Gartner Dataquest Says Semiconductor Industry Is Progressing to Fabless ASIC Companies; Gartner Dataquest Provides Outlook for the Industry at Upcoming Fabless ASIC Briefing.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--April 9, 2001

The cost of an IC manufacturing facility (fab) is now so high that more semiconductor companies will begin to outsource some or all of their manufacturing needs, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE IT and ITB).

Traditional ASIC companies have begun to rely on foundries to provide some manufacturing capacity, even as they have insisted that manufacturing remains a key differentiator. However, Gartner Dataquest analysts said a new breed of ASIC supplier is emerging that takes the outsourcing model to its logical conclusion by relying entirely on foundries for manufacturing capacity. These are known as fabless ASIC companies.

"The key advantage of the fabless ASIC company business model is that it transfers a number of the fixed costs that are associated with a traditional ASIC company to third parties," said Bryan Lewis, chief analyst of ASIC research for Gartner Dataquest's Semiconductors Worldwide group. "Those charges are then charged back to the fabless ASIC company in the form of variable costs that occur when a particular facility, such as fabrication or packaging, is used. The approach avoids the capital burden of owning foundries and packaging plants and developing process technology."

There are number of developments that have eased the shift to the fabless model. Three key developments have been:

- Foundry companies are at the leading edge of manufacturing process
development and are among a declining number of companies that can amortize
enough product volume to underwrite the rising costs of fabs.

- There is also the existence of third-party intellectual property portfolios
that give the fabless ASIC companies access to a suite of chip-building blocks
that they have not had to develop themselves.

- The development of e-commerce tools and the rising use of the Internet have
provided a global communications and commerce backbone that make it much easier
for fabless ASIC companies to create "virtual IC delivery teams" from
partnerships of independent companies.

While fabless ASIC companies are a natural extension of the trend to outsourcing in the semiconductor industry, Gartner Dataquest analysts said there are risks involved. Fabless ASIC companies must be able to execute a complex business model.

"Fabless ASIC companies face a difficult task in coordinating so many outsourced facilities, services and technologies into a cohesive customer offering," Lewis said. "Although many of the elements of a fabless ASIC company offering are rapidly maturing, the fabless ASIC company relies on all of these elements working well together to succeed. This is why we think ASIC buyers should consider negotiating penalty clauses for late or nondelivery of promised volumes in deals with fabless ASIC companies."

Lewis will provide his analysis on this emerging market at the upcoming executive breakfast briefing, "How will the new fabless ASIC trend affect you?" which will be held April 18 at TechMart in Santa Clara, California. eSilicon, in collaboration with Gartner Dataquest and CMP Media's EDTN, will present a panel discussion to define the new model and explore its ramifications on the ASIC industry.

Lewis will be joined by Mike Hackworth, chairman, Cirrus Logic Corporation; Jack Harding, chairman, president and CEO, eSilicon Corporation; Chris King, vice president and general manager, IBM Microelectronics; Bill McLean, president of U.S. operations, Parthus Technologies; and Mike Pawlik, vice president, corporate marketing, TSMC. More details on this event are available at www.esilicon.com/breakfast.html.

Additional information on the market is also available in the Gartner Dataquest Perspective "Will Fabless ASIC Companies Take Over?" This report defines the marketplace and examines the impact fabless ASIC companies will have on traditional ASIC companies, as well as its impact on foundries. To purchase this report, or subscribe to Gartner Dataquest's semiconductor research programs, please call 800-419-DATA or 408-468-8009.

Gartner Dataquest is the recognized leader in providing the high-technology and financial communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, and services sectors of the global information technology industry.

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