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How to turn fabless runts into world's largest vendors

Posted: 06 Nov 2014 ?? ?Print Version ?Bookmark and Share

Keywords:fabless? chip vendors? TSMC?

Fabless semiconductor companies were the little guys of the early 1990s. Now, at least five of them are among the world's largest chip vendors, and these companies are giving some of the credit to the sector's trade group, which, incidentally, is celebrating its 20th anniversary in December.

"It was generally understood, when you get to $150 to $200 million in revenues, you'd have your own fab, but I said no," said Robert Pepper, who in 1993 was chief executive of Level One, an up-and-coming start-up in communications chips.

Pepper was deeply influenced by a 1974 article from the business guru Peter Drucker, who wrote that companies should invest only in activities that really add value, outsourcing everything else. "In retrospect, I see that's what the fabless semiconductor model is," Pepper recently told us.

At an October 1993 financial conference, Pepper buttonholed Mike Hackworth, a friend and CEO of Cirrus Logic, a much-larger chip company that also had no fab of its own. "I said we need to have some kind of organisation to push the fabless model."

He was not alone. Bill O'Meara, CEO of C-Cube Microsystems, was pushing the same idea in private conversations, as was a hard-driving investor relations consultant named Jodi Shelton.

"All these guys went to same investors' conferences, and at every event they were asked, 'When are you going to have a fab?' Not why or if, but whenthere was no business model for being fabless," said Shelton.

Even though Level One and other companies were growing rapidly, Pepper said, "we didn't quite have the respect of the financial community, because as long as didn't have a fab, we were still considered pipsqueaks."

Dinner for eight serves a trade group

In mid-February 1994, O'Meara called for a dinner meeting at the Plume Horse restaurant in Campbell, California. Shelton heard about the dinner. "I was calling people about the same idea," Shelton said. "So I asked if I could come to dinner, and he said, 'Absolutely notwho are you?'"

Eight CEOsand Sheltonshowed up at the first meeting. One dinner turned into another. Attendance quickly doubled.

"We had four or five dinners, and no one could agree, so I decided to hire a lawyer to write bylaws and make something happen," said Shelton.

"She took the bull by the horns," Pepper said. "Somewhere in that process, she said this is a real start-up and we need money, so she asked for a year's dues up front, and a number of companies pitched in before we even had a real mission statement. The first time I met her, I decided this lady could get anything done."

Momentum for the group built quickly. "These companies were growing exceedingly rapidly, but people could not imagine you would be a billion-dollar company and still not have your own fab," Pepper said. "That was not in anyone's lexicon."

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