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Technology Stocks : LSI Corporation

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To: patrick tang who wrote (18602)	5/29/1999 2:41:00 AM
From: shane forbes	Read Replies (1) of 25814

Patrick: One problem I have with pure IP companies is that IP, for all the grandeur, is nothing more than an idea or a collection of ideas. There are plenty of smart people with plenty of ideas - but very few smart people with billion dollar fabs. I think you can make a lot of money on a few smart ideas for a few years but I don't think you can make a lot of money on a few smart ideas for several years. That is, I don't think IP per se is a sustainable long term model. Why? Someone smarter will come along with a better idea and then what? (XLNX and ALTR with unique chips are a different breed.) At least with a fab and the IP, you can make money in more than one way. Each of your chips and there will be millions of them carries with it a double premium - a charge for your IP and a charge for your manufacturing. If you are intelligent and a bit lucky, you will make much more money here than if you were solely IP based. In turn you then take that excess cash (the manufacturing premium) and diversify or consolidate other IP or buy other IP or whatever - basically you get bigger faster with a fab than without a fab. Hence though it takes more capital to get going and hence is intrinsically riskier it is not true (I think) to assume that IP is the way to go. There has to be some manufacturing for you to bleed your one bright idea for every penny its worth! Smaller companies have to share their idea with the foundries and I sense the foundries make a bunch of money as a result. It is not quite a win-win for the fabless companies. Maybe it will be as foundry capacity explodes and the foundry companies have to fight for every chip but until then the foundries are getting a nice cut out of the IP company's bright idea. Having said that it is getting prohibitively expensive to go it alone these days as fab costs are escalating rapidly. Therefore a compromise - outsource some, partner a lot, BUT keep your own fab as well. To survive as a LONG term player in this industry you need to make lots of money when the going gets good and lose not too much when the going gets bad. I think LSI's (& MOT's) model is such a compromise.

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