The Changing Business Model in IC Design HouseJeremy Wang, Asia Pacific Executive Director, FSA

亞太區執行長全球 IC設計與委外代工協會

Agenda

Review of the Fabless Semiconductor Association

Status of the Global Fabless Segment

Regional Fabless Company Progress

Trends Creating Opportunities for Asia

Summary

About the FSA

History: Established in ‘94 to achieve a more optimal balance between wafer supply and demand

Today: Improve growth and increase the return on invested capital of the global fabless business model through a conducive environment for innovation. Provide a platform for meaningful global

collaboration between fabless companies, their partners and among partners;

Identify, debate and discuss business and technical issues and a focused effort to impact solutions to certain challenges

Provide members with timely research, resources, publications and survey information

Promote the fabless business model

Why Fabless Works

Technology

Gain the benefits of process technology ownership with minimal investment

Fab Independence: Able to migrate quickly to the most effective process technologies

Supply

Multiple sourcing improves response to volatile changes in demand

Access best in class supply chain advances

Capital Effective use of capital for R&D

High return on assets (ROA)

Effectiveness

Enables increased focus driving improved business execution

Fabless business model benefits from more effective capacity utilization

Over 200 Fabless Semi Companies

EDA/IPDesign

ServicesFoundry Partners

Testing and Subsystems

Photomask

Packaging Assembly

OEM and ODM Customers

FSA Spurs EcoSystem Development

Global Industry LeadershipVisibility

Plug into an existing

infrastructure of best

practices and global

leadership network

Access to comprehensive data, surveys and

resources

Education, networking

and partnership

events

Business and technical tools and solutions

Collaboratively identify and address industry challenges

FSA Global StrategyBenefits for Global Members

The Global VoiceMembership Growth

The FSA has grown 10x since its inception in 1994 Nine of the ten largest fabless companies worldwide are

FSA members Taiwan fabless leaders are members of the FSA

= FSA member

Source: FSA

Over 450 corporate members worldwide

A Global Community of Leaders

Jimmy S.M. Lee ISSI

KY HoATI

Richard ChangASE

Chia Song Hwee

Chartered

David French

Cirrus Logic

Sanjay JhaQualcomm

Bob BaileyPMC Sierra

Jensen HuangNVidia

Robert TsaoUMC

Wim Roelandts

Xilinx

Dr. Morris ChangTSMC

Dwight DeckerConexant

Dr. Nicky Lu

Etron

Dr. Chin WuALi

Ming Kai TsaiMediaTek

Woody Yang Silicon7

Leadership Council MembersLeadership Council Members

ChairmanDr. Nicky Lu

Etron

Dr. Chin WuALi

Ming Kai TsaiMediaTek

Dr. Woodward YangSilicon7

Korean Delegate

H.P. LinFaraday

Gordon GauHoltek

Japanese Delegate

ChineseDelegate

Chou-Chye HuangSunplus

Wen-Chi ChenVIA

The Need for a Global Voice

An industry in transition: Fabless/hybrid model is the future business methodology for all but a few players…this in turn…

Creates serious challenges: A dominant outsourcing model will put a significant strain on the foundries, combined with the challenges of transitions to more advanced technologies.

The FSA seeks to identify solutions: A global unified voice is necessary to reduce industry barriers. Partnerships are more vital than ever at every point in the supply/design chain.

We are at a critical point in the semiconductor industry facing serious challenges.

Now a Global Model

Source: FSA

Fabless Companies by Geography

U.S.56%

China7%

Singapore<1%

Malaysia<1%

J apan1%

Israel4%

India1%

Europe10%

Korea2%

Taiwan15%

Canada4%

Others<1%

Regional Company Distribution

Approximately 1,000 Fabless Companies Worldwide

Now a Global ModelCY2003 Public Company Revenues

Regional Public Company Revenue Distribution

Source: FSA

2003 Total Revenue $24.2B

Fabless LeadersTop Public Company Revenues

Source: FSA

Company Exchange TickerCY Q1 2004

Revenue ($000)

1QUALCOMM (QCT Division)

NASDAQ QCOM $711,257

2 Broadcom NASDAQ BRCM $573,406

3 NVIDIA Corporation NASDAQ NVDA $471,905

4 ATI Technologies NASDAQ ATYT $463,337

5 Xilinx, Inc. NASDAQ XLNX $403,380

6 SanDisk Corporation NASDAQ SNDK $386,930

7 MediaTek Inc. Taiwan 2454 $285,120

8Marvell Semiconductor

NASDAQ MRVL $269,577

9 Conexant Systems NASDAQ CNXT $243,781

10 Altera NASDAQ ALTR $242,908

Note: CYQ2’04 revenue will be available in early August

Fabless LeadersMarket Capitalization

Source: FSA

Company Exchange TickerApril 2004 Market Cap

($000)

1 Broadcom NASDAQ BRCM $13,131,781

2 Xilinx, Inc. NASDAQ XLNX $12,387,111

3 Altera NASDAQ ALTR $8,155,664

4 MediaTek Inc. Taiwan 2454 $5,886,103

5Marvell Semiconductor

NASDAQ MRVL $5,818,844

6 SanDisk Corporation NASDAQ SNDK $4,337,329

7 NVIDIA Corporation NASDAQ NVDA $3,774,831

8 ATI Technologies NASDAQ ATYT $3,650,075

9 Silicon Laboratories NASDAQ SLAB $2,615,217

10 QLogic Corporation NASDAQ QLGC $2,524,277

Fabless Funding Trends2003 Investment Focus

VCs primarily attracted to the Wireless, Networking and Consumer markets

Fabless Funding TrendsDollars/Deals by Quarter

$954.8

$511.4

$767.7

$468.1

$429.5$335.4

$927.0

$561.7

$299.8$394.9

$748.3 $493.3

$344.0 483.6

$423.4 $560.1$154.1

$589.7

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2000 2001 2002 2003 2004

($M

)

Q1 Q2 Q3 Q4

156 Deals$2.6B Total 162 Deals

$2.5B Total

109 Deals$1.6B Total

135 Deals$1.6B Total

92 Dealsto Date

Up 5

2%

Y-o

-Y

Company2003 (CY) Revenue ($000)

End Market

Melexis NV $168,231 Auto, PC, Consumer

Dialog Semi $117,017 Wireless, Auto, Industrial

CSR $67,622 Wireless

Wolfson Micro $75,735Consumer Audio,

Digital Imaging, Comm

Imagination Tech $34,790 Graphics, Audio

CML Micro $22,023 Communications

Nordic VLSI $16,435 Communications

SwitchCore AB $16,045Networking,

Data Comm, Internet Appliances

IndigoVision $3,190 Video Comm.

Leaders in Europe

Company 2003 (CY) Revenue ($000)

End Market

M-Systems $130,054 Internet Appl, Telecom

AudioCodes $44,228 Digital Telephony

Metalink $14,943 Telecom, Networking

Leaders in Israel

Regional Report - EMEA

Regional Report - Taiwan A Surging Segment of the Industry

Second in worldwide fabless revenue

Now focused on greater value-added offerings

Gig Ethernet Wireless LAN Cellular

System company abundance

Quick follower design capability

Source: IEK/ITRI (March 2004)

$1,113

$2,363

$3,588

$4,490

$5,780

$1,457

$3,491

67%

29%

58%

55%

6%

21%

29%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1997 1998 1999 2000 2001 2002 20030%

10%

20%

30%

40%

50%

60%

70%

80%

Taiwan Fabless Revenue

Regional Report - Taiwan

Company 2003 Sales ($000)

Products

MediaTek $1,115,931Consumer/ Optical

Storage

VIA Technologies $597,664 PC Chipsets

Sunplus $325,349 Consumer

NovaTek $319,706 LCD Driver Peripherals

Realtek $272,005 Networking

ALi Corporation $191,082Consumer/PC Chipsets

Elite Semiconductor Memory Technology

$156,358 Memory

ELAN Microelectronics

$135,354 Consumer

Major Taiwan Fabless Companies

Fabless Industry TrendsSystem-level knowledge is a must for success

Software becoming an increasingly importantpart of the fabless offerings

Accelerating shift to 300mm

Accelerating scale of leading-edge manufacturing and process technology

The Great China Debate

The Tail that Wags the Global Semiconductor Industry

Significant Impact Over Time

“ China accounts for only 2.4% of world capacity. By 2005 it will

move to 3.1%.” —Dataquest

According to Semiconductor Reporter--China reported that a government agency has over-counted badly the number of cell phones in use in China.

Utopia Soon

“ By 2007…10% of world’s entire wafer capacity will be

located in China, up from 4% today.” —iSuppli

China's cell phone subscribers will double over the next five years from a

base of nearly 207M customers, a CAGR of more than 10% during the next five years. –InStat/MDR

China’s Role in the Global Semiconductor Industry

The Customer — a Huge Silicon Consumer The Manufacturing Ally A Huge Reservoir of Design Talent Potential Design Partner or Competitor

China—As The Customer

Large potential market base China accounted for approximately 18% of

global semiconductor consumption in 2003. China used $25 billion in microchips in 2003 Consumer Demand

1.3 billion consumers Domestic demand for television sets

exceeds 30 million units per year with 380 million TVs installed.

Yearly demand for PCs in China is expected to grow by more than 17% over the next three years.

Domestic Chinese cell phone manufacturing is forecast to reach 140 million in 2005.

Foundry Name Location Fab Type

Chartered/Fab 7 Singapore 300mm foundry

CSMC/Fab 2 Wuxi 150mm

Shanghai Hua Hong NEC/Fab 2 Shanghai 200mm foundry

He Jian/Fab 2 Suzhou 200mm foundry

Bayton/Shenzhen Bayton Shenzhen GaAs fab

STMicroelectronics TBD, China 200mm

Centry Semi/Fab 1 Shenzhen 150mm

ASMC/Fab 3 Shanghai 30k,200mm

Keysi-STL S/C Mfg Shenyang 6k,150mm

ON Semiconductor Leshan 8k,150mm

Philips JiLin S/C/NA JiLin 20k,150mm

SinoMOS S/C Ningbo 30k,150mm

SMIC/Fab 4 Beijing 15k,300mm

Ultimiate Semi/Fab 1 China 27k, 150mm

Strong/High Likelihood of Groundbreaking or Upgrade

Possible Likelihood of Groundbreaking or Upgrade

New OpeningsSource: Strategic Marketing Associates

China—The Manufacturing AllyPlanned Groundbreakings/Openings ‘04

China—The Manufacturing Ally

“ WTO membership will bring China into [compliance] with normal global business practices.” —Chris Chang, SMIC

Grace Semiconductor

Commodity Flash, DRAMs,

SRAMs

Logic, mixed-signal, RF, LCD

Drivers

25K/month by end of 2003

Fab conversion—300mm

Foreign investment,

domestic investment and

future IPO

SMIC

CMOS

45K/month by end of 2003

300mm fab in Bejing in 2004

Foreign investment,

domestic investment and

IPO 3/04

Hua Hong NEC(HHNEC)

Logic, Flash, SRAM, SDRAM

30K/month by end of 2003

Next fab 300mm

Foreign investment,

domestic investment and

future IPO

CSMC

10k 4”/11k 5”/6k 6-inch/month

5um down to 0.8um

Expanding to 0.35um

Received $67M to expand 6-inch

capabilities

Semiconductor demands in China are serviced by 6-inch wafer suppliers building 0.30 to 2.0-micron technology…

0%

10%

20%

30%

40%

50%

60%

70%0.

15

0.25

0.35

0.45

0.60

0.80

1.50

3.00

5.00

10%

42%

48%

8-inch wafers 6-inch wafers3, 4,

5-inch wafers

Feature Size (Micron)

Wafer Size Production by Feature Size

Source: iSuppli

Technology Migration

Regional Report—China

Q1 2003

IP protection limited Immature design skills—no

product, system or architectural talent

Lack of management Lack of 3rd party IP No technology roadmap Quality issues Lack of IP-rich content Older technology Lack of high gate count

design expertise Inability to keep pace with

the market Immature VC market & no

IPO market

Advantages vs. Disadvantages

Proximity to end markets—24% CAGR

Ecosystem developing—end mkts, mfg., design, test, assembly and human capital

Government tax incentives Reduction in VAT Tax free and then 50%

reduction Training bases Duty-free treatment for

material imports for fabs Free land and

infrastructure assistance

Disadvantages Advantages

0

100

200

300

400

500

Online Constr/ Equip Planned

Max.

Wafe

rs/M

o.

(00

0)

300mm Fab Status

The Shift to 300mmEnormous Capacity Ramp

Source: Strategic Marketing Associates, 2004

Foundry CapexFoundries Doubling 2004 Capex

Source: SMA

Capex by the chip industry for new tools, plants, property and other long-lived assets will grow 42% in 2004, while capital spending by foundries will double Strategic Marketing Associates (SMA) expects

foundry investment at $9.9B represents 23% of the total $43B, more than double last year's amount. • Largest amount ever spent by foundries, both

as a percentage of total spending and in absolute terms

Slightly more than $4B will be spent to add 0.13um capacity and almost as much will be spent to add 90-nm capacity.

TSMC, UMC and Chartered are focusing mainly on 90nm

capacity, primarily in their 300-mm fabs.

Foundry CapexFoundries Doubling 2004 Capex

Source: SMA

Altogether, Chinese foundries will increase capacity by 64%, adding 140,000 in equivalent 200-mm wafer capacity.

SMIC will account for 60% of added capacity, not only by continuing to ramp its fabs in Shanghai and ramping its recently acquired Motorola fab in Tianjin, but also by finishing its Fab 7 in Beijing, China's first 300-mm facility.

Six more foundry fabs to come on line in 2005, four of which will be 300mm. Those six fabs could add as much as 250,000 equivalent 200mm wafers in monthly capacity to the foundry industry, possibly fueling the next round of overcapacity early next year.

2004 Foundry Capex Rankings

Rank CompanyPure-play or

IDM2004 (E) Capex

($B)

1 UMC* Pure-play $2.1

2 TSMC Pure-play $2.0

3 SMIC Pure-play $1.95

4 TI IDM $1.3

5 NEC Group Pure-play $1.2

6 IBM Micro IDM $0.9

7 Grace Pure-play $0.8

8 Chartered** Pure-play $0.7

9 ProMOS IDM $0.6

10 DongbuAnam Pure-play $0.6

Sources: iSuppli, IC Insights*UMC includes revenues from UMCj

**Chartered includes revenues from SMP

Pure-play & IDMs

Fabless Industry Challenges

Increasingly complex supply chain

Aggressive product, process and packagingroadmaps—developed independently

Escalating product development costs

Accelerating scale of leading-edge manufacturing and process technology

Cost Per Design by Technology

$ 00

$ 05

$ 10

$ 15

$ 20

$ 250

.35

µ

0.2

5µ

0.1

8µ

0.1

5µ

0.1

3µ

0.0

9µ

0.0

65

µTota

l D

evelo

pm

en

t C

ost

s ($

M)

Hardware ValidationDesign & VerificationSynthesis + Place & RouteMasks & Wafers

$2M

$6M$8M $9M

$11M$13M

$17M

An Industry ChallengedEscalating Cost of Chip Design

Design costs are rising from $2M for designs at 0.35-micron to more than $13M at 0.09-micron.

These costs assume that much of the design and verification can be done in low labor-rate geographies.

Today, design and verification of complex ICs is now running at 80% of total design cost.

Summary

The fabless model is now considered the future of the semiconductor industry

The FSA is The Global Voice for this critical industry segment

Difficult technology transitions and increasing product development complexity challenge our members

Taiwan/China are uniquely positioned to take advantage of certain industry trends and challenges

Thank you!

王智立博士亞太區執行長

e-mail: jwang@fsa.org

全球 IC設計與委外代工協會Fabless Semiconductor Association (FSA)