Attending the Canadian Semiconductor Council Summit in Ottawa (Tuesday, February 6th) was an excellent opportunity to participate in a focused discussion on Canada’s current and future semiconductor strategy. Not only was the discussion open and bringing in the key representatives from the relevant players present in Canada but there was also direct participation of key government officials. This direct coupling of discussion and (government-supported) execution made the Summit a unique event, superbly managed and led by Paul Slaby and his team.
Building on Canada’s rich semiconductor history (who does not remember ATI, Newbridge, and Mitel to name a few), Canada today is focusing on growing its role in the semiconductor supply chain for EVs. The important role of Canada in this supply chain, ranging from power electronics to batteries, is highlighted by some of the key players choosing Canada for major parts of their operations. Infineon choosing Ottawa as its center of excellence for power electronics is a good example of a major player in the automotive semiconductor market choosing Canada as a key location for its activities. Research, development, and production of key components using the latest technologies such as GaN and SiC is going to be strategic to maintain and grow current market positions.
Design Services companies need to be able to deal with cyclical market conditions. One of the instruments pointed at were R&D grants. R&D grants are in fact a multiple edged sword. They provide a second revenue stream, obviously still tied to engineering resources, but driven by the R&D programs.
One of the challenges that comes with design services is the cyclical nature of the services business. When the economy tightens and corporates are watching their operational expenses, the first step will be to halt any external contracts/contractors which are not deemed absolutely essential.
Whereas the earlier (staircase) model is a good approach in scaling up revenue and creating new revenue streams, the foundation of the company is still based on the service model: headcount continues to be the main driver (typically up to 60-70% of revenue). In terms of (enterprise) valuation the additional revenue streams, however, will already make a significant difference.