Ed’s Threads 070302
Musings by Ed Korczynski on March 02, 2007

Hatching new fabless business models
The old fabless business model is dead...long live the new fabless business models! Tracking recent evolutionary changes to the business of fabless IC manufacturing was the topic on the table at a Feb. 28 luncheon panel discussion hosted by the Fabless Semiconductor Association (FSA) and moderated by Charles DiLisio of D-Side Advisors.

The old fabless business model has broken down and needs to be cast aside, so the argument goes, to give way to two new models and a small number of “virtual IDMs.” The largest of today’s fabless companies—such as nVidia, Qualcomm, Altera, and even Microsoft—basically function like IDMs, with huge staffs to manage their dis-aggregated supply chains doing full-custom chips at advanced nanometer-era nodes. They possess the necessary resources to manage all of the high risks in designing nanometer-era chips themselves on an ongoing basis.

For everyone else working on new chip designs, the key issue is this: who manages the risk in manufacturing? In the old days, the design rules from the foundry captured the risk—if you stayed within the rules, the wafers would yield. Today, with a leading full-custom chip design costing at least $10 million, and with consumer applications needing to hit tight market windows with high volumes, chip designers are faced with a choice: either program a customizable logic chip that someone else has already designed, or do a custom design with some new way of managing risk.

Robert Blake, VP of product planning at Altera Corp., understandably supports the platform-based design model, touting the lack of risk in time-to-market for consumer applications. “Being out first with new capabilities is the difference between being reasonably successful and winning,” he commented. “You have to clearly demonstrate some leadership in delivering technology to the marketplace, but you have to balance the risk.”

The full-custom design option for a small company requires a radically new business model, according to DiLisio. He envisions a “Hollywood movie studio model,” where a “producer” with a “script” and a few star “actors” assembles the rest of a team to make a movie for a set period of time. When the movie is finished—i.e., the chip is designed and yielding in silicon—the team dissolves.

How such a business model would be managed (or even funded by VCs) remains to be seen. To simplify operations, companies have outsourced all non-core-competencies, yet this results in a “simplicity paradox,” according to Jack Harding, chairman, president, and CEO of eSilicon Corp. “It gets harder and harder to manage a dis-integrated supply chain. With the supply chain lengthening, 90% of the people are outside of your direct control,” he pointed out.

To help the chip “producer” manage the risk in future custom designs, the FSA recently released its Hard IP Quality Risk Assessment Tool, which works across seven criteria/categories: IP design, integration, verification, process technology, product documentation, reliability, and test. Raminderpal Singh from IBM's systems and technology group is the technical lead for the project.

A fabless start-up company today can go down one of two roads: either pay one programmable logic company to manage the risk, or keep the risk and manage an ad hoc team to work with the FSA’s new framework. Either way, from the fab perspective, these changes should result in more manufacturable designs, and therefore fewer unhappy customers.

— E.K.
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070302: Hatching new fabless business models

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