We've been seeing strong signs of optimism about the economy in our customer base and in the prospective customers as well, so I was interested to see the results of PwC's survey of 60 multinational U.S. industrial manufacturing companies.  While this is a somewhat different segment of manufacturing than most of our customers, I think there's definitely enough overlap to be relevant to high tech. 

Based on the survey summary released today, these companies expect global economic growth this year and are planning accordingly.  Here's a quick overview of some of the findings: 

·         Most survey respondents plan to increase hiring in 2012.

·         The majority of those surveyed plan to increase investment spending this year. 

·         Companies report improved profitability in recent quarters.

·         There's less worry today about growth barriers than in the recent past.

One section of the survey that may be of particular interest to readers here is how the overwhelming majority of these companies have used technology to help achieve their strategic objectives to date.  In fact, a full 98% of these companies credit technology for improving operating performance in areas such as business intelligence and reporting and manufacturing and supply chain/distribution processes.   Most also cite increased business agility as a benefit of technology investments.

Going forward, 71% of these companies will be looking to digital change and transformation as a key enabler for their business growth over the next 1-2 years.  Why?   The two most common reasons are customer demands, especially for product information access, and supplier demands, especially for order management capabilities. 

Finally, 57% stated that their immediate plans for technology investment include cloud computing.

It's worth reading the entire summary, if you have a chance.

  Statement on Auditing Standards 70 (SAS 70) was the internationally recognized auditing standard used by service auditors to reporting on controls placed in operation at service organizations, including cloud services providers.  The American Institute of Certified Public Accountants (AICPA) issued Standards for Attestation Engagements 16 (SSAE 16) in 2010 to begin replacing SAS 70, starting on June 15, 2011.  

SSAE 16 was created both to update the SAS 70 standard and to align the US based standard to similar guidance released by the International Auditing and Assurance Standards Board (IAASB).  This guidance is known as the International Standard on Assurance Engagements 3402 (ISAE 3402), Assurance Reports on Controls at a Service Organization. 

The bottom line is this: what was once an auditing standard is now an attest standard.  SAS 70 required a description of controls, but not a written assertion by management.  Both SSAE 16 and ISAE 3402, however, require a description of the service organization’s system, along with a written assertion by management.

If your cloud services provider is not SSAE 16 and ISAE 3402 certified, you may want to ask some questions, and soon.  After all, the security and integrity of your data may depend on it.

 It's not that traditional ERP Inventory systems don't work for everyone - they just don't work well for fabless semiconductor operations. Trying to make them fit is much like trying to force your left foot into your right shoe - you may be able to jam it in, but it won't be comfortable or highly functional.

So, what's missing in traditional ERP inventory systems that fabless semiconductor companies really need to have in their systems?  Here's a short list:

1) Genealogy (Process History Tracking) - Traditional ERP Inventory functionality simply does not provide genealogy tracking. Fabless semiconductor operations typically need to track their entire process history, mapping every step the product has been through, including re-work. For each production step you need to know the process completed, the vendor used, the procurement and production information, and all of the key attributes collected. Once you have this genealogy attached to a product, fabless operations typically need complete forward and backward tracking by genealogy from the production process to the customer and back (returns).

2) Specific Product Identification (Lot Number/Date Code) - Most traditional ERP systems only offer Lot Tracking or Serialization - with one tracking number associated with the part.  Most fabless companies mark their product with more than one key tracking attribute - often the Fab Lot Number and Date Code. A common additional complexity is lot splits and lot merges - which makes it more important to accurately collect the individual tracking attributes for your product.

3) Product Attributes - Beyond the product identification attributes, there is often other information that fabless companies would like to collect during the production process. Examples include the test program used, the test board, the mask set, an internal lot number, and the assembly lot number. Traditional ERP Inventory systems typically do not let you collect unlimited attributes about your product during the production process.

4) Process Cost History - Traditional ERP Inventory systems offer no solution for maintaining a process cost history. They also do not support semiconductor product costing and inventory earned value requirements.  Semiconductor costing has complexities and unique requirements unlike any other product. Fabless operations typically need to maintain complete cost history by step in the production process. They need to understand standard and actual cost and yield by step in the production process, and detailed cost variances by step.

5) Reclamation Handling - Traditional ERP Inventory systems lack the ability to allow previously discarded materials to be brought back into the system.  Fabless semiconductor operations often need a system for reclamation of previous yield loss (bonus). They need to have the ability to bring back previously discarded materials, including the full product genealogy, and allow them to be put back into inventory with appropriate costs.

6) Location Tracking - Traditional ERP Inventory systems do not distinguish inventory by company.  Fabless Semiconductor operations typically need to track locations by vendor. Ideally, they should be able to track unlimited locations for each vendor. For example, if your fabs, test houses and packaging house have multiple locations, you should be able to track materials at each location.

7) Integration with Operations Management - Traditional ERP Inventory systems are not designed to integrate with semiconductor WIP tracking or WIP costing.  For fabless semiconductor operations, ERP Inventory integration with WIP tracking and WIP costing is a bare minimum for an effective business system.

Tensoft's Fabless Semiconductor Management (FSM) delivers an affordable, flexible alternative to traditional ERP Inventory systems. Tensoft FSM provides a sophisticated, web-based solution to all of problem areas described above, as well as extensive semiconductor accounting, sales, production, supply chain, and manufacturing execution functionality. Tensoft FSM can also integrate with your manufacturing subcontactors.

Talk to us before you begin a lengthy and expensive ERP implementation, or before you resign yourself to another year of inefficient, error-prone systems. For a reasonable cost today, you can make a long-term investment that will scale as you grow.

 I recently wrote about Warren Savage, CEO of IPextreme, and his work as the chairman of the Global Semiconductor Alliance's IP Interest Group. Warren is also spearheading the "Capital Lite Working Group."  This group's objective is to redesign the fabless funding profile, by reducing upfront costs to create a more attractive risk:reward ratio.  As a means to do this, they've created the Cap-Lite Resource Portal, a website which allows fabless start-ups to IP, tools and services from providers that utilize Capital Lite principles.  

For more information about Cap-Lite, please visit: http://www.gsaglobal.org/capital_lite_working_group/docs/20120326_resource_portal.pdf.  This seems like a no-brainer to me - looking forward to seeing the results. 

 I had lunch and a very interesting conversation last week with Warren Savage, CEO of IPextreme, and chairman of the Global Semiconductor Association’s IP Interest Group.   Warren’s company, IPextreme, commercializes and licenses intellectual property (IP).  They’re looking at how they can support the fabless community with IP building blocks, and what are the pricing models that are required for early stage companies to help with operational efficiency.   

The GSA’s stated mission for the IP Interest Group is: “To address IP industry challenges preventing consumers from success with IP. The IP includes: silicon, embedded software, verification and system level IP.”   During lunch we talked about some of the questions that the group is focusing on.  One of these is how to increase the number of semiconductor start-ups and improve the return on investment.  Another is, what is the ideal investor profile?  Another is, how do we lower the costs for start-ups?  And, finally, how can we best providing resources and efficiencies for fabless start-ups, putting everything together to create these companies faster, better and stronger? 

For more information about the IP Interest Group, go to http://www.gsaglobal.org/ip/index.aspx. 

 We're gearing up for our 7th annual Tensoft Fabless Semiconductor Management (FSM) User Conference, which will be held at a new local venue next month.  For those of our Tensoft FSM customers who still need justification to attend, here's my Top Ten List of reasons to attend!

TOP TEN REASONS TO ATTEND MOMENTUM 2012:   

10) Hands-on product training on both days.

9) Learn what's new in Tensoft FSM and related systems, including all the enhancements that have been added as a result of your suggestions during Momentum 2011. 

8) Step back from the daily grind and discover new ways to approach your current processes.

7) Momentum 2012 is where your industry peers will be on May 21-22!

6) Influence the future direction of Tensoft products.  (Hint: So that - next year - you can take credit for those great enhancements at Momentum 2013).

5) Learn tips and tricks from Tensoft product experts - both those who work at Tensoft, and those who use Tensoft FSM every day.

4) Meet the Tensoft support and management teams, and put faces to those names.

3) Special guest appearances by Tensoft FSM's Technical Lead and Tensoft FSM's Vendor Integrations Lead.

2) The best line-up ever of informative, interactive sessions - all based on your suggestions from past conferences.

1) A chance to soak up all of this accelerated learning, get answers to all of your questions, brainstorm new ideas with the user community and Tensoft staff, and network with industry colleagues during breakfast, breaks, lunch and the Monday night reception - what a deal!

 Despite a heavy meeting schedule at this year’s Convergence, I was able to attend many of the keynotes and product sessions.  Lots of great information there and plenty of exciting announcements, most of which has been covered very extensively, especially the news about the upcoming release of Microsoft Dynamics for the cloud.   However, for my money, one of the coolest demos there was a tool that became available last year with the release of Dynamics GP 2010 and is looking better and better.   That’s Dynamics Business Analyzer.   

Dynamics Business Analyzer is an analytics tool that’s provisioned directly inside the GP homepage, similar to Business Portal.  Using that same metaphor, they’ve made some significant improvements for pushing out information from Microsoft Dynamics to the non-Dynamics users in your company, such as the executive management or sales team.   And, with Windows 8 and the Metro UI, you can access API type information from Dynamics using the Business Analyzer toolset on your tablet or smart phone.  What does that mean?  It means you get away from Internet Explorer.  So it’s almost like removing a layer - you no longer have to go through a URL because the information is coming directly through  Windows 8. 

The demo at Convergence was recorded and is available after a very brief registration at the Virtual Convergence site.   That’s well worthwhile, and allows you to view some popular sessions, to give you a little flavor of the conference.  However, if you just want a quick idea of how Business Analyzer works with a mobile device and what it looks like in a real life setting, I highly recommend the two very short Youtube videos called out in a blog post by one of Microsoft’s long-time Dynamics experts, Errol Schoenfish.  Both are under three minutes and get right to the point.

As always, if you’re interested in discussing Microsoft Dynamics for your company, I’m here to help.

 This topic is another great question from a Proformative reader or webcast attendee.  As a Proformative Topic Expert, I was asked to weigh in on this on that website already, but thought I'd also provide a slightly edited version here.

This is still a newer area in revenue recognition treatment, but it's a scenario that we're seeing more frequently.  E&Y has provided some good guidance in a paper called "Revenue recognition on the sale of virtual goods" - I'd recommend that as a good resource for starters. 

Essentially, there are three revenue recognition models tha may apply:

1. Game-based model (Average life of game) – Rev rec amortized over the anticipated game’s run. This is a bit tricky as it may be challenging to know how long the game will be popular among gamers if it is a new and untested title. Slowest form of revenue recognition as most companies are anticipating 5 year run rates or longer based on the investments made.
2. User-based model (Average user life) – Rev rec amortized over the average player’s gaming activity. The tricky part here is anticipating lulls when users have no activity but may come back months alter to start paying again.
3. Item-based model (Consumption model of virtual goods) – Most difficult rev rec method, but offers the quickest time to start recognizing revenue. Items need to be classified as either:

(a) "Consumable" - This meets the delivery test you mention in the post. But if the virtual item has a lasting effect on the user’s character even after physical consumption and the delivery occurred, the item may still need to be classified as durable.
(b) "Durable" – This is where the item enhances the user’s character over n extended period of time and may require amortization over the user's life (assuming the effects of the virtual item become part of the character’s attributes).

From a systems and general compliance perspective, the issue is how delivery is defined.  Is delivery giving the customer the virtual cash to spend, or is delivery the customer actually purchasing the virtual goods?  The latter has the feel for final delivery, but may necessitate very high volume percent complete / milestone delivery type revenue tracking for relatively small amounts of money.

If there is no physical effort required after the initial purchase transaction - and no additional cost incurred - you may be able to justify a revenue method based on the initial purchase of virtual cash. Options could include amortization of revenue straight line over the usual customer consumption period (sort of an inventory turns model), or on purchase, or two months after purchase. It would be helpful to find a simplifying assumption to help with the detailed revenue transaction management.

The following excerpt from the Zynga 10K (using the Item-based model) may be of interest:

“The proceeds from the sale of virtual goods are initially recorded in deferred revenue. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action. For the sale of consumable virtual goods, we recognize revenue as the goods are consumed, which approximates one month. Durable virtual goods represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the estimated average life of durable virtual goods. If we do not have the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game we recognize revenue on the sale of durable and consumable virtual goods for that game ratably over the estimated average period that paying players typically play that game.”

Going forward, it will be interesting to see how social gaming companies deal with the issue of virtual sales in real life.  I expect that this is evolving.

 As of today, April 1 2012, Tensoft will no longer be stocking the company's kitchen with beverages and snacks for employees.  Instead, all staff will be encouraged to take regular short breaks to hunt or gather their food and drinks from naturely occurring local resources.

"As a Tensoft employee, I'm not really sure what I can find to eat or drink that's right outside of the office.  We did have a wild turkey in the parking lot a couple of years ago, but no one's seen it since then," said an anonymous source at the company.  "And, besides, how am I supposed to hunt a turkey at the office?  Am I supposed to whack it with my laptop?"

Tensoft management has assured the team that there are plenty of provisions to be had for the enterprising hunter/gatherer in the local area.  We will be following up later this month to see if any of the local tree bark has proven to be edible, as well as to check for any reports of illness or death caused by ingesting poisonous berries or mushrooms. 

In conclusion, in case you hadn't guessed it by now: April Fools!

 This question was posed by an anonymous Controller yesterday on Proformative: "Is there a revenue recognition software that is ideal for SMB's?"   As one of their Topic Experts, I provided a brief answer there, and wanted to expand on that further here.

While there are a number of industries with complex revenue recognition requirements, I think it’s safe to say that, in general, technology and software companies are the largest affected segment, as well as the most affected.  For these companies, the ability to scale quickly is often a critical business need.  Given that, a better way to state the question might be: “Is there a revenue recognition solution that will scale with our business, supporting the pricing and performance our company needs now and as our organization grows?”

One challenge for people in technology-related companies is that their expected capabilities are often set by expectations of upper mid-market or enterprise sized businesses in their industry.  These expectations can be a serious mismatch when the company’s current budget and/or transaction volumes fit what you would expect in the SMB market.  One of the main reasons to consider a revenue management solution is to meet the increased challenges and expectations that result from growth.  In this environment, what was easy to manage in a spreadsheet yesterday may quickly become unstable and unscalable.

My company has been offering revenue recognition applications for nearly five years.  Our customers span businesses from “early ramp” to large midsized organizations ($500M+). To the question’s point – yes, solutions are readily available which may be ideal for SMB’s.