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To: kash johal who wrote (14762)	9/4/1998 1:20:00 PM
From: Jock Hutchinson	Respond to of 25814

Kash: Your perspective is greatly appreciated and genuinely admired. You are not merely in the ASIC business. You are the majority shareholder in a "fabless" company. Accordingly, you can bring a tremendous perspective to this thread as a competitor of LSI's. Your ongoing comments will be most appreciated. I sincerely look forward to your continuing contribution to this thread, and I hope that you can be the source of many questions that can be asked about the semiconductor industry's future.

To: kash johal who wrote (14762)	9/4/1998 2:06:00 PM
From: patrick tang	Read Replies (1) \| Respond to of 25814

Kash, questions and comments on your post: 1. Yes, I do think that for some things 5 -6 engineers can get together and start a fabless and turn out a product e.g. DVD, playstation MIPs, and perhaps even fibre-channel, if there are no patent restrictions - case 1 no patent restrictions like DVD - when market matures, LSI's competition is TSMC/UMC. But they will make both the margins for foundry and also for the fabless guys who produced the design. I don't see that as a problem for the next yr and a half. The market is not matured yet for DVD. This model will work for simple chips, e.g. DVD. How about a CPU core + graphic + hardware MPEG2 + DVD + cable modem + digital TV tuner on one chip at 0.12 um? Or automotive engine management + GSM + wireless Internet access? Or even a simple x86 - just look at all the money AMD/NSM/IDTI is losing Q in Q out. On products like those, there need to be strong coupling between design and processing. That's hard to achieve with a 5 - 6 guys and $2M and foundry fab. But the time we get to 0.18um/0.12um, products like these are the norm, not the exceptions. case 2 where there are patent restrictions or marketing barriers. I am not sure fibre-channel falls into that or not. But even here, since this is more high-end, the design-in times and stuff will make it hard to crack the market. For example, everybody knows Qualcom buys flash or serial EE or this or that, but there is no way anybody can reasonable expect to crack that account with a startup unless it's such a specialized chip that nobody has. 2. In the long run,perhaps after the next upturn, LSI's competition will also be TSMC and UMC, assuming the latter can amass enough standard cells that can work together. Yes, they will be licencing a lot of these standard cells from companies like yours, designed by very experienced engineers. LSI's advantage would be cells designed by less experienced engineers but all under one roof and perhaps better communications between people designing the different cells. This reminds me of the DRAM start up who wants to make a business out of licencing their design because they made their design portable and scalable from one process to another. Which model will win? Or perhaps both will survive? IMHO, I see chioas in trying to tie 10 modules from ten different design houses together and not only make it functional but also try to jack up the speed grade by one grade every Q. To summarize, I can't really see which model will prevail in 5 year. I personally take it with a grain of salt that some stock analyst can do that either. As for the next yr to 2 yrs, when I expect the upturn to come, I still see LSI as very nicely positioned with the products that they have. I do agree though that they need to grow by acquistion or sell out to STM. To me VLSI does not have enough mass to survive long term. VLSI should just merge into LSI - great synergy, great cost reductions by eliminating a lot of redundancies, use VLSI cash to pay for Symbios, fill Gresham quick etc. But I guess all these are just pipe dreams, too much egos in the way. patrick

To: kash johal who wrote (14762)	9/5/1998 7:17:00 PM
From: Jock Hutchinson	Read Replies (1) \| Respond to of 25814

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.

To: kash johal who wrote (14762)	9/5/1998 10:44:00 PM
From: Grand Poobah	Respond to of 25814

Kash, Thanks for your response and insight. You have generated some interesting and informative discussion about the future of the industry. I would like to explain a little more what I meant in my post by "design methodologies" and why I think they are a key differentiating factor. I wasn't really referring to the design language or any of the EDA tools, although I realize that's probably what's more commonly meant by that phrase. So I apologize for being imprecise in my terminology. I was talking about philosophies and practices of design. For example, do you use BIST, scan, Iddq, functional vectors, or some combination for testing? What is your clock distribution architecture? How do you adjust these things as the complexity of your designs grow? How do you coordinate multiple design groups working on the same chip across the country? What is your design debug process, and how many tapeouts do you have to make before you get to the final revision? Do you port your design to multiple fabs, and if so, how much of your design resources do you dedicate to this process? Are your various design groups sharing the insights and gotchas that they run into, or do you repeat the same mistakes over and over again throughout the company? Maybe I should have called it project management, although I was referring specifically to the design phase of the project and not to marketing, manufacturing, sales, or any of the other parts of the total project which have to be coordinated to make a successful product. I have never been a designer myself, but I have been intimately associated with the process enough to see brilliantly conceived projects staffed with top-notch designers get derailed by the type of issues I listed above. If new product design is the heartbeat of the company, poor design practices are like arteriosclerosis. You can ignore it for a while, but it will eventually give you a heart attack, and if you don't reform your ways, it will kill you. Regards, G.P.