Archive for July 22, 2011

Creating measurable value through differentiation: Dr. Wally Rhines

Dr. Walden (Wally) C. Rhines, chairman and CEO, Mentor Graphics.

Dr. Walden (Wally) C. Rhines, chairman and CEO, Mentor Graphics.

According to Dr. Walden (Wally) C. Rhines, chairman and CEO, Mentor Graphics Corp., customers pay a premium for differentiated products. Gross profit margin (GPM) percentage is the best measure for the differentiation of a manufactured product. The difficulty of switching suppliers is proportional to differentiation and GPM. He was speaking at the EDA Tech Forum 2011 in Bangalore, India.

As an example, Apple released the Mac Classic to compete with IBM clones to regain market share in the PC industry. However, it did not gain market ascendancy. It was only when Apple introduced the iPod in 2H’ 01 that things began changing. Later, it introduced the Apple iPad 2H ’07. The rest is, for now, history.

Product differentiation is said to be easiest in new and emerging markets. Apple has since invested in semiconductor design, while Nokia has divested. Apple now reduces power and improves performance through design differentiation.

On the other hand, Nokia has divested of IC design as it is now difficult to create a differentiated ecosystem even for the leader (Nokia). As of now, it is using Windows Mobile 7 for developing smartphones. The question is: is the Android vs. iPhone an analogy to the PC vs. the Mac?

The smartphone market will eventually commoditize. However, this time, there has been substantial differentiation. Product differentiation does provide temporary differentiation.  However, a company created infrastructure sustains differentiation. The third-party ecosystem drives a longer term differentiation.

Now, Apple isn’t the only company with sustainable differentiation. Intel and AMD have also invested in application development, with Intel’s x86 MPUs differentiation a prime example.

In mature commodity products, system integration reduces cost and power with increasing performance. For example, Texas Instruments’ calculators are commoditized and selling well. The practise of involving education in product development has helped TI. Read more…

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