Seeking capital to compete with IBM in silicon-germanium

Electronic News, Feb 16, 1998 by Gale Morrison

Ottawa, Canada--Derek C. Houghton, former researcher and now entrepeneurial president of SiGe Microsystems Technology (SMT), is out looking for venture capital. His biggest problem: convincing his audiences that he and SMT can indeed go head-to-head with IBM Microelectronics (EN, Feb. 9), the inventor of volume silicon germanium (SiGe) production and a formidable manufacturing foe in any respect.

His most persuasive argument: the end-market for the high frequency, integration friendly SiGe parts may be big enough for the two of them, and then some. Dr. Houghton said the two are addressing "markets in the RF and high speed digital IC areas, which had combined sales exceeding $12 billion in 1995," and which have tremendous upside potential as wireless application IC engineering reality catches up with single-chip basestation and handset theory. (The resultant downside potential exists with gallium arsenide vendors like TriQuint Semiconductor and Anadigics, and the wide discrete semiconductor market.)

In meeting with venture capitalists this month, Houghton is seeking one additional round of venture funding and then plans an initial public offering (IPO) two years from now. SMT's current investors are various business development and technology arms of the Canadian government, which has spent about $1 million, he said.

Dr. Houghton spun SMT out from Canada's National Research Council, where he worked for 13 years in Ottawa. During his career he has worked for British Telecom and NorTel, and was the Hitachi Professor for Quantum Materials at the University of Japan in Tokyo. He has on board an unnamed design group leader who will become a VP, and said last week that more members of an executive team are committed to move to SMT when he secures the funding to pay them.

"Our goal is to build a successful chip company that can grow to annual sales of $50 million by the year 2000," Dr. Houghton writes. SMT's primary business goals are to deliver customized SiGe development and production processing for semiconductor producers and to fabricate RF and wireless chips and modules for direct sales. In the fine print, one will learn that SMT and IBM have "negotiated a patent license agreement" for SMT to use the process, but neither company would expand on this.

SMT's latter goal of design and selling its own SiGe parts is exactly the same as the SiGe of IBM's new OEM group, which combines its Microelectronics and Storage businesses. In fact, IBM agreed to spend $180 million in cash last week to get designers by purchasing CommQuest, a San Diego area wireless communications company.

But contrary to SiGe Micro's goal of consulting on and sharing the process of turning a standard CMOS line into a SiGe-capable line, IBM has no intention of sharing its SiGe recipe with other manufacturers. IBM has CMOS manufacturing capacity ready for conversion in overabundance and wants to be their customers' foundry; SMT does not and probably could not find the kind of money to get it, even if high tech uber-VC John Doerr signed on.

Dr. Houghton said he would be able to meet customers' volume requirements now, using capacity for 5,000 150mm (six-inch) wafers per month at the wafer fab of Canada's research organization. He said a customer will come to market in April with a volume product and that two other customers are not far behind. His business plan includes five other customers. One of these SMT tutored to bring up its own SiGe capability, he said. Early word of this commercial movement probably contributed to the price drops Anadigics and TriQuint reported last week.

Yet, the wireless handset market has been among the industry's most volatile in the last year. Standards and protocol battles, particularly between Qualcomm-driven CDMA and the Europe-preferred GSM, have kept the ground shifting, and the IEEE wireless LAN standard process was all-out war, from some accounts. As one Harris Semiconductor executive put it last year: "Anyone who tells you they know exactly what's happening in wireless standards is lying."

Anadigics earlier this month said it found customers in a rapid switchover to "lower end" handsets that wouldn't mean repeat orders, company chairman Ronald Rosenzweig said, and its warning to Wall Street about it sent the stock down by 50 percent. And several electronics concerns cited weakness in handset sales for both the December-ending and September-ending quarters.

Still, Mr. Houghton as well as IBM are betting that the lower power and cheaper production of SiGe parts will pay off in the long run. And they are betting that the applications outside handsets, like analog signal processing in wireless base stations and test and instrumentation, are ready for SiGe.