Semiconductors: The Changing Landscape


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2006 Presentation on the changing landscape of the fabless semiconductor model.

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Semiconductors: The Changing Landscape

  1. 1. The Changing Landscape For Fabless Semiconductor Business Models Michael Kay May 2006 Kay Associates
  2. 2. The Fabless Semiconductor Landscape <ul><li>Higher levels of integration and IP licensing are at the heart of many new semicon company business plans, and to some degree reshaping existing semicon companies in the semiconductor component business. </li></ul><ul><li>Existing semicon companies look to higher ASPs as they see “cash cow” component volumes stalling. </li></ul><ul><li>Higher ASPs are typically achieved through system level integration both in monolithic (SoC) and package (MCM) form. </li></ul><ul><li>Only a few large IDM/MNC companies can address all aspects of system level integration. </li></ul><ul><li>New companies and SME players look to collaborative efforts in addressing system level solutions. </li></ul><ul><li>Market dynamics are influencing the food-chain, creating new opportunities. </li></ul><ul><li>To a large extent, VCs believe the fabless semicon model is broken. </li></ul>May 2006 Kay Associates
  3. 3. Is The Fabless Semicon Model Broken? <ul><li>VCs perceive the fabless semicon model as “broken” </li></ul><ul><ul><li>Used to be $20-35M cash-in with anticipated 5X to 10X return </li></ul></ul><ul><ul><li>Now trend is $50-80M cash-in with nominal or negative returns!! </li></ul></ul><ul><ul><li>Semiconductor component mentality no longer matches with market system requirements </li></ul></ul><ul><ul><li>New companies cannot win tier-1 customers, even if component technology is superior – it takes a full solution to gain any attention. </li></ul></ul><ul><ul><li>Design risks are escalating, product development costs are rocketing </li></ul></ul><ul><ul><li>New companies must reach global business levels quickly – further stressing a new company’s evolving infrastructure </li></ul></ul><ul><li>But is it “broken” </li></ul><ul><ul><li>No, but it does need restoration and and to some degree, rethinking </li></ul></ul><ul><ul><li>Collaboration and location may well be one of the keys. </li></ul></ul>May 2006 Kay Associates
  4. 4. Market Dynamics and The Food Chain <ul><li>The Semiconductor foundry model is gaining momentum (even though the industry is still in the doldrums). </li></ul><ul><ul><li>Significant capacity available </li></ul></ul><ul><ul><li>Multiple processes available </li></ul></ul><ul><ul><li>IP brokering is now a key element of foundry business </li></ul></ul><ul><li>Interface services still flourish (eSilicon, Cadence etc) </li></ul><ul><ul><li>Design houses that fulfill the ASIC, COT, package/test requirements </li></ul></ul><ul><li>Product development is now well comprehended </li></ul><ul><ul><li>Capturing IP, design flows, software, reference designs </li></ul></ul><ul><li>System integration is evolving </li></ul><ul><ul><li>Not necessarily at an SoC level – Single package solutions will play a key role. </li></ul></ul><ul><li>ODM and contract manufacturing converging </li></ul><ul><li>OEM’s becoming pure marketing/sales </li></ul><ul><ul><li>Rapid product introduction, broad product offering </li></ul></ul><ul><ul><li>Working with many ODM and contract manufacturing sources </li></ul></ul>May 2006 Kay Associates
  5. 5. Customers demand System Solutions <ul><li>For wireless applications (audio/video/data) in the CE market, system solutions are critical. </li></ul><ul><li>Component selection is being superseded by sub-system solutions. </li></ul><ul><li>Higher levels of (system) silicon integration require accompanying software. </li></ul><ul><ul><li>Application Layer, Network layer, MAC, PHY, transceiver </li></ul></ul><ul><ul><li>Programmability and versatility </li></ul></ul><ul><ul><li>eBOM platform </li></ul></ul><ul><ul><li>“ Near” Product (minimal requirement to get to final product) </li></ul></ul>May 2006 Kay Associates
  6. 6. System Solutions do not have to be SoC <ul><li>Analog does not track digital in terms of process migration </li></ul><ul><li>RF and digital are not good bedfellows </li></ul><ul><li>System solutions require real world interface and wireless connectivity </li></ul><ul><li>An SoC approach plays well into digital solutions </li></ul><ul><li>An SoC will typically use several IP sources </li></ul><ul><li>Tending to drive fabless semicon companies toward licensing model </li></ul><ul><li>Product/technology collaboration and leveraging of new packaging technologies may prove potent. </li></ul>May 2006 Kay Associates
  7. 7. Developing Working Relationships <ul><li>Large MNCs have been on acquisition binges but do not necessarily gain all the benefits – this leads to more caution on M&A and more interest in collaboration. </li></ul><ul><ul><li>Licensing/OEM-in models have been the norm, but the smaller partner may be loosing out on product revenue and IP control. </li></ul></ul><ul><li>New companies need to create strong working relationships with existing companies levering complimentary technology/products. </li></ul><ul><ul><li>But creating win-win partnerships with major players is not straightforward nor without risk. </li></ul></ul><ul><li>Leverage from partnerships is key. </li></ul><ul><ul><li>Influences infrastructure, product strategy and sales channels. </li></ul></ul><ul><li>Technology-based new companies may be better served by NOT building out a full product sales infrastructure. </li></ul><ul><ul><li>Base the business model on OEM-in deals. </li></ul></ul>May 2006 Kay Associates
  8. 8. Geography of Growth Markets <ul><li>Growth markets continue to be in wireless applications and consumer electronics (CE). </li></ul><ul><li>Asia is the heart of CE manufacturing and to some degree, product development. Wireless technology is also rapidly evolving in this region. </li></ul><ul><li>Semicon companies need sales, support and operational presence near the customers. </li></ul><ul><li>Deriving higher levels of integration (monolithic or package) requires the presence of many engineering disciplines (circuit, hardware, software, system and package design). </li></ul><ul><li>New companies (as well as established companies) look for a stable, trustworthy location where talent and technology growth are strong in the ecosystem. </li></ul><ul><li>Talent, trust, loyalty and cost will dictated the geographic preference. </li></ul>May 2006 Kay Associates