Silicon Valley is rediscovering silicon. Although electronics pioneers such as Hewlett-Packard and Fairchild Semiconductor gave the region of Northern California around San Jose its nickname, their influence has waned since the 1990s thanks to the rise of the internet and online start-ups such as Facebook and Google.
Now, thanks partly to the renewed influence of Apple and its famously integrated hardware and software, physical gadgets are making a comeback. Google is manufacturing Glass, its ambitious attempt to create a new kind of wearable computer, not in China but in Santa Clara, just minutes from its Mountain View headquarters.
At the same time, a host of Californian consumer electronics start-ups are springing up and they could soon bring more manufacturing back to the US.
Silicon Valley already boasts more mature, venture-backed gadget makers, such as Nest, creator of a “smart” thermostat, and Jawbone, which makes stylish wireless headsets, speakers and health trackers.
Fledgling Silicon Valley companies such as Ouya, a developer of a $99 games console, and Pebble, a watch accessory for smartphones, have tapped crowdfunding platforms such as Kickstarter and Indiegogo to finance their development.
Local suppliers can print circuit boards to digital specifications for as little as $100 and buy complex multi-core processors off the shelf for a few bucks.
So-called “hackerspaces” and hardware-oriented incubators across California, such as TechShop and Lemnos Labs, now make 3D printing and other costly design and prototyping tools available to amateurs and entrepreneurs.
These capabilities are lowering the barrier to entry for entrepreneurs to domestic hardware development, in much the same way as open-source software and cheap web hosting did for web start-ups a decade ago.
“The underlying shift is that it’s now much less expensive to make small numbers of products than it was five years ago,” says Mike Kuniavsky, a designer and former Kickstarter fundraiser who is now part of the Palo Alto Research Center’s innovation services unit.
“That is leading small start-ups to contemplate pursuing making their own hardware and I think it’s leading the large hardware manufacturers to contemplate bringing manufacturing back in house.”
The costly part, however, remains mass production of the finished device. For now, start-ups and veterans alike are still almost entirely reliant on Asian manufacturers to produce their products at scale, meaning regular flights to Shenzhen and other industrial centres.
In response to comments made last year by Tim Cook, Apple chief executive, that it would expand Mac manufacturing in the US, Foxconn said it is “exploring the opportunity to expand its existing manufacturing operations in the US” in response to customer demand, but has not yet announced the acquisition or construction of factories there.
Taipei-based Foxconn has operated in the US for about a decade, with many of its factories there used for final assembly or customisation of PCs and servers for groups such as Hewlett-Packard. Its largest US facilities are in Texas, notably Houston, with other factories in Indiana and California.
Like similar factories it has in eastern Europe, these mostly produce high-value products and rely more on automation than its Chinese facilities, according to former and current employees.
For now, the scale of Foxconn’s factories outside China remains minuscule compared with those on the mainland, where it employs more than 1m workers.
But Silicon Valley’s start-ups hope that Foxconn’s expansion in the US might bring down prices for US manufacturing, even though the Taiwanese company does not traditionally contract with small companies.
Existing Californian contract manufacturers, such as Sonic, are still 30 to 50 per cent more expensive than their Asian rivals, PARC’s Mr Kuniavsky says. “When your margins are thin and you need to hit a price point, that makes a difference – but it is coming down … There isn’t yet a Moore’s Law for manufacturing but it’s getting there,” he adds, referring to the persistent trend that processor prices halve every two years.
For even leanly funded start-ups, it is already financially viable to manufacture just a few hundred units to sell at price within reach of many consumers, rather than having to order upfront thousands of units of an untested product.
“I see a much more balanced manufacturing world moving forward – one that is both domestic and local, and overseas,” says Yves Behar, chief of the Fuseproject design agency in San Francisco, which works with Jawbone and Ouya. “Even with the most complex types of manufacturing, there are many reasons why some of that should come back to the US.”
These include what he calls “mass individualised” products, which are tailored to the customer’s body or design preferences. The volume commitments often required by overseas manufacturers can also make it harder to iterate and make constant changes to complex projects such as Google Glass.
“Owning your own manufacturing, like [electric carmaker] Tesla is doing in Fremont, allows for a lot of fine tuning,” Mr Behar says. “Having it next door is a competitive advantage.”
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