In-house production reduces costs and time to market
After raising its initial equity funding ($18 m) in February 2001, VSK set out to achieve its goals. This article chronicles the company s decision to build a wafer fabrication plant rather than outsource, the challenges of constructing an in-house fab in less than five months, and the rewards of coming in under budget.
In-house fab vs outsourcing
In this era of mega fabs and the astronomical costs associated with building class 100 clean rooms, it is understandable that a small company would have a difficult decision to make in terms of building an in-house wafer fabrication facility or remaining a fabless operation. Why would a young company undertake the challenge and risk of building a fab? VSK carefully considered the answer to this question.
Building a wafer fab is capital intensive and once the fab is built the operating costs are high. Any small company must weigh the operational benefits against these costs before committing to this business model. Construction of the facility s shell, with proper air-handling systems installed to maintain a class 100 environment, can typically cost in excess of $1200 per sq. ft. When factoring in the support systems, including de-ionized water, process chilled water, house N2, process gases and more, this figure can easily exceed $2000 per sq. ft. These costs do not include purchasing and installing process equipment or the day-to-day operating expenses. Considering these figures, it s easy to see why a small company with limited resources would be tempted to purchase their devices from an established foundry. However, after lengthy analysis, VSK chose to build its own fab, and some of the reasons for this decision are as follows:
Cost It costs more to buy a wafer from a foundry than it does to produce a wafer in-house. As a vendor, foundries must recover some of their investment by marking up their processing service fees. The operating expenses and the overhead of the vendor are also included in the cost. Clients that either do not have a facility, or do not have the capacity or equipment set to support the type of wafer processing their company requires, end up paying for this. This cost differential is one of the key factors that VSK considered when deciding whether to be an in-house fab or to outsource for wafers. An in-house wafer fab enjoys one more degree of freedom - it allows the company to directly control its costs. This freedom is lost when wafer fabrication is outsourced to a foundry.
Intellectual property Any company s intellectual property (IP) and proprietary knowledge are much easier to protect if they are kept in-house. Most foundries will not have all the process expertise readily available to run a client s particular product on their line. This means the outsourcing company must share vital details to the foundry, details that would be better guarded if they did not have to be shared with an outside firm. The foundry will often need personnel and expertise from the client to successfully manufacture the client s products. The question to consider is: how valuable is the company s expertise and IP? Companies go to great lengths to protect their trade secrets (e.g. Kentucky Fried Chicken or Coca-Cola s secret recipes), yet when it comes to contracting out manufacturing, this point often gets overlooked. There are certainly more benefits to having your own facility for wafer fabrication than simply protecting your IP and trade secrets. However, in VSK s case, this was a key consideration in the decision to build.
Time to market Having an in-house fabrication facility enables R&D to be fast-tracked. The cycle time is measured in days (not weeks or months), making a young company more agile. There is usually time and equipment available at almost any hour of the day to do a quick study or experiment. Having this accessibility to process development tools creates a shorter learning cycle, which can be crucial to being responsive to new opportunities in the market and, in particular, to key customers. The resulting low cost of R&D also helps in product customization. More importantly, it eliminates supply-chain dependencies that can be disastrous for small companies.
Tangible value One of the key metrics of a successful start-up is its ability to build tangible assets with sustainable value. Many factors go into determining this value. All other things being equal, companies that have tangible, measurable assets have more value than those which have intangible assets. A wafer fabrication facility is considered a hard asset that brings great value to the company. This type of asset is much more valuable than its book value.
VSK s decision to build an in-house fabrication plant was reached after considering the factors cited above. Total ownership of the production process leads to tighter control over costs, quality and supply. It can shorten the learning cycle that ultimately leads to faster design turnaround and consequently faster time to market.
