The document discusses strategic management issues for starting a fabless chip company. It covers topics such as startup issues, business models, external environment, internal environment, objectives, strategies, tactics and implementation, and an integrated marketing communications program. The document provides an overview of various business models in the semiconductor industry and considerations for starting a fabless chip company.

1. Strategic Management Issues
for Starting a Fabless Chip Company
Presented by
Steve Z. Szirom
InsideChips.com
PO Box 32237, Bellingham, WA 98228
Web: www.insidechips..com Tel: 360 676-2260 Fax: 260-350-3472

2. Topics Covered
Topics Covered
Startup Issues
Business Models
External Environment
Internal Environment
Objectives
Strategies
Tactics and Implementation
Integrated Marcom Program
© 2009, HTE Research, Inc. 2

3. Objectives, Strategies, and Tactics
Objectives, Strategies, and Tactics
Corporate
External Environment
Image
Market, market size Other
Market by region
Strategies
Industry Trends
Competition Product strategies
Technology trends Price strategies
Macro, industry view Promotion strategies
Corporate strategies
Internal Environment
Implementation and tactics
Organization and management
Marketing and sales Detail for next twelve months
Technology capability Summary for next three years
Financial Staffing and training schedule
Strengths and weaknesses Product/core development
Areas to bolster/upgrade Roadmap for next three years
Price/licensing implementation
Objectives
Integrated marcom program
Mission statement Marketing channel deployment
Revenue and bookings MIS implementation
Technology and product Office and equipment roadmap
Review Monitor Feedback Modify
© 2009, HTE Research, Inc. 3

4. Startup Issues
Startup Issues
Careful evaluation of founders’ motivations,
capabilities, ambitions, experience, and personal
factors
Chemistry and interaction of team -- mindset to work
for the success of team
Agreement on location of company
Licensing versus fabless IC supplier
Disposition of current company, activity, or job
© 2009, HTE Research, Inc. 4

5. Startup Issues
Startup Issues
World-class legal and accounting support
Business plan
Funding
Names, trademarks, and domains
Public relations, advertising, and
promotion
International strategy and partners
Government regulations and contracts
© 2009, HTE Research, Inc. 5

6. Business Model vs. Personal Considerations
Business Model vs. Personal Considerations
Fabless IC
Design House IP Firm
Company
Role of Marketing Low Medium High
Accounting Support Single Practitioner Regional CPA Firm World-Class
Accounting
Legal Support Single Practitioner Regional Legal Firm World-Class
w. License Know- Legal
How
MIS PCs PCs Networked
WS, PCs,
Networked
Growth Factor Slow Slow-Moderate Very Fast
CEO Type Engineering 50-50 Engineering Business
Manager and Business Manager
Manager
International Know- None-Low Low High
how
Financial Payoff Low ($600K) Moderate ($1.2M) High ($10-20M)
Work Effort Low-High Moderate-High High
Time/Finance/Risk Low Moderate High
© 2009, HTE Research, Inc. 6

7. Business Model Overview
Business Model Overview
Semiconductor Business Semiconductor Business
Models with Fab Models without Fab
Major Conglomerate Fabless
with Chip Company
Semiconductor Div.
Top-20 IP/Technology
Chip Maker Licensing
Company
Mid-Size IC
Chip Maker Design House
Silicon Foundry IC
Design/Architect.
Consultants
© 2009, HTE Research, Inc. 7

8. Chip Firms with Fabs
Chip Firms with Fabs
Typical
Company Type Characteristics
Size
Semi div. of large corp.; operates operates
Major Conglomerate Major
own fab; semiconductors relatively small
Chip Firms with Fabs
with Semiconductor Div. $10 B +
part of total sales; has broad product line
Semi div. is largest part of corp.; almost
Top-20 World-Class $1 B
always operates own fab; semis represent
Semiconductor to $10 B+
largest part of total sales; usually broad
Company
line
Mainly semiconductor oriented; usually
growing fast or downsizing; most have fab $200 M
Mid-Size Supplier
but may also subcontract; diversified to $1B+
products or focused
Does not have own products; sometimes $25 M
Silicon Foundry J-V among several sponsoring to $1 B+
semiconductor companies
© 2009, HTE Research, Inc. 8

9. Chip Firms without Fabs
Chip Firms without Fabs
Typical
Company Type Characteristics
Size
Either growing fast, or stable with niche
Chip Firms without Fabs
Fabless Chip Firm product or market; usually fabless, less than
(Small- to Medium-Size) includes startups; staff size typically 20 to $200 M
200
Usually focused on one technology or
IP/Technology product area; fabless; sometimes also $1 M
Licensing Company offers products; engineering oriented to $25 M
management
Always fabless; sometimes evolves to
become fabless startup; typically three to $.5 M
IC Design-House
25 persons; sometimes also brokers to $3 M
production services
IC Design/Architecture One person operation focusing consulting $.2 M
Consultants on particular specialties to $.5 M
© 2009, HTE Research, Inc. 9

10. IP Business Model
IP Business Model
Established proprietary know-how backed by patents
Focus on large volume target market applications
with well defined growth trajectories
Keep company small and focused on R&D/technology
Leverage marketing-know of licensee partners to
achieve success
In some cases offer turnkey solutions for licensee
company
Sometimes gravitate to become fabless IC supplier
© 2009, HTE Research, Inc. 10

11. New Models Impact Chip Industry
New Models Impact Chip Industry
Design IP Fabless
House Company Chip Firm
Provide supplemental resources for companies
which do not have know-how
Act as third-party design centers for ASIC firms
Create major competitor groups to the
detriment of established players
Diffusion of technology to overseas players
Create new market opportunities and expand
markets
Cross-fertilization of technology through
industry talent raids
Create cycles of industry innovation
© 2009, HTE Research, Inc. 11

12. External Environment
External Environment
Market, market size
Market by region
Competition
Technology trends
Macro, industry view
Other
© 2009, HTE Research, Inc. 12

13. Industry Diversification of Business Models
Industry Diversification of Business Models
Traditional Fabless Chipless
Vertical
CAD Tools CAD Tools CAD Tools CAD Tools
Wafer Fab Wafer Fab Wafer Fab Wafer Fab
Intellectual Intellectual Intellectual Intellectual
Property Property Property Property
Sales & Sales & Sales & Sales &
Distribution Distribution Distribution Distribution
1960s 1970s 1980s 1990s
Transistors Microprocessor ASICs System-on-Silicon
IC Blocks
© 2009, HTE Research, Inc. 13

14. System Integration Trends
System Integration Trends
Source: NEC
© 2009, HTE Research, Inc. 14

15. Reasons for IP Emergence
Reasons for IP Emergence
Sophisticated design-entry and synthesis tools let engineers develop
designs in high-level languages and translate those designs to cores
Ever decreasing product life cycles and quickening generational changes
coupled with highly complex chips (~ 1M gates)
Shortages of engineering talent in “hot” IC technologies coupled with
Silicon Valley’s entrepreneurial fever in high-tech community
More cost effective in many cases to outsource design blocks
Strong demand from Japan and Korean companies to diversify product
portfolios (lessen DRAM dependence)
Emergence of standards will lead to standards-compliant cores which
fosters ease of reusability
© 2009, HTE Research, Inc. 15

16. IP Company Categories
IP Company Categories
Independent third-party vendors
Traditional semiconductor houses
Major FPGA vendors
EDA vendors
Design Houses
IP Brokers
© 2009, HTE Research, Inc. 16

17. IP Company Characteristics
IP Company Characteristics
Typically founded by technology/technical personnel rather than
marketing or business persons
Usually employs five to 50 persons
Does not own fabrication facility and does not manufacture (fabless)
Does not market or sell chips (“chipless”)
Not always a pure licensing company but sometimes also offers
design services or offers standard products related to licensed
technology
Some licensing companies are in transit (seed funding to fabless
class)
At least half of revenues come from IP-related products
© 2009, HTE Research, Inc. 17

18. Spheres of Strategic Influence
Spheres of Strategic Influence
(Purchase Money Flow)
(Purchase Money Flow)
Equipment & Materials Suppliers
IC Makers
with fab
Manufacturers IP/Technology
License Firms
OEM
IC
Design-
Houses
Silicon
Fabless Chip
Foundries
Firms
© 2009, HTE Research, Inc. 18

19. Internal Environment
Internal Environment
Organization and management
Marketing and sales
Technology capability
Financial
Strengths and weaknesses
Areas to bolster/upgrade
© 2009, HTE Research, Inc. 19

20. Silicon Valley Creative Engine
Silicon Valley Creative Engine
Traditional Chip Companies
Fabless Chip Vendors
Third-Party IP Providers
© 2009, HTE Research, Inc. 20

21. VC-Fundable Organizational Structure
VC-Fundable Organizational Structure
Board of Legal
Board of Legal
Directors President and CEO
Directors President and CEO Accounting
Accounting
Public Relations
Public Relations
VP of Finance & VP of Engineering VP
VP of Finance & VP of Engineering VP
Administration
Administration
Dir. of Core Design
Dir. of Core Design
VP of Marketing
VP of Marketing
and Sales
and Sales Dir. of Systems
Dir. of Systems
Architecture
Architecture
Dir. of Software
Dir. of Software
Development
Development
© 2009, HTE Research, Inc. 21

22. Critical Role of CEO
Critical Role of CEO
Experience in development, operations, marketing, and
finance, such as business unit director of mid-large chip
maker
Background in fast growth in resource constrained
environment
Managerial team building skills and ability to delegate
Intelligence and high energy
High integrity, quality, strong work ethic, environment
Openness in internal and external matters
Moderate ego and humility
Coach and head cheerleader
“Startups fold or perform poorly as a result of CEO failure
more often than any other single cause”
© 2009, HTE Research, Inc. 22

23. Team Requirements
Team Requirements
VP of Engineering
Multi-disciplinary techno-manager
Engineering team builder, ability to attract and hire top-
class engineers
IC development experience
Technical knowledge of IP firm’s technology and
architecture
Ability to manage and drive a support team of software,
IC designers, and systems architects to meet critical
development timetables
Posses a combination of managerial and engineering
skills
Strong technology vision for company’s products
© 2009, HTE Research, Inc. 23

24. Team Building
Team Building
VP of Marketing and Sales
Knowledge of IC market in market segment(s)
and environment where firm will participate
Building and managing an effective sales and
marketing organization
Knowledge of distribution business and related
negotiations with key partners
International business development skills and
credibility with potential overseas partners
Skilled in top-level, consultative selling and
legal aspects of IP contracts.
Excellent communications skills and
implementation of integrated marcom program
© 2009, HTE Research, Inc. 24

25. Strategic Relationships Model
Strategic Relationships Model
Company
Traditional VC Corporate OEM
Partner Partner
Japan Marketing
Partner
Founder
IP Startup Asia-Pac Marketing
(N. America based) Partner
Europe Marketing
Founder
Partner
EDA Tool Key Reference
Partner Customer
© 2009, HTE Research, Inc. 25

26. Objectives
Objectives
Mission statement
Revenue and bookings
Market share
Profitability
Technology and product
Image and recognition
Corporate
Other
© 2009, HTE Research, Inc. 26

27. Strategies
Strategies
Product strategies
Price strategies
Promotion strategies
Corporate strategies
© 2009, HTE Research, Inc. 27

28. Product Strategy Components
Product Strategy Components
Product innovation through systems, silicon, and software
expertise
Design methodology utilizes library of functional
modules/macros to reduce development time for new products
Plan core roadmap with complementary functions
Leverage proprietary cores to establish leading supplier position
in a particular market segment or sub-segment
Cores scalable to allow customers to differentiate their product
line
Target product definition to meet needs of selected leading
major OEM manufacturers
© 2009, HTE Research, Inc. 28

29. Price Strategy Components
Price Strategy Components
Flexible license fee versus royalty
Set license fee/royalty price strategy by region
and customer size
Low license fee to maximize downstream
revenues
High license fee to maximize cash flow
Strong NRE tie-in to maximize design resources
Free IP to foundries to maximize revenues
Low price leader for commodity cores
Price setter for setting new industry standard
© 2009, HTE Research, Inc. 29

30. IP Cores and Pricing
IP Cores and Pricing
Emerging market, pricing is still all over the map
Some guideline factors for pricing IP cores
Number and size of competitors
Proprietary technology vs. commodity status
Industry standard setting
Size of core in equivalent gates or other measure
Engineer-years needed for core development
Business situation
How big is the customer and projected usage
Which way is the wind blowing?
Licensing
Single-use
Multi-use, site license
Sub-license
Deliverables
Netlist, RTL code, etc.
© 2009, HTE Research, Inc. 30

31. Tactics and Implementation
Tactics and Implementation
Detail for next twelve months
Summary for next three years
Staffing and training schedule
Product/core development
Roadmap for next three years
Price/licensing implementation
Integrated marcom program
Marketing channel deployment
MIS implementation
Office and equipment roadmap
© 2009, HTE Research, Inc. 31

32. Integrated Marketing Communications
Integrated Marketing Communications
Crucial from the start
Use “guerrilla” tactics to maximize effect for the bucks
Use combination of external and internal resources
Have a clear identity and image you want to achieve
Use a combination of all marcom elements
Have a world wide vision
Do it right the first time
Know the business culture and intricacies of different
regional markets
Craft a unique and visionary story for the new venture
© 2009, HTE Research, Inc. 32

33. Elements of the Integrated Marcom Plan
Elements of the Integrated Marcom Plan
Web site -- job number one
Press relations
Cultivate press people
Write effective press releases/customize to regions
Do selected press/analyst road shows
Generate a well-written corporate backgrounder
Propose appropriate articles to key trade magazines in
your field
Trade shows and conferences
Participate in key shows as exhibitor
Propose speaking, tutorial, and panel engagements
© 2009, HTE Research, Inc. 33

34. Elements of the Integrated Marcom Plan
Elements of the Integrated Marcom Plan
Authorship Program
Set up a corporate program to promote authoring and speaking
engagements by the engineers and marketing staff
Hold an awards day each year for the best papers
Advertising
Good for reaching a broad audience
Guaranteed placement
Direct Mail
Rent targeted lists to promote to specific groups
Announce events, web site, etc.
Collateral
Tie in all elements of image and looks
Brochures and data sheets, short-form catalogs
Reprints of articles and speaking engagements
Provide press kits
© 2009, HTE Research, Inc. 34

35. Example of Timeline
Example of Timeline
2000 2001 2001
Concept
Team Form
Business Plan
Development
Funding
Recruit Bal of Team
Build Key Rels
Strategic Distis
Business Development
Marcom
Roadmap Development
© 2009, HTE Research, Inc. 35

36. For More Information...
For More Information...
Visit InsideChips web site at
www.insidechips.com
Copy of presentation available
Leave your business card
Questions and follow-up
E-mail Steve Szirom at szirom@insidechips.com
© 2009, HTE Research, Inc. 36