Is Hardware Coming Back in Boston? Analog, Lyric, and Local VCs Suggest Yes

8/19/10Follow @gthuang

What do you get when you cross an MIT startup, a longtime public tech company, and three of the Boston area’s top VC firms? That sounds like a joke, but I’d argue that you get the makings of an interesting trend. The trend is that hardware—the actual machinery that powers our computers, phones, and other devices—is making a bit of a comeback around town.

OK, so maybe this region never really lost its hardware prowess. But it sure seems that software, cloud computing, and “virtual” this and that have ruled the tech innovation discussion as of late. For example, Sim Simeonov, the investor and founder of FastIgnite, argued in an Xconomy post in January that, in everything from mobile devices to corporate servers, software would dominate as an economic driver over hardware, which will become more commoditized over the next decade.

But maybe there’s more to the story. Although it’s anecdotal, I’m starting to see a micro trend toward hardware across different levels of the business community—usually a sign that something real is going on. Here are three examples of what I’m seeing:

—A high-powered Boston-area VC syndicate announced this week it has invested in a $48 million financing round for Smooth-Stone, a chip startup in Austin, TX. Battery Ventures, Flybridge Capital Partners, and Highland Capital Partners are all betting on Smooth-Stone, which is looking to modify low-power semiconductor chips from the mobile-phone industry and put them into servers and data centers run by giants like Google, Microsoft, and Amazon. ARM, the UK-based smartphone chip designer, is another investor in the company.

The idea is to develop chips that use less power and emit less heat than traditional Intel server chips—thereby saving big, IT-heavy companies tons of money. If the startup succeeds, look for the competition with the world’s biggest chip maker to reach biblical proportions. Smooth-Stone, after all, refers to the rock that David used to slay Goliath. (I guess its slingshot would be ARM.)

Lyric Semiconductor is an MIT startup bent on overturning the world of computer chips—at least for certain applications that involve probabilities. I’ve been hearing things about this company, but haven’t had a chance to dive into the details yet. The New York Times ran a story yesterday about Lyric and its new probability chip (my term, not the company’s).

Lyric’s website says it is redesigning its circuits, chip architecture, and programming language to “natively process probabilities” (presumably this is not something like the hype over “fuzzy logic” all over again). The idea is that such chips could potentially use much fewer transistors than conventional chips to do the heavy lifting of computing—especially for tasks like finding patterns in data. Lyric has raised some $20 million in government funding and venture capital. Its lead investor and chairman is Ray Stata, the founder of Analog Devices.

—Speaking of which, Analog Devices (NYSE: ADI), the Norwood, MA-based semiconductor and electronics company, posted some notable financial results this week. Analog, which has been a New England institution since 1965, said its profits from the most recent quarter, ending July 31, had tripled (to $199.5 million) as compared to the same period last year ($65.5 million). The performance was partly driven by increased revenues (up 46 percent to $720 million). Analog has had its ups and downs over the past decade, but this year has looked strong so far.

Maybe there’s just more demand for electronics in general these days—which would bode well for all of these hardware-focused companies.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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