Kash: The key to survival in any business is the ability to go through a full cycle of boom and bust whether it's seasonal (such as tourism) or cyclical (such as semis). Thus, I have a number of problems with your overly optimistic scenario for "fabless" semi companies. One primary assumption is that there will always be excess ASIC wafer capacity with which you can partner. There is simply no way that you can know that your assumption will always hold true. You are still working with foundries to develop these ASIC solutions. In the event that there is not always sufficient capacity, you risk being shoved to the back of the line at the very moment when demand for your product is its highest. Clearly this sort of thing could only happen once before you lose customers and probably your business. While Gresham is a white elephant right now, its availability insures LSI's long-term survival even if it means as part ASIC foundry.
If your response is that your boutique business is so small such that it can always find some sort of capacity, then I question just how much a company so limited in size is a threat to the larger companies like LSI.
Since others and I started a boutique law firm sixteen years ago, I am familiar with the plusses and minuses of working in a big firm as opposed to a small firm. One of the problems you will face (if you are successful) is that the very solutions to your expansion are the very problems that irked you at a larger firm. Those high priced engineers on staff? They need to get paid. If your current project isn't bringing in sufficient revenue, you start to look for partners who will help you grow the business. Ultimately you look to the same solutions that larger firms embrace. Also, when you begin a business such as yours, you have a primary client or two that will pay the bills. You might want to make absolutely sure that the client is going to always pay the same rate, because once a client realizes that you are dependent upon him for survival, he will squeeze by the conjales big time. You might also want to consider that you are making a strong argument for consolidation in the industry while arguing that very small is also better. A semi company with $3 billion in sales may have the optimal flexibility to make rapid decisions and not be too hindered by layers of management such as IBM seems to have.
It seems to me that you are similar in scope to boutique software firms that proliferate. The chances of success for some of these firms are nil, while others will be an incredible success. But the difference here is the dependency on exogenous factors--tools and fabs. Your model is built upon increasing software capability and overcapacity. I am not so sure that those factors are always assured. And if they are not, then you may not survive throughout the times when you do not experience this optimal scenario.
Furthermore, if there is a slowdown in tool development then ASICs will become more and more commoditized, which precludes further investment in the market. This may hurt LSI margins but LSI can survive as a limited foundry in addition to its own work.
Finally, I would also point out to you that there is an inherent risk in doing business with Taiwan. That country is part of China you know. Or at least mainland seems to think so. One of my fears is that China will not at some time honor our various patents and simply appropriate whatever technology it wishes. Seems to me that having some fab capacity in an area like Oregon might be an excellent idea.
Since I consider myself a risk taker to the extreme, I sincerely wish you the best in your business, and your sophisticated comments are deeply appreciated. |
