31 January 2005

Does fabless compound win out too?

An iSuppli Corp report Core Silicon Strategies (ASIC & PLD), says that fabless
chip makers in the "core silicon space" are enjoying lower costs and much
higher gross margins than their integrated device manufacturing (IDM) counterparts.

In the market for core silicon which iSuppli defines as consisting of ASICs, standard products and PLDs, fab ownership is no longer a prerequisite for success.

With the transition to 90nm silicon, built on 300mm wafers, fabless core-logic suppliers enjoy "some added benefits that will propagate throughout their financial results, from increased sales to higher margins," reports iSuppli. "IDMs and foundries benefit as well, but likely to a somewhat lesser extent."

iSuppli compared the gross margin performance by four fabless core-silicon providers—Altera, Broadcom, Qualcomm and nVidia—with two IDMs, STMicroelectronics and LSI Logic. Taiwan Semiconductor Mfg Co. Ltd, the leading foundry, is also included for comparison purposes.

In general, the fabless companies show substantially higher gross margins than the IDMs. This margin gap reflects the fact that a finished semiconductor product is really the sum of many smaller products, including the intellectual property (IP).

Value of IP is usually much higher in core silicon applications than the chip itself. Other physical components, packaging and test, consequently commands a higher margin, concludes iSuppli.