Time was in the ASIC market when internal manufacturing was seen as a strength. Though the fabless semiconductor business model became widely accepted for standard components, crafting complex custom ICs still required a tight coupling of design and process.
Not so anymore, say analysts and executives. They believe the outsourcing trend sweeping the industry will extend to the creation of virtual ASIC companies that function solely as project managers of complex, fully contracted semiconductor supply chains.
The outsourced infrastructure that allowed fabless chip suppliers to flourish has so advanced that it now rivals the capabilities of many leading ASIC suppliers, according to industry executives who met last week in Santa Clara, Calif., to discuss the model's pros and cons. The rising costs of fab ownership and technology development have also led even the most adept chip makers to farm out some portion of their production.
"The fabless ASIC model is a result of fundamental trends: people need to manage complexity," said Jack Harding, chairman, president, and chief executive of eSilicon Inc., a Santa Clara start-up that has become the poster child for the emerging fabless ASIC industry. "By outsourcing those tasks that are not their core competency, they can focus on what differentiates them in the market."
Harding claims the company's business model offers flexible levels of engagement, "best of breed" technology and services-including online supply chain management tools-and shorter time-to-market.
"I predict that within 12 months, every company in the world that buys ASICs today will be considering this as a business model," Harding asserted.
Fabless model arises
The transition has already begun, according to new research from Dataquest Inc., San Jose. A survey of 500 system designers revealed that OEMs increasingly entrust their ASIC designs to nontraditional sources such as independent design firms and fabless companies, or are managing designs internally but contracting chip fabrication to pure-play foundries, a model known as customer-owned tooling (COT).
The trend has IBM Microelectronics-ranked by Dataquest as far and away the world's largest ASIC supplier-looking over its shoulder.
"The traditional ASIC company has to be able to fulfill all the things the fabless ASIC company is talking about doing. If we don't, then we will not be able to compete," said Chris King, vice president of semiconductor products at the East Fishkill, N.Y., division of IBM Corp.
But Big Blue is not rolling over. The fabless model has created welcome competition and forced entrenched chip giants to innovate, King said. It has also allowed IBM to manage internal capacity by outsourcing, she noted.
However, King rejected the notion held by some foundry executives that within 10 years nearly all ASIC suppliers will be fabless.
While acknowledging that third parties now supply much of what used to be the exclusive dom ain of the fabbed supplier-design services, design tools, application-specific IP, manufacturing technology, and packaging-King insists that traditional ASIC vendors still have the advantage when it comes to marrying these elements.
"Our real leverage is going to be in continuing to develop leading-edge manufacturing technology, packaging, and system-level solutions around the needs of our customers," she said. "But the issue of having an absolute guarantee [of working silicon] from one company, one face, is going to be critically important."
Model has its skeptics
Fabless veteran Mike Hackworth said he, too, is skeptical of the emerging model, and warned that would-be fabless ASIC companies and their potential customers should approach the market carefully.
"Anyone who's been in this domain understands there's a very tight linkage between design and process," said Hackworth, chairman of Cirrus Logic Inc., Austin, Texas, one of the industry's first fabless chip companies.
While h e was at Signetics in the early 1980s, foundry customers "didn't have the infrastructure in place to be competent users of our wafers," Hackworth said, adding that manufacturing process know-how was a primary consideration when he later co-founded Cirrus. "We knew from the beginning that at the end of the day, our real value was creating the silicon architecture."
Hackworth said ASIC suppliers should re-examine their core value: if it's in the manufacturing process, then a fab is necessary; if it's IP or vertical- application expertise, there's a legitimate argument for the fabless model.
Skeptics also questioned the ability of a small fabless ASIC company to secure ample wafer capacity to support its customers. In the current market, getting a guarantee of wafers wouldn't be difficult. But when fabs are again running full loads, will fabless ASIC suppliers be able to compete?
Foundries say yes. Taiwan Semiconductor Manufacturing Co. Ltd., Hsinchu, places high value on its "emerging" customers, w hich might some day become top-tier players, said Roger Fisher, vice president of corporate marketing.
However, Hackworth noted that when wafers were scarce during the 1994-95 boom, Cirrus was squeezed out of factories as foundries made room for new customers willing to buy capacity at a premium.
Competition for capacity will increase as IDMs look to foundries to balance their internal manufacturing ability, said Dataquest analyst Bryan Lewis.
"Although it's possible to make agreements with foundries to guarantee access to capacity, these deals may be torn up when capacity is overbooked and a big customer comes calling," he said.