S3E15: Semiconductor Business Deep Dive With Mike Polacek

We are excited to have Mike Polacek as a guest of honor on this episode. Mike is one of the few business leaders who has run large tech businesses and has been a professional investor in public companies. 

We dig deeper into the how building semiconductor business is different than building a SaaS business, complexity, Moore's law, and many other interesting subjects related to tech businesses. 

I enjoyed my conversation with Mike and hope that you will enjoy it as well. 

Transcript

Chander Chawla: 0:00

Hello everyone. Welcome back. This is Valley Nordic a podcast about culture, technology and business from two perspectives. That's my perspective from Silicon Valley and arne's perspective from the Nordic countries. But today we have a special guest, you'll get two Silicon Valley perspectives. I am with Mike politek In Pescadero. That's the place where Gordon Moore was born and raised. You. I'm sure I've heard of Moore's law. So that Gordon Moore was raised here, and Mike politek is one of the smartest guys I know, and I had the privilege of working with him, and I would say he I usually like running my own show, but I'm happy to be his number two. Anywhere you it's hard to find people who have the intellectual depth and also who are ability, you know, their their ability to communicate, you know, very complex idea in simple terms, and align lot of people. So you will see that today. So Mike, welcome to Valley Nordic, and thanks for joining us. Thanks,

Mike Polacek: 1:14

Chander, that's introduction is too kind. And also, I'm glad to do this face to face, I don't know, for breaking any rules, any laws. Hopefully not we can edit this out.

Chander Chawla: 1:26

We are both vaccinated, and we are in Mike's beautiful place in Pescadero, and we're six feet apart. We are six feet apart, and Mike has a very and I think everybody who is a regular to valley Nordic knows my affinity towards Berkshire, Hathaway to Buffett and Munger. So I see Mike is one of the few executives who has been on both sides, meaning he ran big divisions. He was president at Knowles. Before that, he was SVP at National Semiconductor, but so he has run large businesses, created new businesses, and he spent four or five years on the investing side. So he he's an operator and also an investor. So which you know, if, from the startup perspective, the biggest challenge you have is the capital allocation. So you do that internally, within a company as a CEO or a startup founder, but from externally, you do you spread it apart to other companies, so you have that perspective. So I find that very interesting, and today we'll discuss, we'll do a deep dive into semiconductors. You know what they are, why they're important, and basically past, present and future. And Mike, you want to say something before I dive I'm so eager to dive into it. But if there's anything you want to add to the intro? No,

Mike Polacek: 3:01

I would just say we could definitely dive in that your comment about investing and portfolio management, of your investments and capital allocation, resource allocation within a company is more or less the same sort of idea as if you're doing it outside, either investing in a division or something you want to buy, if you're a strategic investor, or if you're just a public market investor, investing in stocks, it's sort of the same thing that the diligence that you do in terms of evaluating the products and the technology and the management team, and then ultimately valuation and all the rest of it is, you know, it's the Same, same general concept. And so I found that doing that kind of work inside national was, you know, quite applicable to doing it outside as professional investor.

Chander Chawla: 3:49

Yeah, great. So I want to start with the fundamentals of silicon business. Because, you know, a lot of the training people get in the startup world. When these days, when people think of Silicon Valley, they think of basically B to B, SaaS startups or consumer companies like Facebook, Google or slack would be B to B, example. But it started, it's called Silicon Valley because of semiconductors. So how are the in your view, the fundamentals of silicon business different than, let's say, A, B to B, SAS startup.

Mike Polacek: 4:29

Well, I think the most obvious first thing I can think of is just the investment required and the time frame required to get a product out. And you know, it's very difficult to sort of spend a little bit of money test something, see if it works, adjust, modify, get something else out incrementally, a little bit better. You know, that's just not how semiconductors work. Generally speaking, you make a fairly large investment depends on the complexity of the chip and sort of. What you're working on, but, but you can make a multi year investment, a multi per multi 100 person year investment, 10s of millions of dollars investment, before you can try the product out and and that that requires, I would say, a lot more discipline. There's a lot more risk, but then you need a lot more discipline up front and and then you need to, you need to hit big, big markets, because those investments are large and the risk is large. So so then you better be, you know, fairly sure that you're going to be able to address a market that has the right number of zeros for that to have been a good investment,

Chander Chawla: 5:42

and how do you know that that market is there?

Mike Polacek: 5:47

Well, you don't know. I mean, I would say you could invest in a market that you're already in. So if you're already in a market and you're sort of doing incremental improvements, then the risk is lower. You you may have gotten this feedback from your customer, or your customers customer, that this next thing that you should do, that there's a demand for that, even even saying that, you know, even if a customer comes to you, which happens all the time, a big customer will come to you and say, oh, I want this next version of this last thing you have. But guess what the that customer is saying the same thing to your competitors, yeah. So you're racing to try to get that product out, to sort of meet the performance requirements, get the cost structure in place so you can hit price targets, get the time frame right, and you do all that investment for that customer that says, I want this or a set of customers. And then you get there and you deliver samples, and you find out that, well, your competitor did it a little bit better, or a little bit cheaper, or whatever, and now you're sort of in the back seat at best. So there's still risk there. The other opportunity is to go after a market that's new, which is riskier in some ways, in terms of, you know, is that market really going to be there when you arrive two years, three years later, at the size that you need it to be? And then, but then the risk goes down, necessarily, or maybe not necessarily, but the risk certainly goes down with respect to competition. So it's not as obvious a market. Maybe, maybe you've seen trends that other that you've maybe your competitors haven't seen. And so then, when you arrive at that market, and that market's there, there may not be as many competitors.

Chander Chawla: 7:29

It's, I remember you told me this, and I still remember this, because it made an impression. You know, LED lights, the first commercial availability was in like, 65

Mike Polacek: 7:41

Well, the, yeah, the invention, you know, it was a University of Illinois professor that my alma mater, and it was, it was decades before I was there, and I'm not young, that he invented LEDs. And he actually made a prediction about that someday that LEDs would be used for lighting instead of incandescent lights. And, yeah, it took many years, you know. And that's, you know, I always say that the bigger challenge in identifying new markets, at least for me, my experience, has been, for my career, has been the timing. You know, more than Are you right or not right? You know, I would say, yeah, you can look at LEDs in the 1950s or 1960s and say, Yeah, this is a great technology that emits light, and it's inherently lower power, and it's but okay, there's a bunch of things that have to fall into place for them to be commercially available. So when, if you're sitting there in 1950 or 1960 you know, write down what's the year you think LEDs will become popular, you'll be able to buy them at whatever hardware store. And, you know, being able to do that accurately is very difficult, yeah, I remember, you know, in self driving cars. So this was, you know, I think it was maybe 567, years ago, when they were first starting to kind of get into the dialog of, of, okay, we might have self driving cars and and there's different versions and different levels, and maybe, you know, trucks and busses and all these so. So this was, like a big thing in 2000 I don't know, 1415, something like that. And I remember reading or listening to and I hope I get this right of the seats. I think there's a CEO Ford, or some high level executive at Ford coming out and saying, you know, by in the next five years, this was in 2015 or 2016 so basically, by today, 2021 Ford will be making cars without acceleration, accelerators, pedals, steering wheels. That was going to be mainstream, mainstream enough that Ford's good, right? This is, this is, you know, and I remember reading that thinking, here's a guy that just doesn't understand the technology, right? But I'm sure he's very smart, very accomplished, but he got that wrong. Now, it doesn't mean that that's never going to happen, that that's an absurd idea. It's like a crazy he's not breaking laws of physics by saying that he's he's just really wrong with respect to the timing, and that's, I would say, really wrong related to the complexity of the problem? Yeah, and I think you just underestimated the complexity of the problem. And I think you see that kind of thing in a lot of places, in a lot of markets, where it's sort of obvious, this is going to happen, but where you really need to be right is in the level of detail about how is it going to happen, when is it going to happen? Where is going to happen if you're really going to exploit a big trend that's maybe fairly obvious, you know, you need to dig several layers down. And I would say that's a much bigger challenge.

Chander Chawla: 10:50

Is there a method or system people can follow to do that?

Mike Polacek: 10:56

I don't know. I I think there's different phases of trying to identify new markets. So, so one might be like a brainstorming phase. So what's possible? You know, linear thinking is problematic, I would say, to being creative.

Chander Chawla: 11:15

Say more that's interesting, like, say more on why linear thinking is problematic.

Mike Polacek: 11:20

So I mean linear thinking will get you linear results, so it'll get you the next thing like and that may be great. There's nothing wrong with doing the best next thing, and that's an aspect of innovation, for sure. But if you want to do something a little bit bigger impact than that, then generally those things are nonlinear, meaning they don't follow that. Okay, six months ago, this improved this much, so six months from now, this is going to improve this much, like, that's linear thinking. And most and humans, I would say, in general, are pretty linear thinkers. Like, it's just sort of, I don't know it's in our DNA or hardware wired, like we don't react well to, you know, exponential curves, like, we sort of can't get our heads around that. And you see that everywhere in society, people just don't, sort of can't make the connection between, what's the difference between a billion and a trillion, or what's the, you know, the one of these games I remember is, is, would you rather have a million dollars. I'll give you two options. I'll give you a million dollars today, or I'll give you a penny today and I'll double it every day for 30 days, right? Turns out, if you take a penny today and you double it every day, one penny one day, two pennies the next day, on and on that that second option would be a much bigger number than the first time, right? It's just hard to think like, yeah. You know, it's just people don't think that way, yeah. So, so in order to be a non linear thinker, you have to get out of that trap. And how do you get out of that trap? I think there's certain, you know, there's certain brainstorming exercises you could do that are, you know, to try to try to get yourself, you know, one is, is this? Who's listening to this guy? I think his name is de Bono. Edward de Bono, if I have that right, he's, he's got these six hats kind of thing. And Sri has used this, I think Sri has used this methodology. They have versions of this where they you sort of play different roles. You get a group of people brainstorming, and people are sort of play different roles to attack and to, you know, to and you sort of get out of, try to play, you literally play roles to try to get out of the conventional thinking. You know, there's, there's, there's things of looking for convergence, right? Looking for two markets that exist and that are happening and that you're sure are going to happen. And then you just sort of write them down, put them next to each other, and say, it can be stupid stuff, right? It could, but, but there could be some, some good things, right? So you take, you take 5g which is like a big obvious thing, and you take IoT, which is a big obvious thing, and then you stick them together and and then you sort of brainstorm what could happen if you bring 5g kind of connectivity to a Iot, type of sensor network world, right? Okay, there could be all kinds of cool things can happen. You could imagine and on and on and on. You could look for gaps, you know, in in technology, where you sort of hit a wall and then something, you know, what could sort of extend that wall. So, yeah, you could look for, you know, all kinds of different ways to kind of get yourself in this creative and non linear sort of thinking world. Yeah,

Chander Chawla: 14:43

it's hard, because you're right. Most people think that way. And you think about what's taught in the software world, in the MVP, and how to take products to market, that's what's taught. You know, you create an MVP that's. Minimum viable product, and you get it out in the market as fast you can. And then you iterate, yeah, you know, get feedback, which makes sense, it because it's software, but like you shared in the very beginning, the fundamentals of the semiconductor business are different. You can't really iterate your way to success. I mean, unless you have billions of dollars, you can iterate, but as a startup, it's hard to iterate your way to success with linear thinking or incremental improvement and capture anything big. Yeah,

Mike Polacek: 15:35

and, you know, I mean lots. There's, again, nothing wrong with incremental thinking and software or anything else. I mean, a lot of the I think people also overestimate, sort of like an individual God, like creator that invented, magically, the iPhone or the or the PC or the operating system like the like, if you know the details of these, Every one of these stories there, it's, there's nothing sexy about like, it's, it's 1000 small things come together to create a great product. And, and it's maybe that attention to detail of bringing them together, and the attention to detail of executing on a schedule. And, you know, those kinds of things which are not sexy. You know, read them in the big books by,

Chander Chawla: 16:20

you know, Walter Isaac by Walter Isaacson,

Mike Polacek: 16:23

exactly, so, but, but that's usually, you know, the story behind the iPhone, or the story behind, you know, Microsoft OS, or something like, it's not, you know, there's, there's not, usually, now, sometimes there is magic, but Oftentimes the magic is accidental, yeah, which? Which is also this nonlinear sort of thing. A lot of like, the coolest inventions are literally, like, lab accidents and things like that. Where, yeah, that's, how do you capture? How do you make sure you're ready for the accident when it happens? You know, that's also a mindset. If I see something that's a surprise that happens, what's my reaction? Is my reaction, oh, let's throw that in the garbage because it's a surprise. Or is my reaction, oh, my God. Like, this is really cool. Like this, this is, this wasn't supposed to be this way. Let's, let's, let's, let's, let's do some more work on that.

Chander Chawla: 17:13

Yeah, yeah. It's, can we do two minutes sidebar on the accidents? You're right. Lot of them are accidents with things moving to remote work and hybrid work. What do you think happens to those accidents?

Mike Polacek: 17:32

Well, some, some can be done by individuals, I suppose, like a lab, a lab. What's a lab in the SAS world? It's maybe somebody's laptop in their kitchen, right? I mean, I I'd have to think about it some more, but, but, I mean, I would say, certainly one of the things you miss is the serendipity of human brainstorming, person to person interaction, where you have an idea and you bump into somebody. I bump into you. I said, Hey, I was just thinking about this. I had this weird dream, and I wrote down these notes at two in the morning, and I and I woke up this morning and it's like, oh my god, this is a great idea. What do you think like? But is it crazy? And then I go, you, and I say, Oh, is that crazy? And you say, well, it's a little crazy, but let's ask Jim. He's right over here. He's an expert on this, whatever, blah, blah, blah. So that kind of thing happens, right? That kind of thing happens a lot, where you can sort of iterate, brainstorm, bounce things off each other. You know, the barrier that's not impossible to do in a sort of virtual environment, but the barrier to do that is higher, like the am I going to call you or I'm going to schedule a zoom call with you, because I had this weird dream. I would say, No, it's a little weird. I probably wouldn't do that, right, but I might just mention it to you by the coffee machine. Yeah.

Chander Chawla: 18:50

I mean, generally, I found if whenever we had these conversations or with other people, they're more in casual environments, we are having coffee, or we are having a beer, or like, because normally during the work day, you're so focused on what you need to deliver the quarterly results, or whatever it is, this is more when you're in a different mind frame and that I find it hard. You know how we'll see how it get it gets integrated in the remote work world,

Mike Polacek: 19:22

yeah? I mean, it's certainly more fun to do this kind of thing face to face, you know, versus, you know, sitting around by yourself, working on tasks all day, yeah? Which is, you know,

Chander Chawla: 19:35

okay, let's come back to semiconductors. Can you like, I always found this fascinating, the value distribution, you know, at national we were making these chips, which were, you know, like, basically, you couldn't, let's say, ship a phone without a PMU. But PMU is power management unit that. Helps you know how the power to distribute it to different parts in the phone. So if that was, maybe we can share it like sub $2 parts, and the actual bomb or bill of materials of the phone was at that time, let's say, 200 bucks. So that's like, 1% and like I felt everybody we are doing, you know, let's go back to the first thing you said, how much risk it takes, how much investment it takes to get things right. So the semi people are taking all this risk, failing multiple times, to get these things right, and making investments, and then it goes to the phone manufacturer, which makes huge margins, lot of money. Then the operator, who sells the phone or has a service plan, they need a lot of money. So the value that's created in this ecosystem, how is it that the guys were doing, or gals, the taking the most risk, are getting least reward.

Mike Polacek: 21:07

Well, I would say the margins on those devices were high, probably higher than the phone guys were making. So that's one indicator that that there is value being placed on it. So maybe not value in terms of margin dollars per phone, but in terms of margin percent, it was high. I think the risk part of it is, you know, it's a conscious decision. If you're going to go after a socket in a phone, it's you're making a conscious decision that I'm going to go after a market where the power dynamic because of the volumes of the phones and the concentration of phone makers versus the concentration of suppliers. That I'm making a conscious decision, that I'm I'm taking on a risk there. I'm willing to, I'm going to be playing a subservient role where this guy is good, this this phone guy is going to push me to be able to push me around if he wants to. And, but why do that? Well, you do that because, because that Phone Guy might be shipping 100 million units a year. You know, tell what other market could you? Could you, you know, for a couple bucks, could you get into a market that you're that that one guy could give you a design win that's, that's 100 million units. You know, it just doesn't exist. You know, you get excited about a design win in a in a car or a TV or whatever, you'd be lucky to ship a million units, right? So, so now, my personal opinion is that that's a that's date like, it's very dangerous. It's a very potentially is a big, big mistake. And there's a lot of companies around, startups around, that no longer exist because they were taken out by these companies. That these companies are pretty bloodthirsty, you know, they'll, they'll sell your their grandmother for a nickel. And so if you, if a competitor comes along, and oftentimes, these phone guys will, will guide your competitor, if they feel like you're you have a little too much power though, maybe somehow the planets aligned and you you got something that no one else could do. And maybe you want to charge a little more. You want to do whatever the Phone Guy says, not in my market. So they'll help their competitor and then literally take them out of business. And that's, you know, if that's your only customer, you get very excited. You get 100 million unit deal. You go from zero to $200 million in revenue. All of a sudden, champagne corks, maybe you go crazy, and you want to go public, you do all these kind of things. And then, and then, all of a sudden, that that's a customer says, oh, you know, I really don't like that product anymore. You should cut the price in half, or I'm gonna use something else. And you're like, what? And then you implode, and you have to fire everybody, and you cry. You don't have yourself to sleep. So So I would say, Yeah, you should go into that with your eyes open. And there's certainly other markets which are smaller volume where that power dynamic isn't the same. In fact, the same. In fact, the power dynamic may be the opposite. The power dynamic may be that you know you're you become such an important partner to that customer that they treat you with respect and longevity and loyalty and all these. And you could do it mutually. And so now you won't ship 100 million units in a year, but it's sort of, you know, what kind of trajectory Are you looking for, and how stable a business are you looking for? So these are conscious decisions. I would say neither is right or wrong. If you're in a huge company like national or some other company where we had 1000s, literally 1000s of products, you know, maybe a dozen, couple dozen different product lines. Yeah, you can have a portfolio approach where some of them, some of my investments, are towards this very high risk, but potentially home run type volume, and then other investments are on the other extreme, and lots of between. And I would say that would be a smart way to deploy your assets.

Chander Chawla: 24:59

Yeah. It's interesting. You know how that happens? You think the cycle, the phone replacement cycle, has something to do with it? Because, you know, people generally replace their smartphones every two years, or and companies release their phone every year, so they have a chance to change things every year. I remember when I worked with Siemens, you know, you were selling network equipment, so routers and big switches and DWDM stuff, and they it's in their network. If something fails, they lose business. So they always wanted three vendors for everything they did. So if something fails, but the relationship was there, they couldn't just throw you out, like in the phone business, they can just throw you out next year here that you're integral to how they make money here, that cycle changes every year. Do you think that has something to do with it? Because the fast cycle? Well,

Mike Polacek: 26:02

I mean, the consumer market definitely has less of a requirement for loyalty than other markets that are longer cycle markets. So I think that's right, you know, will it? I mean, you know, replacement cycles are lengthening in phones, right? It used to be 20 months, and then it was 22 then it was 2426 28 I think it's probably getting close to two and a half years now, instead of two years. And so, you know, will that breed more loyalty? I doubt it. You know, it's, it's not something that you know. I think it's, I think it's the volume you know, more than the, than the cycles where, where the, just the volume is so high. And every penny, half Penny, you know, I saw, I saw this. I mean, it's some at pretty much all these companies that I've worked with that were good customers, that sort of became not so good customers, you know, we saw it with IBM in the literally 80s and 90s, saw it with Nokia, where we used to have meetings with the design engineers, like we would be semiconductor guys, we'd have all this great technology we were thinking about working on, and then we'd have the design guys for the PC, and they were talking about what they needed, if they could dream of something, what would it be? And we would write it down, we'd come back a month later, and we would have those kind of conversations, and and then the planets would align, and then at some point, you would come and you would have developed something, and you'd give them samples, and they would use it. And everybody loved each other, right? And, and they got a great, innovative solution out of it. They got something then that they could do something that their competitors couldn't do. And, you know, we did the same thing. Yeah.

Chander Chawla: 27:54

So the I think Mike has spent a lot of time in the industry I spent limited time so you're seeing how now he's talking about how things have evolved, how it used to be, and then what it became after the customer's success or market position changed, yeah,

Mike Polacek: 28:14

the volume got bigger. So then what I saw is, then slowly, what happened is that the IBM every meeting, then at some point, the procurement guys would be there. And so then it would be like in the in sort of product engineering guys. So then you would have like, half the people in the room were design and design guys, and then the other half were sort of more, sort of plumbing guys. And then a year later, and then there'd be like one design guy, and he wasn't allowed to ask questions, you know, and it was all the procurement and product guys and then, and then, in the end, like you couldn't, you know, you're later, like you couldn't meet the zeitgeist like the other guys, they just wanted to talk about your existing products and what you're doing to cost reduce them, and what you're doing. And maybe the product guy would say, you know, I need something with slightly lower power dissipation or slightly higher performance, whatever. I'm being dramatic. But it was sort of that story. And that same story happened with Nokia. I remember Nokia, we used to have these great conversations with Nokia, these design engineers like, fly all over the place, and we would go there, and they would come here and and there'd be all this designer to designer type, great stuff happening, technical, deep technical conversation about what's possible, like, and that's the magical interface between, like, what's possible and what's needed, yeah, right. And so you both together discover that, and then we would do these investments and do this work. And it wouldn't be foolproof, but it would, yeah, you would create really cool stuff out of that. And, but, but then Nokia became this giant phone company, and those meetings changed. You know that, you know, and I think, from their side, why do they change? And their side, they're like, well, we don't want any like silicon supplier to get too much power. So we don't want you, like, in the back rooms with our technical people to sort of position me the procurement. Guy into a sole source position where I really want something you have, and you're the only guy that can supply it. So they're trying to prevent that from happening where, where you have this really important, unique product that they need, right? And it's sort of built into the system. And then I saw it, you know, again, you know, more recently with companies like Apple, that is sort of the same thing. I remember apple. We used to have these great conversations with Apple designers, and now I don't million years. You don't get to get the same building to ask people

Chander Chawla: 30:34

that, I mean logically. Well, it depends what logic you look at. So what you just described the procurement team or bigger companies are deliberately saying, we don't want to innovate, because innovation in the ecosystem comes from one initially, from one company. So one company is going to have a breakthrough, and you can have access to that. But what, when the companies get bigger, it becomes, you know, risk avoidance, rather than coming to a new thing, you can get first and have more revenue. Is that? Do I get that? Yeah,

Mike Polacek: 31:13

I think it's, what do you emphasize? What's the most important thing to you? And at some point, the volume gets so big that what becomes most important to you, and this may be totally correct, like for shareholder value or the look at Apple. Apple's obviously been unbelievably successful under Tim Cook, but the emphasis has been more on production, reliable manufacturing, getting margins stable, being able to ship in unbelievable volumes at reliably high quality. All those kinds of things have become more important than innovation. I

Chander Chawla: 31:50

would say, I would say, everything you said is correct, but innovation, they're doing internally. They're doing vertical integration. So they're making their own chips. They're, you know, influencing Corning. So they there's lot of innovation still happening, but it all in house. So they've reduced the dependency. They still want to innovate. And they may have noticed what you just described, procurement people, or whatever reason you can't really get innovation in, in, in the door fast enough. So let's do it internally, in,

Mike Polacek: 32:25

yeah, yeah. And I'm sure there's a lot of great innovation happening there, I think, but, but the The old saying is true still, that most of the great engineers in the world don't work for fill in the blank company. Yeah. If you're sitting at Apple, you have to be humble and say, you know, most of the great engineers in the world don't work at Apple. You know, the vast majority don't work at Apple. No, that doesn't mean Apple doesn't have great engineers. Of course they do. But if you can put two companies side by side, one company that's doing everything internally, and one company that's able to sort of create a nurturing ecosystem, a bunch of people that are doing that, they're doing work for internally, but also doing work for them externally. I could tell you which company will be successful long term, and, and, or at least, ultimately successful, or most successful,

Chander Chawla: 33:16

it's like, let's take the Samsung example. You think they're doing internal, external combo, or like they compete with Apple, but Apple, I would say, still is, you know, I

Mike Polacek: 33:29

mean, there's been a huge trend. I mean, for a long time during my career, there was a trend all these system companies were all putting their semiconductor stuff out, like we're spinning them out, right? Every single big company, Phillips, Siemens, IBM, right, they were all spinning out. Why? Because the capital investments were so large and and they were getting larger every generation. The factories were costing more, the development costs more. And it was just like, Okay, we don't have the volume to so we're going to spit this thing out. And that was going on for decades, and definitely in the last whatever five, 510, years, it's definitely been moving back in, where you get more vertical integration. Samsung's been doing it. Huawei has been doing it. Apple does it. Even guys like Google and Amazon you don't think of as hardware companies, you know, have their own huge chip development, yeah, organizations now. So, you know, why is that? You know? I would say there's a few things, you know, one which we could talk about, if you want, now or later, but sort of, what's the impact of the of the slowdown or elimination of Moore's law?

Chander Chawla: 34:45

Yeah. Let's talk about it. Yeah. I think very interesting, yeah. I mean, Gordon Moore's, you know, territory. Let's talk about it. Yeah, it's,

Mike Polacek: 34:55

you know, first, when I say Moore's law, what I mean it so I think people talk about it when you. Read things, it's sort of, I think it gets a little bit muddy, but what, what you see is, can you still brute force shrink transistors? If that's what you think of Moore's law, then, yeah, I think you can still shrink transistors at some point. There's an end there. But they're they're gone below 10, and they're going to seven, and then people talk about three, and where's the wall, and you get x ray lithography and gamma ray, I don't know, all the sort of you can make light smaller and smaller and and, you know, so that part, I would say, Okay, I'm not even gonna argue that maybe you can still shrink transistors. Fantastic. But the magic of Moore's Law was the economic side, was that you could shrink transistors and make transistors or gates cheaper by a lot every generation.

Chander Chawla: 35:49

Yeah, that's around 18 months to two year yeah, and,

Mike Polacek: 35:54

and, and that's the magic of a lot of markets. So if you're a system company, and you know, every 18 months, I can get something that's going to vastly outperform the last thing at the same price, then you can make a system around that that's going to do the same thing, and then you're going to create demand for that new product, for that reason, because now your new system product is going to do some wonderful things it didn't Do Before at the same price, right? Or maybe, if the other side is, you can do it at, you know, the same performance, you can do it a lot cheaper, yeah, which is another sort of dimension, yeah, and, and that's the magic of Moore's law. And I would say, I don't maybe this is hyperbolic, because I'm a semiconductor guy, but I think that is the biggest economic impact for the United States in my lifetime, that that so many industries are sustained by that concept of having the next thing be so much better at the same price every 18 Months. Think about a world where that doesn't happen, where, where, where your your choice, 18 months later is to buy something that's more or less the same at the same price. What are you going to do? You're going to, well, I'm just going to keep what I have, right? Or you have to pay twice as much for that next great thing. Well, okay, the rich people maybe they can afford that, but there's not so many of them, and most people will just hold on to what they have, or I'll sell you a really crappy thing for half the price. Okay, maybe some people will do that too, so, but I feel it's the fuel of a lot of markets, both B to B, B to C, where you can come up with that next thing every 18 months. That's so, so wonderful, so fantastic. At the same price that I got, I got to throw that old thing away and get the new one right, but when that slows down. So now, what do I mean so, so Moore's Law at somewhere around, and this is debated, but I would say somewhere around. Let's say 20 nanometers, the cost per gate started going up all right? This is like gravity changing directions, right? This is completely unheard of. So for for since the 1950s until, let's say, five years or so ago, the cost per transistor, or the cost per gate, was going down every generation by a lot, okay, and that created all this magic that I talked about somewhere around five or so years ago. That stopped, and the curve started going up. So I could buy smaller transistors at, say, 14 nanometers, but those smaller transistors at 14 nanometers cost me more than those transistors did at 20 nanometers. Now, why would I do that? Well, okay, because I can get more performance. Okay, fantastic. You have more performance, but you have more performance at a higher cost. Used to, used to be able to get more performance at a lower cost, right? That was the magic of Moore's law, and that's the part of the, I would say, unbelievable revolution in the market, in the industry, that's happening now that I think is completely underestimated. I think people just don't have a clue how big of an impact. Okay, so, so what do you do? Yeah, that was my next. Oh, my God, like the world's kind of doing it. Well, the good news is, is there's always an angle, right? So I would say one thing that Moore's law did, and maybe, again, I'm being dramatic, but what it did is it made a lot of sloppy, lazy engineers. So if you were given twice as many transistors every 18 months to play with for free, or the same price that you paid before, if you're a silicon designer, you say, Okay, your goal is to keep this thing roughly the same die size, so it's the same cost as your last thing and But now, instead of a million transistors, you have 2 million, or instead of 5 million, you have 10 million. Yeah, what do you Okay, well, what do I do? Well, okay, I had one ARM core and so much memory. Now I'm. To put in two ARM cores and a bunch of memory, right? Check, job done. Right. Fantastic, right. So now I got a processor that's more memory and two ARM cores versus one ARM core cost the same as the last one. Boom. I'm in Europe. I'm a rock star, right? You go to the customers, Oh, I love it, right? And then you go from two to two to four, and you go four to eight and more and more memory. And so you have ARM cores, very you know, simple instruction sets, lots and lots of memory. So sloppy code is okay, fantastic, right? So you get sloppy code on a simple instruction set and lots of cores at the same price. So everything's working right. Everything's fantastic. Keep doing it right. Oh, wait a second after 20 nanometers. Now that doesn't work anymore. Now, okay, what do I do? Well, how do I get more performance? How do I get lower power? How do I get so you know what that is going to create, or what it is creating is more specialized processing. So risk processors reduced instruction set. Processors are, by definition, you know, very limited vocabulary, very limited.

Chander Chawla: 41:21

So all arm is risk for people who are not from the semi world. Yeah,

Mike Polacek: 41:26

and the instruction set of a processor is, is I think of it. Maybe this isn't the greatest analogy, but it's, I think of it as, like the vocabulary of the chip. So if you knew only, like 20 words in the English language, you could probably describe things, but it might take you a long

Chander Chawla: 41:42

time. Yeah, right. You can describe limited things. You can describe

Mike Polacek: 41:46

limited things and but you might use, you know, those words over and over and over again. And, you know, if you're talking about, you know, I don't know, you talk about a pen, is a stick that writes with ink. Okay, if you don't have the vocabulary word for pen, but you have those other words, it can take you four or five words. You can use more energy to do it'll take you longer, but so that's the instruction set. But if you have a word for the job that you're doing, if you have an instruction for the job you're doing, if you have a complex instruction set, that means you have a lot more, a lot richer vocabulary to get the job done. And these are the jobs. What are the jobs? The jobs are mostly like math problems and things like that that you're doing at a low level over and over and so with a complex instruction set, you could get more of the job done in a single cycle. And if you do get more of the job done in a single cycle, then it's more power efficient, and it can be much higher performance at the same sort of clock speed. Yeah. So, and if you look at it, and when we were doing this at Knowles in the voice processing space, if you use sort of an ARM processor to sort of brute force doing voice processing versus a DSP that was made specifically for that job. Now that DSP isn't going to be able to do lots of other things that an arm process, ARM processor, could do, but it could do that specific job with that instruction set very well. And you could, you could get sort of 10x to 100x efficiency. Okay,

Chander Chawla: 43:20

how does that affect, you know, the size and the power, if you get 10x more efficiency, well,

Mike Polacek: 43:27

so you can do the same job at 110 of the power, 1/100 power. Power is just how many transistors are wiggling and how fast and so. So if you're doing something in one cycle compared to something that takes 10 cycles with the same number of transistors wiggling. That's just that capacitance is being charged or discharged, right? So when

Chander Chawla: 43:49

you say powers, I immediately, oh, sorry, performance. I immediately thought, Okay, 10x more performance that needs more power requirement. Now it could be the other way around that same thing. Yeah,

Mike Polacek: 43:59

yeah, yeah. So, so it's just a more it's more efficient at doing that job and and so that's what you see happening in a lot of markets today, is, is the movement towards specialized processing? Now, the industry isn't quite ready for that, because we have generation, at least a generation, maybe two generations, of engineers that were living in this. Transistors are free risk. Processors are the bomb sloppy codes. Okay, you know that that was, that was the world that for decades. So now we're in a world where, okay, now you got to actually create a processor from scratch with your own instruction set, like I got to go to like, you know, a 1970s textbook to figure out what the heck that means, you know, and and then you got to write very, very tight code on that weird instruction set. Like I came there's no, there's no, there's no engineers that know how to do that. Like, who. Who knows how to do that? So, so, you know, it's good, it's going to be interesting, you know, to see. And so if you get, you know, a good example in today's world is like tensor processor, right? So at Google, and so they view a TPU, right? So, you know, that's a special processor specifically to do the jobs that they want to do in the data center, right and and so they created that they have very smart people there, and they have enough of a scale that they have enough of those smart people that could do the hardware and could do the software. And it all works in a fairly closed environment, at first inside Google, and then it sort of spreads out where, okay, the hardware is still in their data centers. But although I think now AWS probably has tensor their own, they created their own. They have their own. But I wouldn't be surprised that they have also tensor

Chander Chawla: 45:58

in their data

Mike Polacek: 46:00

center, in their AWS business, I would be surprised they didn't. So those starts to move out, and then people learn how, more and more people learn how to write to the tensor processor, and then on and on so that that's created. But then you're right. So now to Amazon, and these are sort of the big, yeah, these are the big examples. Now there's like 1000 small examples where you have individual companies saying, Well, okay, I want to just do this job, and I but, but I need that magic of Moore's law, and I don't get it. So how do I reduce the power dissipation of this, this device that I want to sell into the market? Well, the only way I can do that is I, if I have a custom processor. Well, and I don't, I don't know how to make a custom process. I'm just like a guy that makes, you know, whatever I make, TWS, headsets and, but I need a custom processor, so I've got to go talk to a semiconductor guy to go do that. And, and so I think that's a big transition that's happening in the market that will probably play out over the next 10 years, you know, and, and, you know, if Moore's law is double every 18 months, a 10x to 100x improvement is several generations of Moore's law, right? Yeah. So let's call it three to five or something, you know. So, so let's say that's 10 years, but then at some point that's going to stop, yeah, at some point you can't. You can't, sort of, you don't get that 10 to 100x improvement, like every generation. You get it once, yeah, you get it once, going from arm to not arm, right? And maybe you can get a 10 or 20% improvement from there, but you're not going to get this eight, you know, 2x every 18 months thing anymore. So even though I think that there's sort of hope here for the next 10 years, let's say very interesting, if you can find it now. Who's going to win? I would say the companies that have the best hardware and software engineers that can understand what's needed in terms of workloads and and the special, specialized processing hardware architecture and software architecture. Those are the companies that are going to win that see that and do it. But then after that 10 years, I don't know, I don't know, I don't know what's gonna happen, then I think maybe there'll be some, you know, there could be some breakthrough in the hardware side. There could be, you know, quantum

Chander Chawla: 48:11

community, yeah, that could

Mike Polacek: 48:13

be like self driving cars too

Chander Chawla: 48:17

far. This is so fascinating. You know, I've known you for 10 plus years, but every time we talk about these things, I'm like, Oh, wow, this is fascinating. So I think we are at time we should end here. Want to say any parting words Mike, as more advice to entrepreneurs or people who listen to us, who are mainly in the Nordic countries, and they are mainly in the software world. But I think there's lot of things that we can learn from the semi world, thinking about making sense of ambiguity, taking risk, finding markets. So I think any pardoning words in that.

Mike Polacek: 49:01

I mean, I would say the only thing I could think of that's worthwhile to end on, maybe, is, is that there's, you know, these companies don't have a monopoly on innovation. They don't have a monopoly on great products. All the companies that you see today, you think, Oh, my God. Like, how could anybody do anything bigger, better, or whatever, than them? And I've seen it. I'm old enough now, and I've seen it so many times in my career, where, you know, soon as a soon as you say that, then somebody comes out with something better, yeah, and and so, and it doesn't have to be giant companies. It doesn't have to be, you know, take over the world at the beginning, but, you know, small teams of people can do really great things and and really, you know, change markets, change change, change the market environment on their own. So, you know, be confident that as you're doing the work that you're doing, be bold. Be you know, take chances and. And, and there's nothing saying that that the next successful startup has to be out of Palo Alto. It can. It can be anywhere in the world,

Chander Chawla: 50:08

yes. Well, thank you very much, Mike for joining us, and thanks to our listeners for joining us. Arne will be back next week, and I will be back in Palo Alto. Thanks. Thank you. Bye.