“Real men have fabs.” AMD founder Jerry Sanders made the point—in blunt, politically incorrect fashion—that maintaining control over IC manufacturing was crucial for a top-tier semiconductor company. The fabless semiconductor community heartily disagrees. In fact, proponents of the fabless business model often quote Sanders to highlight the folly of not following their strategy. Even Sander's own AMD eventually spun out its manufacturing capability with the “asset light” or “asset smart” strategy that led to the creation of Globalfoundries.
Except for Intel and the memory vendors, semicos who didn't take up the fabless or at least fab-light mantra were ridiculed. Process technology began to be viewed as commoditized and unable to provide a competitive advantage. Continuing down the integrated device manufacturer path was a sure path to bankruptcy. At least that became the conventional wisdom.
Few would argue that Intel is a successful company. Their status as a semiconductor superpower can be attributed to their commitment to taking a longer term view. Intel leadership prefers innovation over cost cutting. They simply don't depend on suppliers or even partners to develop future technology platforms to manufacture their processors. Intel might be one of only a handful of entities that can actually afford to build new fabs, but they face the same temptation to dump chip manufacturing and pocket the savings as everyone else.
A company like Intel that continues to invest the resources required to build next generation fabs in parallel with development of future nodes is obviously taking a different view. The company has been around a while. There have been lots of chances to cut and run. Management had many opportunities to mortgage the company's future by maximizing current profit levels through shortsighted cost cutting. Instead, they chose to reinvest in continued technology development.
But Intel was not alone in shunning the fab-light trend. Many Japanese IDMs have maintained their manufacturing capability. That strategy was covered in the June edition of EE Times Confidential. Junko Yoshida's article, “Surviving the New Semiconductor Cycle,” considered the possibility that the Japanese semicos might be well positioned compared to companies that felt safer in the fabless herd. As Yoshida pointed out in her article, the Japanese were “pilloried in the press and the markets for having avoided the tough choices.” Despite not building out capacity for the latest nodes, the Japanese IDMs stuck around and maintained the development and manufacturing capability that will allow them to jump back into the game.
Faced with the multi-billion dollar price tag, building a new manufacturing facility is not even a choice for many companies. So what lies ahead for fabless chip companies? In perhaps overly simplistic terms, the landscape appears like this: A relatively small engineering team can assemble blocks of off-the-shelf IP and have their design manufactured by an Asian foundry. Can companies survive as chip vendors working like this? It seems doubtful if they plan to differentiate on hardware alone.
Another idea has grown up alongside the trend of crating up fabs for the auctioneers. Brand recognition is important in any business, but at some point, marketing experts convinced us that a brand can take on a life of its own. That's undoubtedly true in consumer markets. Regular folks pick either the blue brand or the red brand even if the soap inside is pretty much the same.
For an IC industry moving toward the building block model for making chips, fabless vendors may look to the automobile sector. The car manufacturers seem to do little besides assemble third party components and advertise themselves more as a lifestyle brand. A few brake system, engine and transmission companies supply everyone in the business. What's under the hood depends little on the badge on the other side. Unfortunately, chips are a different story, despite the reuse of consumer advertising approaches in the semiconductor industry. Engineers are a lot more sophisticated than average consumers.
This was highlighted by Rick Merritt, covering the fabless story back in 2008, with an interview of Infineon’s CEO. According to Wolfgang Ziebart, “You don't approach your customers with a marketing department that does studies and finds clusters of demand and establishes product lines to address them. That's old thinking. Today you have to engage with your customers in a much more intimate way.” Not only do you need to engage to understand product requirements to create the chip they need, you also need to deliver more value than the collection of third party IP determined by the product specification.
You can engage with customers, help them implement your design, and keep smiling through the whole transaction, but if your chip carries a price premium, you won't win the socket. Soon enough, a small group of design engineers at the OEM will be able to create exactly the chip they want. The barrier to entry becomes small for competitors as well as your customer. If you need an SoC for your cell phone platform, why not approach it the same way you approach the board-level design? Fabless chip suppliers could end up as little more than middle men.
The fabless ecosystem levels the playing field. But finding a way to convince customers to pay a premium is the name of the game. Still, some semiconductor companies have found a way. Consider Intel. How do they do it? Investing in their own factories and getting to each new logic process node a year or more ahead of their competitors probably has something to do with it. It doesn't sound like process technology is commoditized to me.
The sexism inherent in Jerry Sanders' comments about real men and fabs made his quote good fodder whether or not you thought the idea of in-house chip manufacturing was just as anachronistic. But some wisdom can still be extracted from Sanders' comment if we simply update the language. It takes real leadership to create a long term strategy and then execute it for the good of all involved—employees, customers and share holders. Staying in the IDM game and building your own fabs are gutsy gambles these days. Comments about real men aside, let's hope that at least Jerry Sander's maxim, “People first, products and profit will follow,” is not considered as outdated as his comment on fab investment. Maybe the two Sanders lines could be shortened to one:
“Don't take the easy way out.”
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