I sat down with Alex Benik of Battery Ventures Tuesday morning to swap perspectives on the Communication components business, semiconductors in particular.
We lamented the growing barriers to entry for fabless startups, and talked about what needed to be done differently to make Telecom chip startups a reality. While everyone is avoiding Telecom chips like the plague, investors have not lost their moon-shot mentality of funding 6 businesses all chasing the latest IEEE standard (in this case, Copper 10GE Ethernet transceivers). Two land successfully and folks forget about the four that didn’t.
Other than Cortina, and the FTTH PON guys, there have been virtually no Telecom semi startups in the past 5 years. Zero. Not only that, but the incumbents have been doing little except make duals, quad, and octal port versions of the same designs from 2002.
Pundits proclaim the rebirth of optical yet no money is flowing. Which either means the pundits are wrong or a very big opportunity is lurking out there.
I’m convinced that a massive innovation opportunity exists in this sector that either an incumbent or startup can capitalize on. As is usual for me, I think it exists in the dirtiest and ugliest sector of all - Optical Transport. If you have an idea, I suggest you speak with Alex, because private investments just are not our bag.
This post will be a question. By next post will be a comment.
What exactly are you talking about in terms of the “growing barriers to entry”? Are you talking about the difficulty in obtaining financing, which can change with the wind; or, are you talking about something more structural, such as the increasing complexity and intellectual property needs of these chips?
The big one is the growing cost of developing as process geometries shrink. 90nm proto lots cost near $1MM. Therefore, you need to cram as much functionality into a device in order to amortize the fab costs. This makes the development of the device more expensive.
I’m sure a more detailed analysis exists, but the cost per gate to develop a chip has not dropped at the same rate as fab capabilities. Companies with scale, size, and access to capital have an advantage.
The difficulty in obtaining financing is directly related to this problem. If someone had a great idea manufacturable in 0.18u funding would not be as difficult. It is also possible that someone can break the development cost barrier as well.