2. Matrix Semiconductor Inc. SM-126
substrates.1
Farmwald believed this development could be just the breakthrough needed to help
enable 3-D semiconductor technology. “Think about it Tom,” he said, “then let’s talk again.”
Never one to back away from a challenge, Lee threw himself into the research at Stanford’s
engineering library. “I literally spent the next 36 hours working on the problem, and I couldn’t
disprove the theory. I called Mike and told him not only does this idea look do-able, but I can’t
find an example of anybody else who is currently trying to make it work,” Lee recalled.
Farmwald’s response was simple. “Then you and I need to start a company,” he declared.
The founding team quickly grew to four key members—Lee and Farmwald asked a leading
integrated circuit designer named Mark Johnson and an expert in polysilicon physics and
technology named Vivek Subramanian to join them (see Exhibit 1 for team biographies).
Within four months of the initial discussion, Matrix Semiconductor was born.
Over the next year, the founders were consumed with transforming their idea into a viable
invention. Yet, as the spring of 1999 approached, the team faced important decisions— agreeing
on the practical parameters of a 3-D product, choosing what markets to pursue, defining an
appropriate business model—that would help turn Matrix’s invention into a marketable
innovation.
MATRIX TECHNOLOGY: A BIG IDEA
Semiconductor 101 — Two Dimensional Chips
Silicon could be found below carbon and next to aluminum on the periodic table of elements. A
pure silicon crystal was an insulator, which meant that the electrons inside it were fixed so that
almost no electricity would flow through it. However, by “doping” the silicon (or adding a very
small amount of an impurity like phosphorus, arsenic, or boron), electrons were freed and the
silicon became a “viable (but not great) conductor—hence the name semiconductor.”2
The
doped surface of the silicon was known as the substrate (see Exhibit 2 for a glossary of technical
terms).
Capitalizing on the properties of semi-conductive materials, engineers made basic electrical
switches known as transistors. Transistors fluctuated between being insulators and conductors,
which gave them the ability to switch or amplify a current thereby controlling the flow of
electricity.3
A slightly more simple semiconductor device was called a diode. 4
Diodes were
even more basic switches that conducted electricity in only one direction and whose on/off state
was not determined by a third terminal.
1
The Wall Street Transcript, “Company Interview: Dennis L. Segers (Matrix Semiconductor, Inc.),” June 9, 2003,
http://www.matrixmemory.com/files/10557967560.pdf (April 29, 2004).
2
Marshall Brain, “How Semiconductors Work,” HowStuffWorks.com, http://electronics.howstuffworks.com/diode.htm (April
29, 2004).
3
Lucent Technologies, “Transistor: What Is It?” http://www.lucent.com/minds/transistor/tech.html (April 29, 2004).
4
Brain, “How Semiconductors Work,” op. cit.
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3. Matrix Semiconductor Inc. SM-126
A semiconductor chip, or an integrated circuit, was created when multiple transistors were
etched on to a small, thin piece of silicon. Simple chips held a few thousand transistors on a
silicon wafer that was just a few square millimeters in size. Larger, more powerful chips could
be as big as a square inch with tens of millions of transistors on them.5
Traditionally, integrated circuits were developed in two dimensions because the transistors
function most effectively only in the substrate of the silicon wafer. The chip had other layers (as
many as eight) but these were used just to provide connections, perform secondary tasks, and
increase its structural strength.6
To improve the performance of integrated circuits, engineers
historically expanded the area of each chip and/or reduced the size of each transistor.7
The pace
of this innovation was documented by Moore’s Law which predicted, in 1965, that the number of
transistors per unit area of an integrated circuit would double every year. Although this “rule”
was amended to reflect an eighteen-month cycle, it held true for nearly 40 years, tracking the
relentless progress of the semiconductor industry.
Skyscrapers, Not Shopping Malls — Three Dimensional Chips
Demand for smaller, faster, cheaper chips continued to grow as the number and type of
mainstream electronics rapidly expanded (e.g., cell phones, PDAs, digital cameras, MP3
players). However, there was concern across the semiconductor industry that Moore’s Law was
approaching its practical limits. As Lee put it, “Scaling can’t continue forever for the simple fact
that sustained conformance with Moore’s Law implies the eventual need to fabricate devices
with critical dimensions smaller than an atom.”8
One alternative for perpetuating advancements in the industry was to build up instead of out (see
Exhibit 3). In the real estate market, rather than trying to fit more and more tenants into single-
story buildings, smart developers in land-constrained areas started building multilevel
skyscrapers. If engineers applied this same concept to integrated circuits, placing functional
transistors on multiple layers of a single chip, they would dramatically increase the density of the
chip. This would also have a significant impact on the semiconductor cost model since the price
of silicon was roughly proportional to the area (not the volume) consumed per chip.9
With every
square acre of semiconductor “real estate” costing about $1 billion,10
this cost advantage was
compelling. Over the years, many companies, universities, and individuals pursued the
opportunities presented by three-dimensional integrated circuits. However, as of 1999, none had
yet been successful in developing a design that was both functional and practical.
A Revolution in the Making
In 1998, Farmwald, Lee, Johnson, and Subramanian began to break through the barriers that had
previously prevented other engineers from building 3-D chips by adapting technical advances
5
Marshall Brain, “How Microprocessors Work,” HowStuffWorks.com, http://computer.howstuffworks.com/microprocessor.htm
(April 29, 2004).
6
Thomas Lee, PhD, “The Case for 3-D Microelectronics: A Whitepaper,” 2001.
7
Thomas H. Lee, “A Vertical Leap for Microchips,” Scientific American.com, January 2002, http://www.sciam.com (April 29,
2004).
8
Lee, “The Case for 3-D Microelectronics.”
9
Ibid.
10
Lee, “A Vertical Leap for Microchips.” This figure refers to the approximate cost of an acre of processed silicon wafers.
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4. Matrix Semiconductor Inc. SM-126
made in other industries. First, Matrix engineers leveraged technology pioneered in the flat
panel display industry to build transistors on top of a surface other than the pure surface of a
silicon wafer. This helped enable multiple, active processing layers in Matrix’s 3-D chips.
Second, the team borrowed a process called chemical-mechanical processing to eliminate the
bumps and valleys in each layer of the chip that could potentially inhibit functionality. This
process, which was similar to a technique lens-makers used to polish mirrors, was adapted to the
semiconductor industry by IBM’s research labs in the late 1980s (see Exhibit 4 for a more
detailed description of the technology).11
With their new approach, the Matrix founders felt they were on the edge of a revolution in
semiconductor technology. “In a mature industry,” Lee said, “most improvement is incremental.
But Matrix technology potentially offered a 10x12
idea that could enable a whole new class of
inexpensive consumer products.”13
Despite their enthusiasm, however, the founders recognized that there would be technical trade-
offs. Using polysilicon would mean that the transistors and/or diodes on the 3-D chips would be
functional, but inferior to those made using single crystal silicon. The key would be finding a
practical application for the technology where the cost/performance trade-off would still be
attractive. However, as Farmwald put it, “Making something less ambitious than Pentium
quality chips could still be interesting.”
How Good Is Your Memory?
In terms of a practical application for Matrix’s technology, the founders quickly focused on
memory chips. Compared to more complicated devices like logic circuits, memories are arrays
of relatively simple cells that do not necessarily require top-end performance to function
effectively in appropriate applications. Semiconductor companies frequently led with memory
chips in vetting new fabrication processes because they tended to have less complicated designs
and it was therefore easier to debug and resolve problems.14
All digital electronics required memory to store data and, as such, memory chips accounted for
approximately 18 percent of the $148 billion global semiconductor market in 1998 (see Exhibit
5). Memory products were broadly segmented into two primary categories: volatile and non-
volatile memory. Volatile memory, like dynamic random access memory (DRAM) and static
random access memory (SRAM) purged data when it lost power. Non-volatile memory, like
masked read-only memory (Masked ROM), magnetic and optical disks, and Flash, maintained
data when powered down. While the founders believed there were opportunities for Matrix in
other types of semiconductor devices, they felt that non-volatile memories would be less
technically challenging and would receive immediate benefits from 3-D integration.
The Matrix team wanted to seize upon the significant price/performance gap that existed in the
1999 memory market (see Exhibit 6). In terms of available non-volatile memories, disks offered
11
Ibid.
12
The team believed that 3-D technology would enable Matrix to fit 10 times the number of devices on the same surface area of
a chip.
13
All subsequent quotations are from interviews with the author unless otherwise cited.
14
Lee, “A Vertical Leap for Microchips.” op. cit.
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5. Matrix Semiconductor Inc. SM-126
millisecond data access at an extremely low cost per bit, but they could only be purchased at a
price point of $100 or more due to the cost of the device (i.e., you could not get $5 worth of bits
from a disk drive). Solid-state memory, like Flash, offered nanosecond performance and could
be purchased in more flexible increments, but at a significantly higher cost per bit than disks. By
going after the space in between these two extremes with its 3-D technology, the Matrix team
estimated that it could build non-volatile memory chips for 1/10th
the cost per bit of other non-
volatile semiconductor memories, with performance characteristics better than disks. If they
were successful, they believed this 10x cost advantage would lead to a “$XX” billion-dollar
opportunity15
providing storage for the portable consumer electronics market.
Innovation Under the Radar
While Matrix 3-D technology was being conceptualized, the founders felt relatively confident
that there was little direct competition in the market. However, as Lee put it, “We were
frightened of it. In the early years, we tried to stay as invisible as possible.”
Matrix’s near-term competition would likely come from conventional memory products with
different technical characteristics but similar applications. The specific technologies they would
face-off against would be determined by the strategic decisions the company made as it worked
to transform its technology into a marketable product.
Regardless, Matrix covered its bases by filing an extensive patent portfolio. Johnson recalled,
“We had the opportunity to patent giant swatches of technology because we were the first ones.
It was like a land rush.” By aggressively filing for broad patents across the 3-D semiconductor
space, Matrix intended to protect multiple generations of its products. Alternatively, the
company could license its patents to other companies if it decided not to play in all of the space it
ultimately protected.
FLASH FORWARD: SPRING 1999
Glorious Teamwork
At Matrix Semiconductor, the team had set up a small office in Menlo Park, California, using
“seed” funding raised from a local venture capital firm and personal investments made by the
founders.16
With card tables from Costco lining the walls of a 15 x 15 foot room, the team
worked together closely—collaborating, brainstorming, and debating throughout the day. Team
interactions were mostly informal. There were few scheduled meetings, and decisions tended to
be made gradually via an incremental “meeting of the minds” among team members. Johnson
described the atmosphere as “glorious.” “It was a rush to be surrounded by such a high caliber
interdisciplinary team,” he recalled.
At this time, Matrix had not yet named a CEO. Farmwald held the position of president, but did
not intend to be an executive with the company on a long-term basis. To help provide advice
and direction to the emerging company, the founders began creating a board of directors in early
15
This is the way Matrix described the market opportunity for its product in 1999.
16
The Matrix team chose not to publicly disclose information about its funding sources in 1999.
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6. Matrix Semiconductor Inc. SM-126
1999. Anticipating some of the specific strategic challenges in front of Matrix, Johnson
introduced a former colleague, Dennis Segers, to Farmwald and the rest of the Matrix team.
When Segers worked at Mostek (a company that produced logic, memory, and microprocessor
chips), he hired Johnson as a young circuit designer out of MIT and the two men had developed
a strong mutual respect. Years later, Segers was working at Xilinx as the senior vice president
and general manager of the company’s Advanced Products Group. Segers had an extensive
semiconductor background, including deep experience with diverse semiconductor business
models, which the Matrix team anticipated would be invaluable to them.
Over lunch, Johnson and Farmwald told Segers about Matrix technology and the business idea.
At first, Segers admitted, “Building really cheap, slow bits felt a little counter-intuitive.”
However, after a series of conversations, Segers agreed to help. “I joined,” he recalled, “because
the founders were bold. These guys really thought they could do something for the first time in
the semiconductor industry. They also had an extraordinarily high-leverage idea. There was a
compelling value proposition for generating high revenue off few employees, few customers, and
few products. One ‘design-in’ in a key consumer electronics market could create demand for
millions of units of the product.”
In the spring of 1999, the newest addition to the team was Dan Steere. Steere completed his
MBA at the Stanford Graduate School of Business in 1993 and then worked with Intel and
pcOrder.com until joining Matrix. Although he had a strong background in technology, Steere
was the first employee hired at Matrix into a “non-technical” role, joining as the director of
marketing. “One of the interesting things that attracted me to this group,” Steere commented,
“was that the team had a lot of very bright, accomplished, experienced engineers who were
genuinely interested in asking for marketing input. Everyone was focused on this radical new
technology, but the founders had a strong belief that it’s not just technology that makes a great
company.”
A Prototype with No New Atoms
Despite this holistic view of company success, until this point the entire team had been focused
on proving the technical feasibility of the Matrix idea. As Lee put it, “We were still trying to
prove that our key ideas didn’t violate the rules of physics.” The technical team had two primary
focus areas: (1) designing and building a prototype of the 3-D chip, and (2) developing the
process to produce the chips in high volume.
Early on, Matrix engineers made an important technical decision that would significantly impact
the design of its chips and the development of its production process. Lee called it “no new
atoms,” meaning that the company would only use existing materials and equipment found in a
standard CMOS fabrication plant (fab).17
The team favored this approach because it was less
disruptive and would give them significantly more flexibility when it was time to produce the
chips in high volume. Fabs were typically resistant to introducing any new or foreign substances
into their plants, and production equipment was expensive to modify or purchase. Accordingly,
the team hoped this decision would offer them the path of least resistance from a production
17
CMOS stands for complementary metal oxide semiconductor and refers to the most common type of semiconductor
production facility.
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7. Matrix Semiconductor Inc. SM-126
perspective, even if it created more challenges when designing the chips and engineering the
production process.
Matrix’s first major technical objective was to complete a proof-of-concept. The team was
working on building a three-layer memory array consisting of 27 bits (3x3x3) to demonstrate
working memory cells in a 3-D array. This initial prototype was being developed as a one-time
programmable memory cell. To write a bit, an insulator was popped electrically, like popping a
fuse. Once a fuse was popped, it could not be reset. Similarly, once a bit was written to one of
Matrix’s memory cells, it was written permanently.
Prototype development was not proceeding as quickly as was originally expected. Initially, the
team thought the proof-of-concept would be relatively straightforward since their objective was
to make only a three-layer chip with polysilicon diodes (rather than a more complicated chip that
also incorporated transistors). However, a series of unanticipated challenges created setbacks.
In 1999, Matrix engineers were using the R&D fab at Stanford University. While it offered a
low-cost “sandbox” within which to work, the equipment was out-of-date and frequently down
for repair. There was a severe shortage of qualified technicians, many of whom had left Stanford
to pursue private sector positions during the “boom” in Silicon Valley. The facility was also
flooded with engineers from hundreds of burgeoning start-ups, which further compounded the
problem of long wait times for equipment. At the Stanford R&D fab, it took Matrix up to eight
weeks to produce even the most rudimentary test chips. In a state-of-the-art facility, comparable
test chips could have been produced in no more than one week.
From a technical perspective, adhering to the “no new atoms” approach was also proving to be
time consuming. While no new materials or equipment would be required to create Matrix
chips, more than one-third of the standard CMOS production process would have to be
redesigned to incorporate process steps unique to Matrix technology. Additionally, the team had
decided to make Matrix 3-D chips compatible with existing formats/standards within the
memory industry. While they felt this was an important design decision to help speed the
potential adoption of the technology, the design implications turned out to be more challenging
than anticipated.
Building a Multi-Dimensional Strategy
Despite these slow-downs, the team expected to complete the prototype sometime in mid-1999.
As soon as it was done, the company’s next step would be to talk directly with prospective
customers, partners, and investors to build interest in Matrix and raise a next round of funding.
Based on their collective experiences with other emerging companies, the team members felt
strongly about not getting ahead of themselves. “We weren’t going to raise a lot of money, hire
a lot of people, or bring our message to the market until we finished proving that we could at
least build the prototype,” recalled Steere. “There was a fair amount of caution in the team,
wanting to be sure we were ready to take the next step before proceeding.”
To prepare for this next step, the team members agreed that they needed to weave their ideas on
Matrix’s technology, product, and market applications into a cohesive strategy that would
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8. Matrix Semiconductor Inc. SM-126
resonate with customers and investors. Additionally, the company needed to define its primary
focus and make sure it moved forward in a manner that would maximize its opportunities and
minimize its risks. With these strategic choices, Matrix would be committed (at least for some
period of time) to a specific path since many of the decisions would be costly and time-
consuming to reverse once they were made. Lee, Johnson, Segers, and Steere all had a lot on
their minds, and each one knew he would play an important role in mapping out the company’s
next steps.
THE ISSUES
Translating Technology into Product: One-Time Programmable vs. Read/Write Chips
From a technical perspective, Johnson and Lee knew they needed to find a new fab where they
could more quickly and reliably build and test their chips. They also knew they needed help
engineering the unique aspects of the Matrix production process. To address the first challenge,
the two men asked Steere to pitch in and begin researching alternative facilities that would
enable the team to move out of the Stanford fab as soon as possible. To address the second
issue, semiconductor process ‘guru’ Monty Cleeves had joined the team and taken charge of
Matrix’s process development (see Exhibit 1).
A third technical challenge existed, however, for which the appropriate resolution was not quite
as clear-cut. The team needed to decide whether to make one-time programmable memory chips
or read/write memory chips the first generation Matrix product. With one-time programmable
(OTP) memory, a bit could only be saved to the chip once but could be accessed many times.
With read/write memory, users could access and save data with no limitations.
OTP
Until this time, most of Matrix’s research and development work had been focused on OTP.
While there were still technical hurdles to overcome, the team felt confident that it had a
blueprint for creating an OTP product that would be ready for high-volume production in late
2001. While there appeared to be less technical risk associated with developing OTP,
conventional wisdom in the semiconductor industry suggested to the team that OTP was a
technical limitation and could, therefore, be considered a competitive disadvantage in the market.
Additionally, because there were few OTP alternatives available in the market, the team was
uncertain about the strength and size of the market opportunity.
On the other hand, Matrix would have less direct competition in the OTP space. As a result,
direct competitive performance comparisons would be more difficult, yet features of the Matrix
product would stack-up positively against potential substitutes. For example, unlike Masked
ROM, Matrix chips would have the advantage of being field-programmable (meaning data could
be saved to the chip by the user, not just programmed at the factory where the chip was
produced). Like CD-ROMs, Matrix memory would be cheap enough to be positioned as a
consumable storage medium, but would not require expensive drives to use. The Matrix team
also thought that its technology would have strong archival properties, which could be positioned
as a benefit in the OTP market—they suspected that data would be secure for hundreds of years
with unlimited usage whereas Flash was only good for 100,000 reads and up to 10 years.
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9. Matrix Semiconductor Inc. SM-126
Ultimately, as Dennis Segers put it, “We needed to decide if OTP was a drawback or a benefit
for the company.”
Read/Write
Because it was a more advanced and complete technical solution, the team was attracted to the
read/write product alternative. If Matrix could successfully build re-writable 3-D memory chips
that had significantly higher densities than Flash, were much less expensive, and offered
reasonable performance for select consumer electronics, the team felt certain that it would face
limited market risk.
However, they had still not been able to define a solid technical plan for developing read/write
technology. It was difficult to predict how long it would take to create the more complex
read/write blueprint, let alone build the chips. Additional funding would need to be raised before
a functional read/write prototype was complete. Given the uncertainty of the Matrix timeline for
releasing a read/write memory product, it was also difficult to predict exactly how much cheaper
and denser than Flash its products would be by the time the team could get read/write memory to
market. Finally, as Flash was becoming increasingly established in the market, the team worried
that a read/write product might have less differentiation (and higher technical performance
expectations) in the market than an OTP product.
Matrix knew it did not have the time, resources, or money to pursue OTP and read/write memory
at the same time. As a result, the team needed to decide if it was more comfortable taking on a
higher level of market or technical risk. Because the company did not yet feel that it was ready
to start talking to customers until the prototype was complete and its initial strategy was more
clearly defined, the team would have to rely on intuition, research, and an evaluation of its
potential markets to help make this important decision.
Going to Market: Finding a Niche for Cheap Bits
“Basically, we were all very clear that our core proposition would be lower-cost bits (see Exhibit
7) and potentially lower-performance memories than the options currently available in the
market,” stated Steere. “The team asked me to find the window of opportunity—which
applications we should target to maximize the benefits we could offer.”
Matrix needed a mass consumer electronics market where “the performance requirements were
not that great and the price elasticity was huge,” said Segers. However, as Johnson pointed out
about the technical landscape in 1999, “We thought we might have to invent applications and
convince customers where Matrix technology could be used.”
While it might take some convincing, the Matrix team felt certain that there were significant
opportunities in the digital camera and digital audio markets for a low cost, high density form of
non-volatile, solid-state memory. As Steere put it, “There looked to be big consumer markets
developing around digital cameras and digital audio players, but memory seemed to be a
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10. Matrix Semiconductor Inc. SM-126
significant problem. Flash memory cards were expensive, you couldn’t put very much music or
very many pictures on them, and there was a usage model that didn’t seem to fit.”18
In both of these market areas, Flash was the leading memory application. While total Flash
memory revenues were $2.5 billion in 1998, the removable Flash card market accounted for
$272 million of the total with 6.5 million units shipped. By 2003, industry analysts predicted
that annual Flash card shipments would reach 67 million units and over $1.6 billion in annual
revenue.19
While digital cameras were the primary application using Flash cards, digital music
applications were expected to have the greatest growth potential (see Exhibits 8 and 9). The
SmartMedia card was the leading format in the Flash memory card category with Compact Flash
running a close second. Together, these two competing types of Flash memory cards accounted
for almost 90 percent of the total 1998 Flash card market.20
Toshiba, SanDisk, Samsung, and
Hitachi controlled over 80 percent of Flash card volume in 1998, although the market was
attracting a lot of attention from smaller companies looking for a way “in.”21
Digital Cameras — Something to Smile About
While still a relatively new market, a great deal of change had already been seen in the digital
camera arena, as summarized by this excerpt from Electronic News in mid-1998:
The digital camera began as a device for computer nerds, a toy to be attached to
the computer. Users could take pictures and put them on their web sites, e-mail
them or use them for wallpaper on their monitors. The cost of these cameras was
high. Few people would accept the quality of the prints. The resolution of the
cameras was [poor]. The light sensors (CCD) generally had only 300k pixels.
Most of these cameras had only internal memory and poor quality lenses. The
pictures were stored on one or less megabytes of Flash memory in the camera.
The cameras were manufactured by companies like Casio, Epson, and Panasonic
—which are more computer-oriented than camera-oriented.
Late 1997 saw the introduction of mega-pixel cameras with good quality lenses.
The quality of the prints up to 8-inch by 10-inch are acceptable for the average
person. The price is still too high, but the explosion is in sight now. These
cameras were priced at $1,200 or more. By the middle of 1998, the price had
dropped to less than $1,000. These cameras are manufactured by serious camera
manufacturers, like Nikon, Olympus, and Agfa. The picture quality is superior to
many mid-priced 35mm cameras. They come with a 4MB to 8MB Flash card that
is removable. Higher capacity cards are available from after-market sources.22
With these changes, digital cameras were rapidly making their way into mainstream consumer
markets. The digital camera market was expected to reach 1.3 million units in 1998, 2.3 million
units in 1999, and 3 million units by the year 2000. This represented a $1.4 billion market by
the year 2000, with approximately 80 percent of sales coming from consumer cameras used by
18
In this context, a usage model refers to the usual practices demonstrated by the consumer when using a category of technology.
19
Xavier Pucel, “Semiconductor Storage Bulletin,” IDC, September 1999.
20
Ibid.
21
Ibid.
22
Richard Kohn, “A Changing Digital Camera Market,” Electronic News, July 27, 1998.
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11. Matrix Semiconductor Inc. SM-126
the mainstream public.23
This additional growth would be fueled, in part, by increasingly lower
prices and higher quality. However, ease of use was also shaping up to be a significant
battlefield in the digital camera market.
In 1998, consumers seemed to think there were many advantages to using a digital camera. They
liked to be able to see a picture as soon as it was taken, delete pictures they didn’t like, and have
easy access to digital images to display on their computers or e-mail to friends and family.24
Despite these benefits, digital camera users were still frustrated by limited storage capacity— the
average digital camera had a maximum memory density of 16MB in mid-1998.25
Many users
also felt that the process of transferring images from their cameras to their PCs was cumbersome
and frequently slow.26
Some complained that removable Flash cards (especially SmartMedia)
appeared thin and fragile.27
They also wanted an easier way to process digital images into
prints.28
Given this landscape, the Matrix team felt strongly that its 3-D memory could address many of
the key needs and opportunities in the digital camera market. Perhaps most importantly, given
the severe price pressure in the market and the demand for greater storage capacity, this was an
area in which high-density, low-cost memory bits were clearly needed. Matrix estimated that its
first high-volume product would provide 32 to 64 MB of storage for approximately $10 to $15,
which would compare favorably to 1999 forecasts for SmartMedia (32MB card for
approximately $46.86) and Compact Flash (32 MB card for approximately $67.44) despite the
fact that Flash cards were already well established in this market niche.29
Matrix memory cards
would be Flash format compatible (to fit existing digital camera memory slots) and durable (to
address fragility concerns). Further, the team felt that consumers would feel far more
comfortable leaving their $10 Matrix card with a photo processor to get quick and easy prints
than they would leaving a Flash card that cost $50.
The Matrix team also thought it could help address concerns regarding the user experience.
“Offering a digital camera that is as easy and convenient to use as a traditional film camera will
give the consumer reason to move into the digital arena.”30
If 3-D memory was cheap enough,
Matrix could position it as a consumable product—just like film. Users could store their digital
images on Matrix memory cards rather than being so dependent on the time consuming,
cumbersome process of transferring them to their PCs. As Steere described, “A consumer would
buy a blank Matrix memory card, plug it into a camera, take fifty shots, and then remove it. The
consumer would have digital images that could be sent via e-mail. But the card would be the
permanent storage that they’d slide into a photo album.”
In 1998 and 1999, Sony had dominated the digital camera market with its Mavica product line
(the top seller in the digital camera category since its introduction).31
The Mavica promoted a
23
Peter Brown, “Hope for CMOS Still Alive for Digital Cameras,” Electronic News, June 15, 1998.
24
Kohn, op. cit.
25
Walt Lahti, “A Journey to the Promised NAND,” Electronic News, August 3, 1998.
26
Paul Groot, “Removable Memory Market Faces Flash Flood,” Computer Dealer News, January 29, 1999.
27
Lahti, op.cit.
28
Kohn, op.cit.
29
Kevin Kane, “Digital Camera Market & Competitiveness Analysis” IDC , April 1999.
30
Kevin Hause, “The Future of the Music Industry: MP3, DVD-Audio, and More,” IDC, March 2000.
31
Kenneth Deitcher, “I Got One!!!” PSA Journal, August 1999.
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12. Matrix Semiconductor Inc. SM-126
usage model similar to the one the Matrix team envisioned. These Sony cameras used regular
floppy disks, inserted directly into the camera, for the storage of all digital images. Images could
be downloaded and stored on a PC, but many users kept them on floppy disks for long-term
storage purposes. Consumers were drawn to the Mavica primarily because it was intuitive and
easy to use. However, because the camera had to accommodate a 3.5-inch floppy drive, it was
larger than most digital cameras. Its storage capacity was also limited (a floppy drive could hold
only 1.44 MB—at its highest image-quality setting, the Mavica could fit just one image per
floppy disk).32
With a smaller form factor, greater storage capacity, comparable memory
performance, and a competitive price, Matrix 3-D could offer a major improvement to the
Mavica/floppy disk digital photography model. The archival quality of Matrix’s memory chips
would be another selling point—Matrix 3-D cards would last significantly longer than Flash
cards, floppy disks, and even PC hard disk drives.
By positioning itself as a consumable photographic medium, Matrix hoped to capture a portion
of traditional film sales revenue. In 1998, 973 million rolls of film were sold in the United States
(worldwide sales were estimated to be 3 billion rolls) at approximately $3 each for 24
exposures.33
At $10 for 32 MB, a Matrix 3-D memory card would hold roughly 75 digital
images and would be competitively priced to film. If Matrix could capture even 5 percent of the
$2.89 billion film sales market, the opportunity would be compelling.
As the team evaluated the digital camera market, members couldn’t help wondering further about
the benefits of a read/write vs. an OTP product. While consumers said they valued the
reusability of Flash cards and floppy disks, the team felt skeptical about how often this
functionality was legitimately being used. All digital cameras contained a certain amount of
“buffer memory” (DRAM), which was built into the central processing unit. The buffer memory
would provide users with adequate capacity to review several pictures (and decide if they wanted
to keep or delete them) before burning them to memory. If Matrix memory would potentially be
positioned as a consumable product, did it need to be rewritable? Or would a write-once product
be equally (or more) appealing in the market?
Listen Up — Big Opportunities in Digital Audio
An IDC analyst report had this to say about the digital audio market in 1999:
The nascent digital audio category ended 1998 in turbulence, with the launch of
Diamond Multimedia’s Rio portable MP3 player delayed by a lawsuit with the
Recording Industry Association of America (RIAA), near-zero support from
major labels, and compressed audio in general being viewed as another sign of the
widespread anarchy among generation Y and a few renegade artists.34
Despite this disarray, digital music players appeared to be on the verge of becoming a
major growth area. More than a million units were expected to ship in 1999, and a 150
32
Stephen H. Wildstrom, “Digital Snapshots in a Snap,” Business Week, February 1, 1999.
33
Photo Marketing Association, “1998-99 PMA Industry Trends Report,” 1999.
34
Kevin Hause, “1999 Consumer Device Year in Review: What a Year!” IDC, February 2000.
p. 12
13. Matrix Semiconductor Inc. SM-126
percent compound annual growth rate was anticipated for the segment between 1998 and
2003.35
This was significant because every player would require a memory card. In 1999, analysts
predicted that digital audio players would require mainstream capacities of 64MB and 128MB
because “these capacities allow for recording the equivalent of an entire CD, and this is just what
the consumer is comfortable with.”36
Flash was the current memory format leader, although
digital audio players currently accounted for only 1 percent of the total Flash card market.
SmartMedia was the dominant form factor having been designed into Diamond’s Rio player and
Samsung’s Yepp player. However, SanDisk had just started shipping its MultiMediaCard
memory, and SanDisk, Toshiba, and Matsushita were working together to develop the Secure
Digital card. The Secure Digital card was targeted specifically at the MP3 player market and
claimed it would provide higher memory capacities than available alternatives, plus additional
copyright protection features.37
With other major companies like Sony (with its Memory Stick)
eyeing the digital audio player market, a format war was certain to ensue. Additionally, the
competition was shaping up to be intense among emerging and established memory companies
seeking to gain a foothold in the digital music market.
Despite the potential competition, the Matrix team saw digital audio as another key market
where its memory product could find a niche. Matrix 3-D read/write memory chips were well
suited to be designed into portable digital audio players. Because no standard format had yet
been established and “the ability to hit mass market price points is imperative for emerging
products that want to build volume,”38
inexpensive bits were just what was needed to support the
proliferation of MP3 players. Alternatively, OTP chips could be used as a substitute for pre-
recorded music CDs, or as a digital replacement for pre-recorded cassette tapes. According to
the International Federation of the Phonographic Industry (IFPI), 2.4 billion pre-recorded CDs
and 1.3 billion pre-recorded cassette tapes were sold worldwide in 1998.39
The Matrix team
could also go after the 1.3 billion blank cassette tapes sold each year on a worldwide basis.40
Other Plays — Gaming and Other Pre-Recorded Content
In 1998, Masked ROM was a $909 million market. While sales of Masked ROM were expected
to decrease at a compound annual growth rate of –6.5 percent between 1997 and 2002 (see
Exhibit 5), the Matrix team believed it could still find compelling opportunities as a substitute in
applications where Masked ROM was traditionally used.
Gaming was one of the hottest consumer applications where low-cost, high-density Masked
ROM was being used. In 1999, the gaming software industry was poised to exceed $7 billion on
the sale of 200 million games.41
Roughly 60 million of these games were for portable, handheld
gaming units that had an estimated $2 to $5 of memory included on the bill of materials for each
game cartridge. If Matrix could displace masked ROM in this market, it faced an opportunity
between $120 million and $300 million. Aside from being less expensive and offering a higher
35
Pucel, op.cit.
36
Ibid.
37
Ibid.
38
Hause, “1999 Consumer Device Year in Review.” op.cit.
39
Data provided by Matrix Semiconductor Inc.
40
Ibid.
41
Kevin Hause, “What to Play Next: Gaming Forecast,” IDC, December 1999.
p. 13
14. Matrix Semiconductor Inc. SM-126
density than Masked ROM, Matrix felt its technology had at least one other key advantage —
field programmability. Typically, Masked ROM had to be programmed at the factory during
manufacturing. However, content, data, or files could easily be added to Matrix memory chips
anytime, anywhere.
In the game business, a key part of success was managing the inventory challenges associated
with having many different game titles. Companies typically struggled to predict which titles
would be best sellers and which would be slow sellers—often finding out only when sales started
to spike during peak seasons. With Masked ROM, it could take months to adjust production at
the factory and get the product to the retail outlets to catch up with demand. With Matrix
memory, a game publisher could respond much more quickly. As Segers put it, “If I’m a game
publisher, I can buy and build up blank [Matrix memory] cards, and have them programmed one
day away from the retail counter at a regional distribution center (eventually even at the point of
sale). With this model, I can guarantee that I never really run out of my most popular titles and I
don’t sink a lot of money into excess inventory or unpopular titles.”42
The same advantages associated with field programmability would also hold true for other pre-
recorded content markets (e.g., e-books, electronic maps, other digital references) into which
Matrix could potentially expand over time.
To Brand or Not to Brand . . .
As they considered these potential product applications for Matrix technology, Steere recalled,
“There was a lot of excitement in the team early on about all of the cool consumer products
really cheap memory could enable. We talked a lot about whether Matrix should try to create
our own brand of products that would take advantage of our memories.” For example, Johnson
liked the idea of making a “disposable” MP3 player where the album and the player were one-
and-the-same, all for the cost of a CD. Farmwald suggested the possibility of building an MP3
player the size of a cigarette lighter.
Another alternative was to brand Matrix memory cards and take them directly to consumers and
retailers under the Matrix name, just as Toshiba had done with SmartMedia and SanDisk had
done with Compact Flash. Because 3-D memory would be new, exciting, and different, the
Matrix team liked the idea of making a name for itself. Additionally, this strategy could create
market “pull” if the product caught on with consumers, and it could more easily support cross-
market penetration. It would also enable Matrix to avoid some of the margin stacking it would
face if it chose to sell through OEMs. On the other hand, going through OEMs, embedding
Matrix memories in other name brand products, would likely provide the company with a faster
ramp-up. If the company could align itself with the “big name” companies in its target
market(s), Matrix would also take advantage of existing, proven sales channels and established
brand awareness.
Choosing the Right Business Model: Who Is Matrix?
As a member of the board, Dennis Segers was regularly involved in advising the team on key
strategic decisions. Initially, the founders sought out Segers for his insights regarding selection
42
The Wall Street Transcript.
p. 14
15. Matrix Semiconductor Inc. SM-126
of the company’s business model, and they relied on him heavily when debating this issue.
There were three primary models the company could pursue: it could license its intellectual
property to other manufacturers, acquire its own fabrication facility and build its own chips, or
pursue a fabless manufacturing model. While this decision would be driven, in part, by the
financials behind each option, it also had strong implications on the type of company Matrix
wanted to become.
Licensing
Licensing in the semiconductor industry had become a multi-million dollar business called the
intellectual property (IP) market. Companies like ARM and Rambus were the leaders,
designing, developing, and then trading their technology on an open market for other companies
to build into their products. Licensees typically paid an upfront licensing fee and then a 1 to 5
percent royalty on products manufactured using the technology. The licensor incurred little or
no cost-of-goods-sold, but had to spend heavily on research and development to keep its IP on
the leading edge. Negotiations and regulation of agreements also tended to be costly.
To be successful, a licensor needed a high volume of “design-ins” to sustain its profitability—
particularly since licensors commonly faced a constant downward pressure from their licensees
on royalty fees. High volume licensing demanded that the company’s technology could be easily
productized and transferred to a buyer with limited support requirements. Otherwise, the
agreement would not be cost nor time effective for either party.
This requirement put Matrix at a disadvantage. “The process technology portion of Matrix’s
intellectual property was becoming so complicated, it would be difficult to quickly and easily
show multiple foundries [on an open market] how to do it,” recalled Segers. However, because
many of the company’s founders came from (or were involved in) Rambus—a company that had
become highly successful in the IP market—the team took a hard look at whether or not it could
make this model work. While this alternative would give them the least amount of control in
getting their product to market, it required the smallest up-front investment to get the company
going.
Acquiring a Fab
Acquiring or building a semiconductor foundry to become an integrated device manufacturer
(IDM) would cost anywhere from $100 million to $2 billion depending on the size and location
of the facility, the age of the equipment, and the sophistication of process technology run in the
fab. In addition to these fixed costs, the company would have to cover materials, ongoing
operating expenses, and the significant overhead associated with the highly specialized staff
required to manage production and build chips. IDMs also had to continually invest significant
time and effort into upgrading their process technology, driving down defect rates, and other
initiatives that kept them on the leading edge.
For these reasons, acquiring a fab was typically too expensive for most start-ups to even
consider. However, Matrix was not a typical start-up. Given his highly successful background
in launching companies, Farmwald had an impressive record for raising capital. While it would
be a challenge to raise enough money to buy a fab, it was not out of the question, and Farmwald
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16. Matrix Semiconductor Inc. SM-126
didn’t want to rule out any business model until the team was certain what option it wanted to
pursue.
Having its own fab would give Matrix the greatest amount of control over the production of its
technology. The company would literally get to build its own chipsa concept that was
appealing to the team based on its high level of enthusiasm and strong vested interest in the
technology. It would also enable the company to achieve a higher gross margin since there
would be no production partner to pay. The greatest downside, from the team’s perspective, was
its lack of experience in running a fab and the strain this would potentially place on its key
resources (e.g., taking time and energy away from R&D).
Pursuing Fabless Manufacturing
The third potential option was to outsource the manufacturing of Matrix’s chips to a third-party
foundry. This would allow Matrix to focus on the design and marketing of its products without
the strain of acquiring and operating its own manufacturing facility. The fabless approach was
becoming increasingly prevalent in the semiconductor industry among successful companies like
Xilinx and SanDisk. Outsourcing production would play to the strengths of the Matrix team,
and enable the company to take advantage of state-of-the-art facilities and expertise without such
a significant up-front investment. It would also allow Matrix to keep its internal infrastructure
and its team lean and flexible until it started to generate revenue.
However, the fabless approach was not without challenges. First, Matrix would have to initiate
the arduous process of identifying the right production partner. With many of these potential
outsourcers located offshore, it would take time, patience, and plenty of travel to remote facilities
before Matrix would be able to enter into an agreement. Additionally, the company would have
to negotiate aggressively to get an outsourcing partner to take on its business. Not only did
Matrix have an innovative, cutting-edge technology design, it required a unique, non-standard
process to build its product. While no new materials or equipment were needed to execute the
process, the production steps had to be performed in non-standard order. Many fabs would be
reluctant to allow such disruptions in their facilitiesespecially for a small start-up enterprise
with limited clout and capital. If Matrix tried to pursue an approach that included the use of its
proprietary production process, the company would essentially be creating a new (and unproven)
variation on the traditional fabless business model.
The team also worried about the cost model of the fabless approach. A typical foundry would
seek a 35 percent gross margin over the cost of production. Considering that a key component of
the company’s value proposition centered on being a low-cost producer of memory, Matrix
needed to be certain that it could cover the cost of fabless production and realize an acceptable
margin for itself, all while establishing a price-competitive position in the market. As they
evaluated this alternative, Steere observed that, “Most successful fabless chip companies were
value-added design companies. They were selling products at higher average sales prices that
allowed them to sustain a higher-cost production infrastructure. Their value-add was in their
leading-edge designs, not being a high-volume, low-cost commodity product supplier like Matrix
intended to be.”
p. 16
17. Matrix Semiconductor Inc. SM-126
Given these numerous challenges, the team wondered whether it could become successful
attempting a fabless manufacturing model.
MOVING INTO THE NEXT DIMENSION
As the company’s primary business and marketing representative, it was Steere who inherited
the challenge of weaving the Matrix “story” into a cohesive, compelling strategy. With input
from Lee, Johnson, Segers, and all the members of the Matrix team, he had a wealth of
information—and some differing opinions—to consider. Steere sat down to think through the
company’s alternatives. Should Matrix develop an OTP or a read/write product? What markets
should the company pursue? Which business model made the most sense? Excited about the
opportunities ahead, he began crafting his personal recommendations.
p. 17
18. Matrix Semiconductor Inc. SM-126
Exhibit 1
The Matrix Semiconductor Team in 1999
Monty Cleeves
Monty Cleeves is a veteran of the semiconductor industry with extensive experience managing
volume production operations and leading-edge process development programs. He began his
career at Fairchild Semiconductor, gaining experience in all aspects of process engineering
including yield, cycle time, quality, cost, and process development. After 12 years at Fairchild,
Cleeves joined Cypress Semiconductor where he spent six years rising to the position of senior
manager of process development. As Cypress grew into an international supplier of ICs, he
became recognized as one of the leaders guiding Cypress’ technical development. Cleeves
rounded out his pre-Matrix experience leading the process integration for Candescent’s flat panel
displays.
Mike Farmwald, PhD
Mike Farmwald is highly respected as an entrepreneur with one of the most successful track
records in Silicon Valley. Early in his career, with a B.S. degree in mathematics from Purdue
University and a PhD in computer science from Stanford University, Farmwald joined Lawrence
Livermore National Laboratory as an architect on the S1 supercomputer. In 1986, he co-founded
FTL, a supercomputer company that merged with MIPS Computer Systems that same year and
served as chief scientist for high end systems. After MIPS, Farmwald was named an associate
professor of electrical and computer engineering at the University of Illinois and began work on
Rambus, a company he co-founded to address the performance gap between microprocessors and
the memory they rely on to obtain data. At Rambus, Farmwald served as vice president and chief
scientist. Other companies Farmwald has founded include Chromatic Research, a multimedia
accelerator company acquired by ATI, and Epigram, the home networking company acquired by
Broadcom.
Mark Johnson
Mark Johnson is widely regarded as one of the leading integrated circuit designers in Silicon
Valley. Among his accolades, Johnson won the International Solid State Circuits Conference
(ISSCC) Best Paper Award twiceconsidered to be among the most prestigious awards in
semiconductor circuit design. After receiving a BSEE degree from Rice University and SM
degree from MIT in 1982, Johnson joined Mostek where he designed NMOS and CMOS
dynamic RAMs, from 64K to 1 megabit. In 1986, Johnson moved to MIPS Computer Systems
where he did circuit designs for their initial microprocessor products (R2000 and R2010). From
1992 to 1996, Johnson designed high-speed, mixed-signal circuits at Rambus, Inc. He worked as
an independent consultant, designing circuits including the PLL and temperature sensor/bandgap
blocks on the AMD K6 microprocessors before joining Transmeta Corporation in 1996. As an
early employee at Transmeta, Johnson worked as a circuit designer on the Crusoe
microprocessor.
Thomas Lee, PhD
Thomas Lee is a Stanford University professor and highly respected engineer. He holds S.B.,
S.M. and Sc.D. degrees in electrical engineering from the Massachusetts Institute of Technology
and began his career in industry as a circuit designer at Analog Devices building high-speed
p. 18
19. Matrix Semiconductor Inc. SM-126
clock recovery devices. Lee joined Rambus in 1992 to develop high-speed analog circuitry for
CMOS RAMs. He also contributed to the clock and PLL circuitry on several microprocessors,
notably the K6 and K7, at Advanced Micro Devices, as well as the StrongARM and Alpha CPUs
at Digital Equipment Corporation. In 1994, Lee was invited to join the Electrical Engineering
faculty at Stanford University, where his research focused on gigahertz communication circuits,
both wireline and wireless. He also won the distinguished ISSCC Best Paper Award twice.
Dennis Segers
An industry veteran, Dennis Segers began his career at Mostek Corporation as a product
development engineer for Mostek's 16K DRAMs. Over nine years, Segers managed memory
product engineering, design, and technology development for Mostek. In 1986, National
Semiconductor (formerly Fairchild) hired Segers to rebuild and refocus a large product
development organization introducing advanced BiCMOS memory ICs. He was promoted to
product line director for the High Performance Memory Group before leaving in 1988 to join a
start-up, Summit Micro Circuits, as president and co-founder. Summit specialized in contract
design of high performance memory products and was profitable from its inception. In 1990,
Benchmarq Microelectronics acquired Summit and Segers became a vice-president and general
manager for three years before moving to Xilinx. At Xilinx, he was the senior vice president and
general manager of the Advanced Products Group where he was credited with growing a multi-
billion dollar business.
Dan Steere
After graduating with a B.A. in computer science from Harvard University, Dan Steere joined
Citibank's Illinois Consumer Banking Business as a branch manager, driving new approaches to
sales and local marketing, and the use of technology in retail banking. After receiving an MBA
from Stanford University, Steere joined Intel. At Intel, he held a series of marketing positions
focused on mobile computing and the consumer electronics industry. As director, Strategic
Integration Operation, he cultivated Intel's corporate strategy for the consumer electronics
industry. Following Intel, Steere became an early entrant into the business-to-business Internet
market as business unit manager at pcOrder.com. In that role, he was responsible both for
managing the Company’s key computer manufacturer relationships and for relaunching the
company’s core service, TechBuyer Online.
Vivek Subramanian, PhD
Vivek Subramanian, a recognized expert in polysilicon physics and technology, holds a
consulting assistant professor position at Stanford University. Subramanian held numerous other
consulting and advisor positions for leading semiconductor companies. He sat on the
Technology Advisory Board for ITU Ventures and advised Matrix on process and device
technology development. Subramanian received an MS and PhD in electrical engineering from
Stanford University. He was a member of the Institute of Electrical and Electronic Engineers
(IEEE) and served on the technical committee for the Device Research Conference and the
International Electron Device Meeting.
Source: Complied from Matrix Semiconductor Inc., http://www.matrixmemory.com/ (May 10, 2004) and additional
information provided by the company.
p. 19
20. Matrix Semiconductor Inc. SM-126
Exhibit 2
Glossary of Technical Terms
Chip – Chip refers to the actual integrated circuit which is cut from the wafer after fabrication.
Typical chips are 100 to 400 mils on a side and can contain several hundred thousand
transistors.43
CMOS – Complementary Metal Oxide Semiconductor (CMOS) refers a semiconductor process
that produces a specific kind of integrated circuit used in processors and memories.44
Diode – A semiconductor device which conducts electric current run in one direction only. This
is the simplest kind of semiconductor device.45
Fabrication - The act of constructing something (e.g., integrated circuits).46
Integrated Circuit - A microelectronic semiconductor device consisting of many interconnected
transistors and other components. ICs are constructed (fabricated) on a small rectangle (or die)
cut from a Silicon wafer.47
Polycrystalline Silicon (poly, polysilicon) – Polysilicon is a material that can be used as a
conductor. In the wafer fabrication process, polycrystalline silicon is deposited on the wafer
surface (usually in a low-pressure, high-temperature process) and etched into patterns to form
connections between transistors. It is also used to form the “gate” structure of a transistor (the
gate turns the transistor on or off). Its main advantage as a material in processing is that it serves
as a conductor while also being able to withstand high temperature processing. While other
conductive materials (such as aluminum) cannot withstand the high temperatures required by
wafer processing and must be applied only at the end of the process, poly can be applied in the
middle of the process and subsequently be covered by other layers.48
Semiconductor - A material, typically crystalline, which allows current to flow under certain
circumstances. Common semiconductors are silicon, germanium, gallium arsenide.
Semiconductors are used to make diodes, transistors and other basic "solid state" electronic
components.49
Substrate – The body or base layer of an integrated circuit, onto which other layers are
deposited to form the circuit. The substrate, usually silicon, is used as the electrical ground for
the circuit.50
The substrate is the material or substance on which an enzyme acts when silicon is
“doped” with an impurity like phosphorous, arsenic, or boron to make it a semiconductor of
electricity.
43
“Intel Corporation (A): The DRAM Decision,” GSB No. S-BP-256.
44
Techdictionary.com, http://www.techdictionary.com/index.html (May 10, 2004).
45
Denis Howe, Free Online Dictionary of Computing, http://foldoc.doc.ic.ac.uk/foldoc/index.html (May 10, 2004).
46
Lexico Publishing Group LLC, Dictionary.com, http://dictionary.reference.com/ (May 10, 2004).
47
Howe, op.cit.
48
“Intel Corporation (A): The DRAM Decision.”
49
Howe, op.cit.
50
Ibid.
p. 20
21. Matrix Semiconductor Inc. SM-126
Transistor – First invented by Bell Labs in 1948, the transistor is a solid-state device which can
be thought of as an electrical switch. It is a three-terminal device: voltage applied to one
terminal opens and closes the circuit between the other two terminals. Transistors are the
fundamental building block for electronic and logic circuitry.51
Wafer – A wafer is a slice of silicon which serves as the substrate for integrated circuits. Each
wafer contains up to several thousand chips.52
51
From a Stanford University case study entitled “Intel Corporation (A): the DRAM Decision,” GSB No. S-BP-256.
52
Ibid.
p. 21
22. Matrix Semiconductor Inc. SM-126
Exhibit 3
Matrix Semiconductor 3-D Memory Chips
Memory cells
Standard CMOS transistors and
interconnections
A vertical stack of memory cells can store eight bits of information in the area usually allotted to
just one bit.
Layers of polysilicon that form the honeycomb of memory cells are interconnected by “vias”
(vertical columns). The vias are connected by tungsten wires (bright structures).
The values assigned to each memory bit are stored permanently in this 3-D memory chip when
antifuses are blown (dark spots in center), connecting two halves of a circuit.
Source: Photographs provided by Matrix Semiconductor Inc.
p. 22
23. Matrix Semiconductor Inc. SM-126
Exhibit 4
Description of Matrix Technology
In 1997, Farmwald and [Lee] started exploring 3-D chips again and realized that two key
enabling technologies, developed for other purposes, made 3-D circuits truly practical for
the first time. One was a technique to lay down polysilicon so that each island of a single
crystal is large enough to encompass many memory cells or transistors. The second
advance was a way to flatten each coat of new material so that the chips don't rise
unevenly like towers built by drunken bricklayers.
[Matrix] can thank the flat-panel-display industry for the first breakthrough. Its engineers
figured out how to make millions of transistors from a thin film spread over a large,
amorphous substrate (glass, in their case; other materials in ours). Thin-film transistors
now populate the display panels of virtually every laptop computer. Part of the secret is to
deposit the silicon at about 400 degrees Celsius as an extremely smooth (though
amorphous) film, then to cook the entire wafer uniformly above 500 degrees C for a few
minutes. This converts the film to polysilicon with regular crystalline regions of a micron
or more in diameter. Although LCD panels require only a single layer of transistors, the
same machines that make the panels can also manufacture multilayer devices.
The second key-enabling advance, called chemical-mechanical polishing (or CMP),
emerged from IBM's research labs in the late 1980s. Back then, chip designers considered
it risky to add two or three layers of metal on top of the silicon wafer because each new
layer added hills and valleys that made it difficult to keep photolithographic patterns in
focus.
To eliminate the bumps in each layer, process technologists adapted a trick that lens
makers use to polish mirrors. The basic technique was used on all Intel 80486 processors:
after each coating of silicon, metal or insulating oxide is added, the wafer is placed face-
down on a pad. Spindles then rotate the pad and wafer in opposite directions while a
slurry of abrasives and reactive alkaline chemicals passes in between. After mere minutes
of polishing, the wafer is flat to within 50 nanometers, an ideal substrate for further
processing. With advances in CMP machines, seven and eight layers of metal have
become common in microchip designs; patience seems to be the main limiting factor in
adding still more layers.
Building directly on these 2-D technologies, [Matrix has] made 3-D circuits by coating standard
silicon wafers with many successive layers of polysilicon (as well as insulating and metallic
layers), polishing the surface flat after each step. Although electrons do not move quite as easily
in polysilicon as they do in the single-crystal kind, research has produced 3-D transistors with 90
to 95 percent of the electron mobility seen in their 2-D counterparts.
Source: Excerpt from an article by Thomas H. Lee entitled “A Vertical Leap for Microchips,” Scientific
American.com, January 2002.
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24. Matrix Semiconductor Inc. SM-126
Exhibit 5
Worldwide Semiconductor Revenue by Product Segment ($M)
1997 1998 1999 2000 2001 2002 CAGR (%)
1997-2002
Bipolar digital 1,594 1,430 1,285 1,153 1,035 942 -10.0
Memory 29,335 26,483 32,127 39,975 54,079 64,098 16.9
--DRAM 19,798 17,153 21,915 28,169 40,095 48,515 19.6
--SRAM 3,842 3,658 3,965 4,479 5,008 5,314 6.7
--ROM 1,017 909 868 843 780 726 -6.5
--EPROM 740 662 626 589 533 493 -7.8
--EEPROM 1,236 1,369 1,576 1,736 1,958 2,101 11.2
--Flash 2,702 2,732 3,177 4,159 5,704 6,949 20.8
MOS microcomponents 47,767 56,636 67,448 80,249 93,657 102,728 16.6
MOS logic 21,047 22,904 26,010 29,983 35,265 39,597 13.5
Analog 19,789 22,435 25,575 29,448 33,431 36,774 13.2
Discrete 13,165 13,906 15,454 17,161 19,215 20,752 9.5
Optoelectronics 4,506 4,902 5,401 6,012 6,790 7,537 10.8
Total 137,203 148,696 173,299 203,981 243,472 272,427 14.7
Growth (%) 4.0 8.4 16.5 17.7 19.4 11.9 --
Note: In 2002, the U.S. is expected to account for $94.5 billion of the total semiconductor
market (34.7% market share)
Source: Compiled from IDC Semiconductor Market Forecast and Review 1997-2002 (March 1998).
p. 24
25. Matrix Semiconductor Inc. SM-126
Exhibit 6
Price/Performance Gap in 1999 Memory Market
Disk Drive Matrix 3-D Semiconductor Memory
Mechanical Drive Solid State Solid State
Millisecond Access Microsecond Access Nanosecond Access
$100 Minimum Cost $5 Minimum Cost $5 Minimum Cost
Lowest Cost per Bit Low Cost per Bit High Cost per Bit
$45B Category (Fixed and
Removable Storage)
“$XX B” Category (Matrix 3-D) $25 B Category (DRAM, Flash,
SRAM, ROM)
Source: Complied from presentations given in 1999 by Matrix Semiconductor Inc.
p. 25
CostperMB
$0.01
$0.10
$1.00
Access Time
1msec 1µsec 1nsec
Matrix 3-D
DRAM
Flash
SRAM
Other
Removable Disks
Fixed Disks
CostperMB
$0.01
$0.10
$1.00
Access Time
1msec 1µsec 1nsec
Matrix 3-D
DRAM
Flash
SRAM
Other
Removable Disks
Fixed Disks
26. Matrix Semiconductor Inc. SM-126
Exhibit 7
Non-Volatile Memory Forecast
Average Cost per MB
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
1999 2000 2001 2002
Time
AverageCostperMB
ROM
Flash
Hard Drive
Matrix3-D
1999 2000 2001 2002
ROM $0.83 $0.59 $0.43 $0.32
Flash $2.58 $1.80 $1.39 $1.00
Hard Drive $0.018 $0.010 $0.006 $0.004
Matrix 3-D $0.23 $0.15
Note: Whereas ROM, Flash, and Matrix 3-D memory could be purchased in relatively small
increments (e.g., 32MB, 64 MB), hard disk drive storage was only available in relatively large
increments. The average selling price for a hard disk drive in 1998 was $177.
Source: Compiled from IDC Worldwide Memory Forecast (October 1998), IDC Winchester Disk Drive Market
Forecast and Review (June 1999), and data provided by Matrix Semiconductor Inc.
p. 26
27. Matrix Semiconductor Inc. SM-126
Exhibit 8
Worldwide Flash Card Shipments by Application (1998)
Digital Cameras
74%
All Other
Applications
9%
Industrial
Applications
10%
Smart Handheld
Devices
5%
Digital Music
Players
1%
Source: Compiled from IDC Semiconductor Storage Bulletin (September 1999).
p. 27
28. Matrix Semiconductor Inc. SM-126
Exhibit 9
Worldwide Flash Card Market Forecast by Application
1998 through 2003
0%
10%
20%
30%
40%
50%
60%
70%
80%
1998 1999 2000 2001 2002 2003
PercentageofUnitShipments
Digital Cameras
Internet Music Players
Smart Handheld
Devices
Industrial Applications
Other Applications
Source: Estimated from IDC Semiconductor Storage Bulletin (September 1999).
p. 28
