At all costs, chip company CEOs should avoid following Wall Street's recommendations on how to run a semiconductor company, it was stated at IFS 2010 in
"If you follow the Wall Street Five-Point Blueprint for semiconductor companies, you condemn yourself to a life that's not worth living", said Malcolm Penn, CEO of Europe's leading semiconductor analyst company, Future Horizons.
Penn's especial ire was reserved for Wall Street's advice to: 'Go fab-lite'.
"Fab-lite is structurally deceitful, operationally faulty, and financially flawed - it's just another bean-counting financial analyst deception like 'PE debt is good'," said Penn, "going from IDM to fabless does not solve the underlying problems, it is simply dicing with death."
"What if wafer prices go up? What if wafers are unavailable? What if you're not front of the line for wafers?", asked Penn, "it's one thing having to pay a higher price for wafers, but not getting the wafers at all or getting them six months after your competitors, is another matter entirely."
A far better way to go than fabless is, argued Penn, to share a fab with competitors. That way you get the advantages of foundry with the benefits of IDM and control of your destiny.
The Wall Street 5-Point Blue-print
Specialise
Go fab-lite
Merge
Narrow the scope of your R&D
Cull your product line
Penn points out the fallacies involved in Wall Street's blueprint.
If you become specialised you increase your commercial risk
If you go fab-lite you lose your competitive differentiation
You can merge - but few mergers are successful
If you narrow the scope of the R&D you limit tomorrow's opportunities
If you cull the product line, you restrict market opportunities.
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May be the current success of companies like Qualcomm and Mediatek has nothing to do with their being "Fabless" .Fab based Companies need to find out the real reason of loosing market share to fabless than to go fabless themselves.
Spot on Manik. I couldn't agree more
I like the cut of this Penn rake's jib! Why can't we have more no bull-shit, straight-down-the-line, I've-clearly-actually-thought-about-my-argument-and-looked-at-some-evidence folk like this filling the industry rag column inches?
Qualcomm and Mediatek are successful for two very different reasons: the former is an innovator the latter is very good in providing its customers what they ask for in a very strict deadline.
None of the two have followed the WS suggestions to:
Merge & Narrow the scope of your R&D
while unfortunately I'm experiencing them both and also being their competitor....what a frustration!
Malcolm's a bit of a one-off, The Baron. Many analysts are in the pockets of the companies.
Crikey, Stefano, it sounds painful. Good Luck.
Condemmning capital market is easy. I wouldn't lose sight of the fact that capital markets is supposed to support/fund new innovative growth. Instead of just pointing the finger on capital markets (which by definition is supposed to be greedy) and blaming them for all the problem the companies have faced, maybe it's worth doing a self-reflection and ask why companies were willing to accept capital from the mkt - the reason being they became over ambitious with their goals and when they failed to produce real value/innovation, companies implode, bringing down capital markets with them.
Future Horizon is frequently cited in your blogs, but are they really representative of actual mkt trends? Europe has nearly seized to be a meaningful portion of the semiconductor industry.