For every sell off there is a buy in. So, of the two companies that have agreed to the transfer of an Oregon wafer fab, IDT and Alpha and Omega Semiconductor, which is right?
When a stock market index suddenly trends downward, or house prices plummet, it is very easy to focus on the sellers and talk about a sell-off, or people "getting out" of equities, commodities, property etc. But in every sales transaction there is a buyer.
This is one reason why the sale of a Hillsboro, Oregon wafer fab for $26 million offers an interesting microcosm of the global semiconductor industry.
With this move the vendor Integrated Device Technology Inc. moves from being a fab-lite chip company to being fabless. At the same time the buyer, Alpha & Omega Semiconductor Ltd., moves from being fabless to being fab-lite, as it boot-straps itself into a more prominent place in the industry.
So what is the difference between the two companies?
IDT was founded in 1980, by solid-state design process engineers mainly from Hewlett Packard, and fundamentally linked into Silicon Valley. The company's initial push was to develop high performance circuits on the then emerging CMOS process variant. The company developed its own proprietary CMOS process and chose military-grade SRAMs as its market entry vehicle and quite quickly moved up to offering high-speed RISC processors. In the absence of a mature foundry industry at that time manufacturing was a fundamental part of IDT's early value proposition.
However, as Malcolm Penn, chief analyst with Future Horizon's would say, fabless is usually the eventual conclusion of the adoption of a fab-lite strategy and IDT is now reaching that point.
But A&O is going in the other direction. A&O was founded in 2000 as a fabless company with its origins in China, although it is now officially registered in Hamilton, Bermuda. The company stalled a Hong Kong stock exchange listing in 2008 but went public on Nasdaq in 2010 and has its main office in Sunnyvale, California. The company made a net income of $37.8 million on sales of $361.3 million in the year to June 30, 2011.
So who is the smarter: A&O which is spending $26 million to acquire a 200-mm wafer fab so that it is not always blown about by the whims of its supplying foundries, or IDT who is gaining $26 million while letting go the responsibility of feeding a fab?
At one level the answer depends on the detail of the fab, its equipment, staffing and on the price. But on another it reflects a philosophical position as to whether controlling the means of production is an inherently vital part of business.