Real men have fabs. . .chipmakers profit from making their own
There was an interesting presentation by Bryan Lewis, chief chip analyst at Gartner Dataquest, at the recent Infineon media and analyst conference. His presentation and discussion with Robert LeFort, president of Infineon North America, indicates a trend against fabless chipmakers. [Infineon is a founding sponsor of Silicon Valley Watcher.]
For more than 20 years the rise of the fabless chipmaker has been a seemingly unstoppable trend. Fabs these days cost $2bn or more and are difficult to operate and you have to run them at near full capacity otherwise you lose lots of money.
It makes perfect sense to outsource the manufacture to foundries, which focus on perfecting the many manufacturing processes during the three month long production process required to create today's advanced chips.
But many chipmakers were reluctant to go fabless. In the early 1990s, T.J. Rodgers, head of Cypress Semiconductor, said "Real men have fabs," and this phrase was taken up by others, including Motorola, Advanced Micro Devices and Intel. It represented a catchy backlash against the fabless trend.
However, it is is difficult to argue against the economics of the fabless business model. A catchy phrase doesn't change the fact that fabs are extremely expensive and difficult to run effectively.
Why outlay more than $2bn in capital costs to build your own fab when you can email your chip design to a foundry in Taiwan or Singapore and collect your chips 90 days later?
Fabless and fabulous
That's why fabless chipmakers have done very well. For example, Qualcomm and Broadcom are fabless and are among the top ten chipmakers worldwide by revenue. And there are hundreds of other fabless chipmakers.
Owning your own fabs is something that Infineon has continued to do despite the strong argument for a fabless business model. Intel, AMD, IBM and others also build and operate their own fabs. And many of the chipmakers partner on fabs, or jointly work on research projects developing new manufacturing processes.
Now, as we push Moore's Law ever onwards, the pendulum seems to be swinging towards fab owners. What has changed is that there is a strong link developing between the design of the chip and the manufacturing process.
Each fab makes its chips slightly different from other facilities. It is all partly black magic in that the settings on the many machines make a big difference in how many good chips can be cut out of a silicon wafer.
This connection between design and the manufacturing process is much tighter these days than ever before. And optimizing chip designs to fit your fab is becoming a competitive advantage.
However, fabless chip companies mostly use design tools that do not take into account the many subtleties of the manufacturing process at their foundry. Yet the atomic scale geometries of today's chips are affected by tiny variations in the production process.
This means that those chipmakers that own and operate fabs will be at a competitive advantage over those that don't. They will get much better yields of good chips to bad chips. T.J. Rodgers was right [eventually:-) ].