A couple of years ago, when Singapore-based Flextronics Corp. started acquiring design, packaging and assembly technologies that were mostly focused on wireless and handheld systems, its vertical design/manufacturing chain became the envy of the electronics world.

The top-ranking EMS firm could now offer its OEM customers fully-integrated, vertical solutions. Industry observers said that betting big on this radical approach would help Flextronics differentiate itself from and ultimately outperform its competitors. It was now an EMS company and an ODM.

Come May 2005, Flextronics discloses that it's in discussions with other companies about selling its semiconductor design unit. What led to this reversal of sorts? Is it just a new bit in the design evolution saga or yet another example of market exuberance that has become the hallmark of the go-go growth bonanza?

A more likely answer may be drawn from the fact that the market is too competitive for companies to focus on more than one specialized competency. Though Flextronics is likely to continue offering and even extending its ability to develop complete, end-to-end solutions for specific vertical markets, the IC design unit went one level deeper than what was necessary to offer differentiated value to OEM customers.

In hindsight, EMS providers didn't make the design inroads that people once expected. In many cases, they have essentially subsidized design projects from the manufacturing side.

EMS companies like Flextronics were striving to offer silicon design as part of the value engineering chain, but there hasn't been much interest from customers. In their efforts to provide IC design services at the logic level, there will be inevitable issues like IP cores that customers might not want to share with them. And silicon design at the peripheral level won't bring much value anyway.

Eazix Inc., the design arm of Philippine-based EMS firm Integrated Microelectronics Inc. (IMI), considered providing silicon design services at one stage, but later shelved plans due to lack of interest from customers. There wasn't much volume to do the silicon design internally.

Semiconductor design is the core competency of chip companies, and OEMs are more likely to rely on specialized IC design houses for their silicon-related work. Meanwhile, semiconductor firms with core competency in silicon design are looking for a new window of opportunity.

Asia's manufacturing scene, an intricate mix of OEM, ODM and EMS firms, is closing the electronics supply-chain loop in order to bring products faster to market. That, in turn, has led IC vendors to increase their presence in Asia, so they could enter this loop and react to design opportunities faster.

The entire supply chain is gravitating toward Asia. Case in point: Dell Inc. is relocating its PC peripheral group to the region. So silicon firms will want to be as local as OEMs, ODMs and EMSes if they are to make the best of it. And as the mantra goes, they will want to define, develop and market silicon products specifically for Asia.

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