Traditionally, consumer electronics companies use "custom ASICs and software for each device, and [have] long product development cycles. All this is going out the window," said Van Baker, research director for consumer electronics at Gartner Group. "They have to move to using more off-the-shelf silicon and software and live with lower margins. Essentially they are moving to a PC industry model, though hopefully one that is not quite so bad." The CE companies, Baker said, "are at varying degrees of understanding this."
But Sony wasn't willing to live with lower margins, especially for Playstation. In unveiling the Playstation Portable in Tokyo last fall, Kutaragi said the game division relied on Sony's semiconductor operations for 50 percent of the box's component value. Aggressive pricing was only possible, he said, because key ICs were designed and fabricated internally, using a 90nm process. "You can't pull off this kind of pricing by depending on off-the-shelf components," Kutaragi said. The first-generation Playstation, by contrast, used ASICs from LSI Logic, a graphics chip from Toshiba, and memory from NEC, Mitsubishi, Toshiba and Hitachi. The only key internally developed component was a Sony disk drive, Kutaragi said.
Semiconductor companies have vastly different capital needs, planning horizons, strategies, internal disciplines, market and channel management, and target markets than CE companies. If the two are under one roof, there has to be an almost church-and-state separation, with consolidation happening only at a financial level. This is why huge companies like Hitachi, Mitsubishi, Motorola and others have effectively divested their IC operations.