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September 13, 2013

Putting the ‘Silicon’ Back in Silicon Valley

Tiffany Trader

A blog article, titled “Silicon Valley Must Reinvigorate the Semiconductor Industry,” points to a steadily decreasing fab industry and calls on Silicon Valley to refocus its efforts on the transformation of this sector forthwith.

Angel Orrantia, who penned the article, is the Director of Business Development at SKTA InnoPartners LLC, a startup accelerator that secures seed funding for early stage companies.

He writes that “investments in fabless semiconductor startups have been steadily decreasing in both number and dollars since 2000.”

He attributes the drop-off to two primary reasons. There are fewer companies bowing out via mergers and acquisitions. The number has fallen from a high of more than 120 in 2000 to a low in 2009 of just over 40. The number of IPOs has likewise dropped. While there were 26 in 2000, there were none in the years 2002, 2008, and 2009. In 2012, fewer than five fabless semiconductor companies went public.

During the same time, there’s been a parallel rise in software startups. It’s no coincidence, remarks Orrantia.

“With limited exit options, venture capitalists and other investors are drawn to the higher and faster returns of software companies,” he writes. “The semiconductor industry has largely been abandoned by all except the most ardent believers.”

As we enter this age of software-defined everything, it’s easy to forget that hardware and physical networking undergirds the entire computing platform. Yet other countries have not fallen prey to this way of thinking. China, Taiwan, India – they all continue to invest in semiconductor research, design and manufacturing, says Orrantia.

The issue hasn’t yet reached the “brain-drain” tipping point, in Orrantia’s view, but he notes that the current model is not sustainable if Silicon Valley and by extension the US is to maintain its leadership position in semiconductors and enterprise hardware.

Orrantia proposes a different model to help usher in a re-energized semiconductor sector, and it’s one The Global Semiconductor Alliance (GSA) also espouses, called the “capital-lite” structure. The foundation for this model involves matching a startup with a strategic partner who provides guidance on a range of issues. The startup is assured funding, facilities, professional services, as well as a guaranteed exit. The strategic partner can use the startup’s solution to meet a product portfolio need or enter a new market.

“Properly executed, this model drastically shortens development times and increases the number of entrepreneurial pipe-dreams that become industry creating innovations,” notes Orrantia. “It’s a win-win for the Silicon Valley semiconductor industry.”

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