By Ron Collett

For the semiconductor industry, there not only is change in the air, there’s thoughtful debate about just what that change looks like.

I’ve been mulling over a couple of intriguing posts, one by another newly minted industry blogger, Sanjay Srivastava, CEO of Denali, and the other on EDN by Kaben Wireless Silicon CEO Paul Slaby.

In Sanjay’s blog, Conversation on Innovation, he’s been mulling how fabless semiconductor startups can survive in the current climate.

He argues (in Funding Fabless Semiconductor Startups) that solutions need to look at how and where money is invested, how we “stage” investments (i.e. valuing investments in IP differently than in silicon) and how we address software investment:

I believe if we get creative about the current fabless investment model, not every semiconductor opportunity needs to be a billion-dollar opportunity before it can attract meaningful investment.

In his EDN post and in a separate webcast, Slaby argues for a “semi-fabless” model:

The semi-fabless company is essentially a combination of an IP provider, a design house, and an outsourced R&D operation. Its core competence and strength lies in specialized R&D and product development capabilities whereas it outsources product delivery operations to the ‘old’ fabless company with the entire infrastructure and the pipeline to market already in place.

There’s no doubt the investment formula needs to be reconsidered. For a semiconductor company to break even, it needs $40-$100 million and six to eight years. More troubling, however, is the selling price of semiconductor startups has been steadily declining. In 2007 it was $160 million; in 2008 it was $95 million and in 2009 the average has been $65 million, according to an EE Times story referencing Lip-Bu Tan, chairman of Walden International, and now CEO of Cadence.

The good thing is there are a lot of “smartest guys in the room” in this industry, and collectively we’re shaping the industry’s future in three main ways:

• Companies are differentiating on products

• Executives, such as Sanjay and Paul and others, are helping drive the investment conversation

• And companies like ours are illuminating the differentiation and benefits of focusing on product-development productivity—fabless companies’ key differentiator today—and overall portfolio management.

This new differentiation is key; it’s key to how companies grow and gain market share and it’s key to the industry’s future.

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