Site Presented By
Saturday, Jul 11, 2009
The microchip that runs Apple's popular music player is made in India, Taiwan, China and Silicon Valley. Is this an example of how globalization works to everyone's benefit -- or a sign that the world economy is about to roll over America?
Jun 3, 2005 | Crack open an iPod and what do you see? Laid out in silicon is a road map for the world economy: globalized, outsourced, offshored, interconnected and complex. Take a look at the components: the hard drive, circuit board, click wheel, battery pack and all the rest. The iPod is a striking Apple success story, but the first thing worth noting is that Apple doesn't "make" it. Steve Jobs and Co. led the overall design, but the pieces get put together in China by a pair of Taiwanese firms.
On its own, this is hardly eyebrow-raising. Consumer electronic manufacturing has been moving to Asia for decades. The Taiwanese companies now setting up shop in China are following exactly the same impulse -- cheaper costs -- as their Western forebears. They aren't alone. Nearly all the other makers of iPod components are also en route to China.
But let's go deeper, into the brains of the iPod, the microchip that makes the music player go. Designed by a Silicon Valley company called PortalPlayer, this "controller" chip offers the real blueprint of how the modern world works. Headquartered in the U.S., PortalPlayer got its chip into one of the world's most coveted consumer electronic devices by outsourcing or subcontracting every possible step of design and manufacturing. By operating around the clock, with teams of engineers across the globe hammering out the chip's hardware design and essential software, PortalPlayer relentlessly delivered new versions of the chip, each one cheaper and faster than the one before, packed with more features but using less power.
PortalPlayer itself is a success. The company is now listed on NASDAQ and turns a profit. But if you visited PortalPlayer's Santa Clara, Calif., headquarters in April, you would have seen, all along one of the city's main thoroughfares, ominously large signs emblazoned with the words "Commercial Lease Available." Santa Clara, it turns out, is suffering a 28 percent commercial real estate vacancy rate, the worst in the Bay Area. Even worse, the San Jose metropolitan area, the heart of Silicon Valley, has lost almost 200,000 jobs in the last four years.
The chip business has not abandoned Silicon Valley. Intel, the industry's king, is still based here, as are scores of other companies involved in semiconductor manufacturing. The world market for semiconductors is growing and the Valley has a big chunk of it. But the jobs and real estates statistics pose an unavoidable question about PortalPlayer's success: Has the rush to outsource high-tech jobs, and maybe more crucially, high-tech expertise, inflicted a body blow on Silicon Valley, and by extension, the U.S. economy?
It's a question fraught with contradictions. PortalPlayer has done nothing wrong; on the contrary, it has done exactly what it is supposed to do, according to the dictates of the market and its responsibilities to its shareholders. But what is the impact of a thousand PortalPlayers, acting together, shifting jobs and technology from the U.S. to locations all over the world?
Critics are worried about trade deficits, job numbers, and even national defense. They are convinced the U.S. has sown the seeds of its own decline by shipping jobs and technological know-how to future superpowers like India and China.
Defenders of Silicon Valley argue just as strenuously that the U.S. will continue to stay at the top of the "value chain." They say that whatever economic blips the Valley's chip industry might be experiencing are just part of an age-old boom-bust cycle. They portray a "golden triangle" new world order in which every nation contributes what it does best -- low-cost development in India, manufacturing in China, high-level design in the U.S. -- and all prosper together.
Who's right? The more closely you examine a microchip, the more complex it appears, and so does any attempt to grapple with the true impact of globalization. But following the journey of PortalPlayer's chip from Santa Clara to Hyderabad, India, to Taipei, Taiwan, to Shanghai, China, and back around again, offers clues on how to think about it.
A few points stand out. Making a buck in high-tech has never been harder and competition will only get more intense. World dynamics are changing and not just because U.S. companies go abroad in search of cheap labor. Along with the strategic decisions of companies, the political actions of nations play important determining roles in who will dominate the crucial industries of the high-tech future.
As Silicon Valley companies seek profit, East Asian nations seek to build up entire industries. While one side outsources, the other side gobbles up. The willingness of U.S. chip companies to move operations to, say, China plays into the hands of China's intention to become a world leader in one of modern economy's most crucial industries.
Open up an iPod and pull out the PortalPlayer chip. Stare at the silicon, see the world.
