Integration Effects: Victims' Stock Price Plummets

Much discourse is regularly made in the tech press regarding the single-chip integration effects of Moore’s Law, and the associated extinction of companies and their products whose functions are now absorbed into competitors’ hardware and software. Less commonly discussed, however, for reasons I frankly don’t understand, is the effect this silicon consolidation has on the systems comprised of the ICs. Perhaps the most common all-in-one tech devices are smartphones and PCs (including low-cost netbook variants), and last week’s news clearly demonstrated their ‘black hole’ effects on technologies in their orbit that sooner or later get sucked in. Check out this graph, originally showcased at Engadget two Wednesdays ago and subsequently replicated elsewhere:

Pretty dramatic and immediate stock price drops for GPS manufacturers Garmin and TomTom (which supply both standalone hardware under their own names and sofware for smartphones and other GPS silicon-augmented devices), eh? Wonder what caused it? Coincidentally (ok, not really), Google that same day unveiled the v2.0 SDK for its Android operating system. Android 2.0 includes built-in and free turn-by-turn GPS navigation capabilities, and is already shipping, in the form of the available-starting-today Motorola Droid, offered by Verizon. And turn-by-turn GPS will inevitably, eventually, expand beyond Android to other mobile operating systems that Google Maps supports. The market reaction impact to both premium and lower-end GPS technology suppliers was inevitable…

…and, I agree with Matt Burns, a bit excessive. A friend of mine, for example, is really frustrated right now trying to figure out how to use her new GPS-inclusive Nokia E71 smartphone. The fact that she’s highly resistant to reading the user manual doesn’t help, but I realize she’s not alone in this stubbornness. The hardware and software developers are fundamentally to blame for this depressingly predictable higher-function-leads-to-higher-confusion trend, although admittedly it’s darn difficult to repeatedly expand the function list while keeping the system simple to use (something Apple does notably well at the tradeoff of decreased interoperability). And as a result, especially for older consumers and others who aren’t prone to embracing new technology, standalone GPS devices in various forms will continue to exist (albeit of debatable size) as long as the suppliers remain creative and nimble. But Google’s move will inevitably lead to a pricing collapse in the GPS software business, especially if the cellular carriers don’t insist that Google disable its free GPS features, thereby leading to the evaporation of their service revenue stream, too.

There was a time not too long ago when numerous suppliers sold full-featured audio ICs (and boards based on them) into PCs. That once-vibrant market has now constricted to far more humble ADC/DAC combos, by virtue of Intel and others’ absorption of the chips’ digital subsystems into the combination of core logic gates and CPU-based software. And it only exists at all because of Intel’s resistance to implementing high-precision analog circuitry on a digital CMOS process. Does the same fate sooner-or-later await Garmin, TomTom, and others? Share your thoughts in the comments.