• Fabless semiconductor companies adding growth momentum to the overall industry value chain with new solutions and breakthrough technologies
• R&D core to fabless wireless semicon industry – worldwide, fabless chip companies spent nearly 51% of their OPEX on R&D in 2010
• Future of fabless chip companies linked to the wireless domain they serve

Bangalore, September 26, 2011: According to a CyberMedia Research study, “The Fabless Wireless Communications Industry 2011: Analysis of Key Players”, September 2011, the significance of fabless wireless companies is steadily increasing in terms of new solutions, ‘breakthrough’ technologies and adding growth momentum to the overall semiconductor industry value chain.

According to Anirban Banerjee, Associate Vice President, Research and Advisory Services, CyberMedia Research, “The fabless business model has started picking up over the last decade despite the existence of the concept since the early 1980s. Reasons for this late adoption lie in the fact that several verticals, essentially Telecommunication Services witnessed deep changes in technology deployment and usage over the past 15 years. With many wireless technologies emerging on the ground, semiconductor companies need to be flexible in terms of the technology platform they use.”

Fabless chip companies are typically focussed on one or a few select technologies. They offer solutions for both the ends of the network – infrastructure as well as terminals. The difference lies in the breadth of offerings, which is wider in the case of terminal equipment and products since user preferences vary widely across geographical and cultural barriers.

In 2010, not many products were announced by fabless companies developing solutions in the wireless communications space. This is because of two key reasons – first, major operators in the wireless communications market were still hedging their bets on which technology to go with: LTE versus WiMax; second, the stage of evolution in business cycle that these companies were at the time. Since most fabless companies globally have been operational for a period ranging between 5-8 years; this is the time frame that is required to develop and sell a single silicon product.
The survey details are being published in the September 2011 issue of BioSpectrum, the region’s leading biotechnology and pharmaceuticals industry journal.

R&D: The Heart of the Fabless Semicon Industry
R&D is at the core of the semiconductor industry, especially for fabless companies as this is one of the activities that they don’t outsource apart from marketing. According to the CyberMedia Research study, “The Fabless Wireless Communications Industry 2011: Analysis of Key Players”, September 2011, fabless chip companies spend over half of their OPEX on R&D. In 2010, for instance, the average R&D spend was found to be 50.95% of the OPEX of fabless companies across the world.

According to Faisal Kawoosa, Lead Analyst, Semicon Practice, CyberMedia Research, “A fabless chip company follows a typical pattern with respect to reach. It runs a headquarters office, which usually houses the R&D centre and administrative functions. Other offices are set up on a need basis for sales, marketing and customer support. As per our study findings, 56% offices of fabless chip companies in the wireless communications domain are situated in Asian countries like China, India, Taiwan, Singapore and Hong Kong. This helps them maintain proximity with Original Device Manufacturers (ODMs) and Original Equipment Manufacturers (OEMs) who buy their chip solutions, as well as have an ear-to-the-ground in large end-user markets like China and India.”

Among the notable ecosystem partners of fabless companies, TSMC leads with 40% of the companies engaging it as a sole or lead foundry partner while Amkor is the primary Assembly & Testing partner with 28% companies getting solutions tested through them.

Figure 1. Popular Architectures used in Chip Design for Wireless Products

Source: CyberMedia Research, 2011

Though chip architectures are dependent upon the purpose of the chip, ASIC leads in terms of number of solutions that are available for wireless communication technologies. Since chip solutions in the communications domain are meant for definite operations / applications like processing 3G radio signals, application specific processors (ASICs) are most widely used.

As form factors get further squeezed and devices are expected to have an increasingly higher number of feature sets, fabless chip companies are no exception to the rule in adopting System-on-Chip (SoC) integrated designs. Further, increasing pressure from ODMs and OEMs to be the ‘first to market’ means SoC has become the default packaging layout of chip solutions.

Future Outlook

As depicted in the CMR Semicon Market λ Outlook Chart in Figure 2, the fate of fabless chip companies will be determined by the wireless domain they operate in.

Figure 2. CMR Semicon Market λ Outlook Chart for Wireless Fabless Chip Companies

Note: Size of the circle does not signify the relative size of the market
Source: CyberMedia Research, 2011

Today, PAN (Personal Area Networks) and BAN (Body Area Networks) are going beyond Bluetooth and will become a critical piece of the network once Machine-to-Machine data transfer volumes pick up in homes and offices of the future.

According to Faisal Kawoosa, Lead Analyst, Semicon Practice, CyberMedia Research, “In the arena when a device is connected through high speed 3G / 4G networks, there will be a pressing need to have an equally efficient PAN technology supporting faster throughput / transfer rates for sharing rich media content in homes, offices and other environments between a user’s many devices, or among a small but closed user group. This will be the next opportunity area for fabless wireless chip makers.”

“However, due to lack of any one standard emerging as a clear winner, proprietary or small vendor consortium standards like WiDi, UWB, WiGig etc. will continue to be tried and tested. The market will witness more and more players foraying into development of solutions in this space and eventually a shake-out can be expected. For instance, in the case of UWB many companies have disengaged from the product or completely terminated development activities,” Faisal added.

WAN technology will continue to be dominated by WiFi although there will be evolution to 802.11n standards to support faster transfer rates with higher throughputs. Since many chip companies are offering solutions in this space with WiFi being the default standard, it is unlikely that more players will get attracted in developing WAN solutions.

According to Faisal, “Investments involved in R&D, marketing et al for developing chip solutions for air interface technologies are high and commitments are typically in the form of long term contracts between device manufacturers and chip vendors. The level of competition in this domain is therefore expected to be moderate. “

“MAN wireless technologies like 2G, 2.5G, 3G and 4G (LTE and WiMAX) will be the most promising opportunity areas for chip companies. Any wireless device requires an air interface to connect to a network, hence these technologies are expected to throw up the maximum opportunities for fabless wireless chip companies going forward,” Faisal concluded.

Notes to Editors:
Commonly used terms