Napoleonic Foundries

Further to the warnings of Mentor’s Dr Wally Rhines, and others, of the growing power of the foundries and the IP companies comes new evidence that the foundries might be looking to gobble up both slices of the cake – manufacturing and design.

What has set the chickens flurrying in the IP vendors’ coop is the announcement by Dr Rick Tsai, TSMC’s CEO, that the company has spent $100m in last five years developing IP blocks. This is more than any IP vendor, except perhaps ARM, can afford to spend. The IP industry is growing fast. Rhines points out that the independent IP industry is growing at 20 per cent a year, will be worth about $2bn this year, and will double by 2010. However if, as seems already to be happening, the foundries develop, or convert, IP to fit only on their own processes, they will gain enormous power over their customers. Secondly, according to Rhines, the yield of chips at the finer geometries increasingly depends on knowing, and designing for, foundry processing data and the decision of how much, or how little foundry processing data is released, is entirely in the hands of foundries. That gives the foundry industry enormous power over the design houses. If the foundry industry decides to compete with the design industry, the foundries will have a huge competitive advantage. Thirdly, there’s the power of the foundries in having leading-edge process technology. TSMC says it will run its first commercial wafers on 45nm in September. Intel is saying it will ship its first production 45nm processors in the second half. If foundry has become as advanced as the leading IDM, then foundry has enormous power in its decisions about who gets access to the latest processes, and on what terms.. IDMs like NXP, Freescale, ST, Infineon and Texas Instruments, which are giving up the advantage of competitive differentiation via process technology, have to find another differentiators which can only be design and IP. At the moment the IDMs have the advantage over the foundries in design skills and IP libraries. But if the foundries gain a lock on design and IP, the IDMs will have no competitive differentiator at all.

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