Patrick: I would not say 'has transitioned' - more correct to say 'is transitioning' or even better 'is evolving' in:
"Thus, LSI has transitioned from a straight ASIC [supplier] to supplying highly integrated, complicated 'standard' chips for some applications."
And some points:
- Symbios has a large standard product portfolio [one reason why I have said from the start that the Symbios assets were 'better' than old LSI's assets].
- I suspect these std. products make sense in the consumer [especially] and storage areas but perhaps less so in something like networking.
- I will guess that a good chunk of the std. products are coreware based and thus the std. products fraction is smaller than the coreware fraction of the biz. Since LSI does ~ 30% in Coreware this suggests that standard products are less than 30%. WAG - it is between 10 and 20%. This still means a huge chunk (80-90%) is still non std...
Again the crux of the issue is that it is not economical (ie., you don't make much money) having an expensive fab and keeping it 'off' for even a fraction of a day. LSI's depreciation costs are 1 million a day (or they were $1 mil a day in Q1). Producing ASICs with their relatively low volumes in the tens of thousands of units, high NRE costs, etc is not as efficient as producing DRAM and microprocessors in the tens of millions. Now if the market gets convinced that LSI can produce hundreds of thousands of std. products then we are in better shape as now the button is 'on' more often. LSI has the distinction of being the only big company in the industry with this 'few products', 'expensive fab' characteristic - a prime reason why their ROE has consistently sucked...
Thankfully there are plenty of really high volume products on the horizon - DVD [std.], STBs [std.], Playstation 1 and 2 [not std.!] (note all consumer!). These don't need to be std. products they just have to be in very high volume so that the fab remains 'on' for a long long time. Of course std products have the other key benefit of lower overall costs since you are not reinventing the wheel everytime.
Even better and more relevant it appears that the high barriers to entry that LSI has mentioned in the past (and no one has believed - Korea, fabless companies) are getting higher all the time. Easier a few years ago, now getting more and more difficult since to do something complicated today (a multi-million gate ASIC) you need to build upon your expertise of yesteryear and not too many companies today have even a fraction of the expertise of yesteryear to compete with the LSI's, IBM's, and STM's of the world. There are smaller companies with niches but there aren't many with the collective breadth of expertise as the 'pioneers'. This is a good thing. The LSIs and IBMs have climbed over the plateau - others are still in the valley far far below.
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I pay no attention to DVD anymore since the matter is settled and I know the growth rates will be impressive - but this is a good article nevertheless...
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DVD Takes Spotlight at Annual Video Meeting
By Scott Hillis
Reuters
LOS ANGELES (July 9) - As the home video industry holds its annual industry show this week, all eyes are on digital versatile disks, or DVDs, and whether the technology can breathe new life into the maturing home video market.
After nearly two decades of dominating home entertainment, the stalwart video cassette is being challenged by DVD, which can deliver crisp digital sound, pictures and even text and Internet links.
Other technologies such as the CD-ROM, the video compact disk and the laser disk all failed to drive the VCR out from under America's television sets, but industry players said DVD looks like it has a good shot at doing just that.
''Instead of all these different formats, it's all coming to a head and funneling into one thing, and that's DVD,'' said John Georgopolous, founder of Georgopolous Design Associates which creates interactive menus for DVD movies.
Although the number of DVD players are a tiny fraction of the hundreds of millions of VCRs, their dynamite sales growth has surprised many in the industry.
''So far DVD has been one of the most explosive new home entertainment technologies of all time,'' said Steve Ramirez, vice president for sell-through and DVD at New Line Home Video, a unit of New Line Cinema under Time Warner Inc.
Ramirez cited figures estimating that more than 4 million machines would be in homes by the end of the year, up from earlier figures of just 2.5 million units.
While revenue growth from video cassette sales and rentals has lingered around 10 percent a year, DVD sales growth is counted in the triple digits.
''Currently DVD represents maybe less than 10 percent of total sell-throughs, but that growth rate will almost double in each of the next 3 to 5 years,'' said David Bishop, president of MGM Home Entertainment.
DVD is also expected to get a boost from the recent demise of its cousin, Divx, a disposable version of the format that was scrapped by its creators, Circuit City Stores Inc., after dismal customer response.
''The biggest impact of the Divx issue is that a lot people were sitting on the fence waiting to see which technology would make it into the next decade, and the market has resolved that question,'' Ramirez said.
Enthusiasm for what is billed as the interactive medium for the next century was evident among executives of companies participating in the annual show by the Video Software Dealers Association in Los Angeles.
Internet retailer Amazon.com, which launched its online video sales service last November, saw DVD titles capture the five top selling movies by January.
''DVD is definitely on a very aggressive growth curve, faster than CD players, faster than VHS,'' said Jason Kilar, Amazon's group product manager for video. ''It's safe to say that you'll see that kind of trend going forward.''
At 4,000 movies, the number of DVD titles is dwarfed by the 65,000 available on video cassette, but film studios have moved swiftly to release biggest and best-known movies on the disks at a $20-$30 price that is competitive with tapes.
One of the biggest selling points of DVD is the ''V'', which used to stand for ''video'' until developers replaced it with ''versatile'' to reflect the format's spectrum of uses.
Upcoming versions of DVD players will enable consumers not only to watch movies but to play games and log on to the Internet to get more information about a film or music title.
''A few extra features that appeal to consumers' interest with games and the Internet will tip DVD over the edge and make it the new mass market phenomenon,'' said Richard Miller, chief executive of privately held VM Labs Inc., which has developed technology giving more multimedia features to DVD machines.
11:39 07-09-99
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