Outsourcing’s New Face

By Ed Sperling

As the semiconductor industry digs out from one of the worst downturns in decades, the business of semiconductor design and engineering is changing. While the architecture and features are still being developed by chip companies, the actual work of developing the chip increasingly is being done by third parties.

Outsourcing is hardly new concept in business. In the early part of the 20th century, most automobile makers recognized that it was far more efficient to design a car than produce the parts needed to run it. Outsourcing the design itself, however, has never proven successful because otherwise there would be no differentiation from one manufacturer to the next.

Even within this outsourcing there is specialization and stratification.

IDMs as foundries

Over the past decade, almost all the major integrated device manufacturers have offered foundry services to customers to help offset these costs, usually within the bounds of very restrictive designs. IBM, AMD, Toshiba and now Intel have all taken this approach, and so far none has been particularly successful. Others, such as Texas Instruments, have handed their manufacturing over to major foundries and given up trying to keep pace with rising costs for digital or advanced mixed signal chips.

The latest player to put a stake in this market is Globalfoundries, the AMD joint venture with Advanced Technology Investment Company (ATIC), the investment arm of the Abu Dhabi government that recently announced its intention to buy Chartered Semiconductor. Globalfoundries’ approach is to become a virtual IDM, creating design kits, IP, processes, and even transistor tuning and metal stacks. It does not do the place and route, however, which some of the other IDM foundries have done in the past.

“What we’re doing differently is providing feedback to customers,” said Subramani Kengeri, vice president of design solutions at Globalfoundries. “The disaggregated supply chain model was broken. We’re able to provide very early access, certification for IP—that’s product grade qualification—and we can emulate an SoC so the building blocks are verified at almost the SoC level. We also have a ‘gate first’ approach, while Intel has a ‘gate last’ approach. That gives us more than two times the gate density, and we offer SOI for super high performance.”

This is no ordinary foundry play, and Intel’s approach is to focus on a menu of possible services ranging from power and memory choices to the number of layers and transistor strategy. (See Figure 1) Paul Otellini, Intel president and CEO, said at the Intel Developer Forum last month that he expects SoCs to surpass processors as the company’s revenue stream over the next decade.

Figure 1: Intel's SoC offering.

IBM, meanwhile, has been offering what it calls end-to-end integration from design to manufacturing to characterization and test, and Toshiba has been providing complete design services for the past several years.

How successful these ventures are is unknown. None of these companies break out their revenues for these operations.

Foundries as design houses

While the IDMs seek to recoup their development costs with design and manufacturing services, pure-play foundries aren’t looking so pure-play anymore, either.

The problem with the pure-play model is that majority of designs are being manufactured at older process nodes, which is not where foundries can generate the highest profit. It’s also not where they gain the money to develop new processors or the experience on those new processes to mature them, thereby simplifying the move to the most advanced nodes and amortizing the whole investment.

This explains why TSMC took a 49% stake in Global Unichip Corp. six years ago (it has since reduced that investment), and why the big names on the GUC board of directors are the same ones on TSMC’s board. In fact, looking at the two boards it’s hard to differentiate the companies.

Rival UMC, meanwhile, struck a design services agreement with Bangalore-based Wipro Technologies for the entire design cycle for ASICs and SoCs.

Until recently, when ATIC made a bid for Chartered, it was Chartered that was claiming it was the last major pure-play foundry because of these outside relationships.

Design houses as advanced chip engineers

The last piece to change in the supply chain is the one that was predicted first—but differently. As designs become more complicated and time-to-market pressures mount for companies, many thought they would outsource some of their older designs to companies that could churn them out relatively cheaply while focusing design work on the bleeding edge of Moore’s Law.

What’s happened, however, is quite different from the predictions. Companies like eSilicon and OpenSilicon are now developing much more complex designs than anyone would have guessed. In fact, eSilicon now views 40nm as mainstream, according to Prasad Subramaniam, the company’s vice president of design technology.

Subramaniam notes that complexity is becoming so great that it’s difficult for many companies to turn out a chip or two every year. Engineers don’t have enough experience with some of the tools and difficult techniques such as multiple power islands and complex verification to work at these nodes.

Open-Silicon has reached the same conclusion after initially pitching its design services for older process nodes.

“The downturn convinced people to outsource,” said Naveed Sherwani, Open-Silicon’s president and CEO. “Three years ago our customers were startups. Now they’re large companies. We’re finding that our real competition now is the internal teams within these companies. The VP of engineering services now sees us as competition. We’re writing RTL for them.”