GaAs-on-Si has significant market potential, both as a substitution technology for manufacturing traditional GaAs devices and as a new technology for monolithic integration of GaAs devices and silicon integrated circuits. As a substitution technology, GaAs-on-Si holds the potential to fundamentally change the economics of manufacturing GaAs integrated circuits and GaAs optical components. As a technology for monolithic integration of GaAs devices and silicon integrated circuits, GaAs-on-Si technology is even more interesting. In fiber optics, integration of GaAs lasers and photo detectors with silicon control circuitry will be possible.

Provided the technology works, Motorola will be able to not only lower the costs of components used in their systems, but also build novel monolithically integrated devices. However, their best strategy may be licensing the manufacturing process with a per-wafer royalty to wafer distributors. Here is a back-of-the-envelope calculation that suggests why this may be a very good strategy indeed.

It is possible to calculate an approximate upper boundary on the royalty stream that Motorola could derive from licensing GaAs-on-Si process technology. The first step is to figure out how many millions of square inches (MSI)-the common industry metric-of GaAs sell in a given year. As a rough guess, assume that the GaAs wafer market is only 2 percent of the silicon wafer market. That gives about 90 MSI of GaAs wafers per year. Given a cost per 6-inch GaAs wafer of $300, one can calculate that the total GaAs substrate market of 90 MSI is roughly $1 billion.

Now, assume that the Motorola process doubles the cost of a traditional silicon wafer to $60 for an eight-inch wafer. Motorola should be able to charge a licensing fee of anywhere between $0 and $240 per wafer for the GaAs-on-Si technology and still remain price-competitive with $300 GaAs wafers. To make the math easy, let's assume that they can get away with a $100 fee per wafer. At just over $2 per square inch of licensing revenue, Motorola can walk away with $184 million of nearly pure profit per year. This is a pretty penny indeed.

Jeremy Donovan (jeremy.donovan@gartner.com) is a principal analyst at gartner dataquest.