So, you are a chip or system developer and you want to differentiate your next product. Do you implement key features in hardware or software?

For an increasing number of companies the answer seems obvious – hardware is a commodity and differentiation comes from software. It’s hard to argue with the results in some industries – over 50% gross margins on the software-centric iPhone compared to the 10% -30% gross margins on more hardware-centric feature phones. Platform chips can be customized with software to serve multiple end-products, software patches can fix bugs without hardware recalls or silicon respins, and firmware updates can extend the life of hardware platforms.

Industry data also seem to support this trend towards a bigger focus on software. According to IBS, over half of chip development costs are software-related at 65nm, with the percentage nearing 70% at 32 nm. IBS also reports that the semiconductor revenue/ R&D multiplier, once over 6:1 in favor of hardware R&D over SW R&D (i.e. you would get 6x more revenue investing R&D budget into HW compared to SW), is now less than 2:1, indicating an increasing ROI on SW R&D. The ITRS 2008 roadmap update further confirms “software as an integral part of semiconductor products, and software design productivity as a key driver of overall design productivity” adding that embedded software design “has emerged as the most critical challenge to SOC productivity”, requiring a “concurrent software development and debug infrastructure”.

Fortunately, a concurrent software development and debug infrastructure is emerging with the rise of high-performance system prototyping. System prototypes – combining SystemC TLM-2.0 based virtual platforms, FPGA-based rapid prototypes and related hardware & software IP – provide the performance, availability, fidelity and affordability to enable large embedded software development teams to start and often finish their work long before first silicon is available. This means that chip developers incorporating more software in their products can transition to volume production sooner.

But what about hardware? Will the design of customized silicon fade into oblivion with the growing importance of software? Don’t count on it. SoC continue to enable strong differentiation in terms of cost, size, power and performance. What we seem to be seeing is a more balanced approach to differentiating semiconductors and electronic systems, where hardware and software both play important roles in delivering value to the end-product in many markets. You can see this trend played out today at the maker of the iPhone, whose CEO once said that “phone of the future will be differentiated by software” but continues to invest in building a very strong chip development team –  presumably to differentiate future phones.

Differentiation – it’s all about software…unless it’s about hardware.

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