lowe contended that development facilities and positions for existing products were often subjects of an international shift. Some in R&D "don't see the total picture" of what is occurring, he said.

The notion of an inconspicuous migration of chip design R&D positions overseas is echoed by Ron Hira of IEEE-USA. "There is a globalization of R&D going on more under the radar screen than IT," said Hira, chairman of the research and development policy committee of the industry association. He maintained that corporations are following a trend of moving circuit design research labs closer to pro duction facilities. In consequence, R&D may be moved out of the United States for companies with existing production facilities overseas.

Technology analysts agree that R&D is increasingly being outsourced, especially to technology hot spots like China. But cost is not the only reason, and the shift often creates, rather than eliminates, jobs here, according to some. For instance, Kathleen Walsh, a senior associate at the Washington-based Henry L. Stimson Center and author of a study on foreign R&D in China, agreed that some R&D jobs are leaving. But the intellectual-property rights on new technologies come back to U.S. companies, so in terms of jobs gained or lost, "it doesn't appear to be one for one," Walsh said.

But even those who predict such a shift over the next five years can't pin down a number; perhaps because there are conflicting reports about the movement of chip design jobs abroad. Last week, for example, The New York Times reported that IBM Corp. is discussing the possible move of a portion of its IT jobs overseas in coming years. Yet a spokesman for IBM Microelectronics said the company was not planning to move any of its circuit designers. "There is no movement in Microelectronics to move [jobs] overseas," he said.

Similarly, a spokeswoman for Scientific-Atlanta Inc., a broadband network provider with 6,500 employees, said that all chip design work for the company was done "inside" Scientific-Atlanta. Circuit production is outsourced to foundries. She cited the company's Explorer set tops as an example: "We do the chip design and will go out to companies . . . for the fabrication," the spokeswoman said.

As recently as May, IBM said it was establishing a new technology design center in Bangalore, India. While IBM executives declined to discuss staffing in India, it operates development centers in several Indian cities, and is said to employ at least 2,500 engineers.

Industry analysts said they are accustomed to U.S. corporations announcing major hiring plans for their Indian operations. One indication is the number of job ads for software engineers, which had dropped steadily last year but is increasing again.

At a recent U.S. job fair, Intel, Oracle Microsoft and others "specifically [sought] to attract talent to meet their growth plans in India," said C.N. Kumar, chief executive of Advantage Offshore Knowledge Services Pvt. Ltd., a company that helps overseas companies manage development centers in India.

Others in the chip design sector said they haven't witnessed any design work being moved overseas. Roger Boates, a staff engineer at STMicroelectronics, said he has observed no foreign outsourcing. "It is certainly more expensive to maintain de sign centers in the U.S. compared to Europe or Asia," he conceded. If work is moved overseas, "an employee may be given the opportunity to go with the work and work over there," Boates said.

Hans Kuffer, owner of a California-based microelectronic system design house whose name he requested not be identified, stated that while his company does not outsource any circuit design work, the notion of outsourcing is a viable threat to chip designers. "We have a lot of requests from Indian companies [seeking to handle circuit design work] and they always offer their services at fairly low rates," he said.

Kuffer's decision not to accept the offers stems from his belief that it would require greater resources to maintain effective communications with overseas labs. "It makes it easier if you do it locally" Kuffer said of design work. He pointed out, though, that not everyone agrees with his position, adding that chip designers should be concerned with the stability of the field.

The signals on the outso urcing of circuit design are indeed mixed. A recent report by Gartner Inc. stated that 500,000 IT jobs will be moved overseas over the next 18 months. Diane Morello, the report's author, admitted that she could not say what percentage of those positions would involve EEs, however.

Despite the lack of hard numbers, action is already being taken regarding the issue by individuals within the federal government. Washington state Democratic representatives Adam Smith and Jay Inslee brought the matter before the U.S. General Accounting Office earlier this month. They asked the GAO to analyze any potential impact the overseas migration of high-tech jobs might have on the American economy. Smith said, "I'm concerned that we may be training individuals at home for jobs that are being sent overseas."

Though concrete examples are scarce, outsourcing is becoming a contentious issue for chip designers in a way that it wasn't in the past. And the one constant is fear. While praising STMicroelectronics for retaini ng employees during hard times, engineer Boates said, "It is a concern for me, potentially laying me off, having the work I do done overseas."