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Analyst rails against the fab-lite

Losing control of manufacturing
1/28/2010 04:00 PM EST
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djafer
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re: Analyst rails against the fab-lite
djafer   2/1/2010 5:17:24 AM
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The main assumption of the author is that allocation will cause a durable wafer price increase. Allocation will be gone in a quarter or two once market adjustments would have occured. However, the competition in the field of semiconductor foundries is still very tough, and the foundry offering has been steadily increasing during the last years, having more and more players around. Therefore, there is no real reason to see the fablite players suffering longterm from this allocation. In addition, major fablite players like STM or TI, will certainly get priority at the foundry side, whereas small design houses will be pushed at the buttom of the list.

ssee
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re: Analyst rails against the fab-lite
ssee   1/29/2010 5:50:49 PM
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To answer Peter Clarke's specific question about "can thousands of finance people be wrong?" Yes, thousands of people can be wrong. Look at the financial sector meltdown. All the quant and math wiz kids got a unsustainable model and for years it seemed like it was working fine. Both fab and fab-lite have room to co-exist. It depends on what product space that the company is trying to address with that model.

ScottenJ
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re: Analyst rails against the fab-lite
ScottenJ   1/29/2010 4:39:55 PM
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Just to clarify my last comment, greater than 20% growth in revenue, not ASP driven by growth in units and ASP.

ScottenJ
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re: Analyst rails against the fab-lite
ScottenJ   1/29/2010 4:37:22 PM
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ASP is well correlated with Utilization on a year-to-year basis. Due to the under investment Malcolm Penn has discussed utilization will likely be very high next year and I agree that ASPs will likely rise. My modeling for 2010 suggests greater than 20% growth. I haven‚??t looked at 2011 yet but if underinvestment continues it will likely be another strong year. In terms of Fab versus Fab-Lite, I also think the economics are misunderstood by most. I think fabless makes sense for certain business segments but not for all. If you can build and keep a 300mm fab full of sufficient scale to be economical, then instead of paying a foundry a margin you can keep the margin for yourself. But you have to keep it full and have enough ‚??scale‚?Ě. You also have to deal with the relative advantages and disadvantages of different locations.

stinky08
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re: Analyst rails against the fab-lite
stinky08   1/29/2010 12:22:35 PM
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There is always a economical scale to be paid attention on. If you have a big fab and your business is barely covering the cost then you better let it be. Fab-lite is a better approach since you can leverage the foundry and do not get chocked by foundry when things get rough! Fab-lite gives you also the possibility to preserve your knowhow and uniqueness!

Peter Clarke
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re: Analyst rails against the fab-lite
Peter Clarke   1/29/2010 11:56:35 AM
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Malcolm Penn has always been in the fabbed-is-good camp and distrustful of the fab-lite business model. But can thousands of finance people be wrong? Is fabless and fab-lite only a good strategy in times of plentiful wafer supply? Or will past supply agreements and contract price-fixes keep the fab-lite and the fabless accessing their silicon at reasonable prices? If you have experience of the situation or deep conviction let us know what you think.

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