Chip Technology Without the Manufacturing
It’s long been an article of faith in the computer chip business that because the tiny slivers of silicon are so difficult to make efficiently, manufacturing technology is crucial to success.
But that conventional wisdom is being challenged by the “fabless” chip companies, who maintain that manufacturing capability is now a commodity, and good design is what matters.
Chip industry pundit Andrew Rappaport, president of Technology Research Group in Boston, likes to rile conference audiences by asserting that silicon is now effectively “free.” So many circuits can now be engraved on a chip with relative ease, he says, that good design rather than good production technology is the key to good products.
If that hypothesis is true, it portends a fundamental change in the structure of the chip business. The industry would divide into two types of companies: a small number of “foundries,” mostly in Asia, that spend the $50 million to $500 million needed for each “fab,” and a plethora of chip-design firms that work closely with customers and use foundries for manufacturing.
At least one Asian company, Taiwan Semiconductor Manufacturing Co., has gone into business explicitly to make products for others. Other firms have actively pursued foundry work while also doing their own designs.
But foundry arrangements work much better for some types of products than others. Chips & Technologies, for example, designs chip sets for personal computers that are relatively unsophisticated from a manufacturing point of view.
On the other hand, fabless firms such as Xilinx, Lattice Semiconductor and Vitilec have products that do in fact require a leading-edge production process.
“There are companies for whom the value-added is in the process, and there are companies whose products are primarily intellectual property, and are less dependent on the process,” said George Alexy, vice president of marketing at Milpitas-based Cirrus Logic.
Many simply do not buy the notion that the foundry function will ever be entirely split off from design and marketing. Hector Ruiz, senior vice president at Motorola’s semiconductor unit, says the biggest chip companies are continuing to gain market share at the expense of smaller firms. The future, he says, is with companies that can design, market and manufacture their products.
‘FABLESS’ CHIP FIRMS
A sampling of some larger ‘fabless’ semiconductor firms and the manufacturers of their chips. Company: Actel Year Founded: 1985 Revenues (latest fiscal year): NA (privately held) Manufacturers: Matsushita, Texas Instruments, Hewlett-Packard Company: Altera Year Founded: 1983 Revenues (latest fiscal year): $58.9 million Manufacturers: Sharp, Intel, Cypress, Texas Instruments Company: Chips & Technologies Year Founded: 1984 Revenues (latest fiscal year): $293.4 million Manufacturers: Toshiba, Fujitsu, NEC, Yamaha, Taiwan Semiconductor, LSI Logic, National Semiconductor, NCR Company: Cirrus Logic Year Founded: 1984 Revenues (latest fiscal year): $85 million Manufacturers: NA Company: Crystal Semiconductor Year Founded: 1984 Revenues (latest fiscal year): NA (privately held) Manufacturers: NA Company: Lattice Semiconductor Year Founded: 1983 Revenues (latest fiscal year): $38.9 million Manufacturers: Seiko-Epson Company: Maxim Integrated Products Year Founded: 1985 Revenues (latest fiscal year): $56 million Manufacturers: NA Company: Weitek Year Founded: 1981 Revenues (latest fiscal year): $49.2 million Manufacturers: Hewlett-Packard, Matsushita, Toshiba Company: Xilinx Year Founded: 1984 Revenues (latest fiscal year): $50 million Manufacturers: Seiko-Epson Other small, privately held fabless firms: Simtek, Plus Logic, International CMOS Technology, Integrated Information Technology, Cyrix, Cascade Microdevices.
Sources: Hambrecht & Quist, Technologic Partners, individual companies
