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GSA sees fabless model taking over semi industry

Posted: 07 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:fabless companies? GSA forum? semiconductor industry?

Success in the $268 billion semiconductor industry depends on outsourcing, partnerships, financial performance, software and, most of all, innovation and flexibility, according to presenters and panelists at the Global Semiconductor Alliance's recent Israel Executive Forum, held in Tel Aviv.

Not surprisingly, outsourcing mainly means moving to the fabless business model, according to Dwight Decker, chairman of the GSA and of Conexant Systems Inc. "The fabless model will eventually take over the whole industrypartly because the compound annual growth rate in the overall semiconductor market is now 6 percent, while the CAGR in the fabless sector is 28 percent," Decker said in a forum presentation.

The clustering of capabilities requires collaboration through partnerships and consolidation through mergers and acquisitions. As device complexity deepens, so does the need to work across the ecosystem, according to Ron Torten, VP of sales at Inphi Corp.

Conexant's Decker stressed that success will increasingly require integration of supply-chain partners into cohesive units.

Advancing DFM, ESL
The move to next-generation process technologies "will strengthen the emphasis on design-for-manufacturability and electronic system-level design and verification," said Danny Biran, senior VP at Altera Corp. "You have to take ESL capabilities to more-advanced levels and get fabless companies to strengthen their cooperation with foundries in the area of DFM."

Mergers and acquisitions are another way to cluster capabilities. "If the financial sponsors of companies will not drive mergers and acquisitions, companies such as Intel and Texas Instruments will do it without [them]," said Mark Edelstone, head of global semiconductor investment banking at JP Morgan Securities. Edelstone tied that trend to the turmoil in the financial markets: "The financial storm will affect companies' valuations and access to capital. On the other hand, it will offer growth and M&A opportunities for companies that are well managed and have strong balance sheets."

According to Decker, financial discipline requires that companies focus on maximizing return on net assets and on reducing capital investments and depreciation costs. Alliances and multicompany research can enable cost and risk sharing, he said.

Decker maintained that financial pressures will mount because many venture capitalists are no longer investing in chip startups. Semiconductor companies, he said, must sharpen their focus on profitability and learn to develop products in a tougher environmentone in which OEM consolidation leaves suppliers dependent on a smaller pool of customers, and where design costs are growing exponentially, at least for the advanced process nodes. Companies are expected to supply more units even as overall capital spending, according to Gartner estimates, is projected to fall by 19.8 percent in 2008.

Time-to-market challenge
The consumerization of electronics, meanwhile, has made time-to-market more critical. A three-month delay in reaching the market causes 27 percent of revenue to be lost, according to an IBS study cited by Decker.

He added that companies are investing more in software development, which has become the main obstacle to speeding time-to-market. He cited data showing that for products based on the 90nm process node, software represents around 45 percent of the total investment; at 65nm, the figure rises to around 55 percent, and at 45nm it is set to reach 65 percent. Third-party intellectual property now constitutes 31 percent of the total cost of advanced semiconductor products. And R&D spending now approaches 18 percent of revenues.

Diversification of products is a must as markets move toward India and China. Said Wim Roelandts, chairman of Xilinx: "In India and China [respectively], we have 318 million and 425 million people aged between 10 and 30, who are the most intensive consumers of technologybut these people are not wealthy consumers." That reality must be considered when looking to diversify.

Colin Harris, chief operating officer at PMC-Sierra Inc., said diversification will deepen the need for co-verification, for smart design of analog and mixed-signal components for mobile broadband and video applications, and for better project management.

Amir Ben-Artzi, a contributor to EE Times Europe, is based in Israel.





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