SSMC focuses future growth on 'specialty wafers'

SINGAPORE--Chipmaker Systems on Silicon Manufacturing (SSMC) is shifting its focus from producing lower-margin "plain vanilla" chips in favor of more lucrative "specialty wafers", the company has revealed.

Essentially, SSMC will no longer compete on chips catering to devices such as smaller, faster notebooks and smartphones, as companies in this field are now competing primarily on costs, SSMC CEO Jagadish C.V. said Wednesday during a media conference.

Instead, the company will focus on producing high-performance mixed signal (HPMS) semiconductor chips, or specialty wafers, to support technology applications aimed at solving everyday challenges, he added.

"We're looking at increasing our specialty wafers to make up 60 percent of our total product portfolio, and plain vanilla chips to take the remaining 40 percent," said Jagadish. "In the future, the proportion of specialty wafers should increase to 70 or 80 percent."

When queried about the shift in focus, Jagadish told ZDNet Asia specialty wafers are "definitely more lucrative" than plain vanilla chips. Furthermore, he pointed out the company is not in the position to compete with chip manufacturers in markets such as China that can produce chips in higher volumes and at lower prices.

"Instead, we are leveraging on our access to technologies patented by NXP, such as near-field communications, and incorporate them into our chips to meet people's needs," the executive said.

Chips used in biometric passports have, for example, proven to be successful, he added. According to Jagadish, SSMC produces "80 percent of the chips" embedded in these passports worldwide through its operations in Singapore.

However, he acknowledged that many of the technologies the company targets to supply chips for, are emerging and not yet widely adopted, which will impact the company's revenue and growth.

To counter this, he said that the quantities produced are smaller and the price charged for each chip will be higher than plain vanilla ones. But, finding the right balance between volume and price is "constantly a challenge", according to Jagadish.

"We will only enter into projects with a minimum production of 1,000 wafers per month. Anything less than that will mean we have too large a product portfolio, and this is unsustainable in the long run," he pointed out.

SSMC's move, noted Jagadish, is aligned with the overall HPMS strategies outlined by majority shareholder, NXP Semiconductors, which owns 60 percent stake in the joint venture, and Taiwan Semiconductor Manufacturing Company (TSMC).

In an earlier interview, Rene Penning de Vries, NXP's senior vice president and CTO, told ZDNet Asia that the company will be banking on HPMS technology to produce solutions for everyday living. TSMC, meanwhile, is adopting a similar "MR ABCD" strategy, said Jagadish, with the acronym representing areas the Taiwanese parent company is focusing on such as Mems (Micro-Electro-Mechanical System), radio frequency and analog technologies.

Additional investments
SSMC also announced Wednesday it will be investing US$30 million over the next two years to beef up its capabilities. Jagadish said that US$18.6 million is meant for research and development (R&D) efforts while the remaining US$13.4 million will be dedicated to expanding its manufacturing capability to "address the bottleneck" the company is currently facing.

The sum is on top of a S$65 million (US$46.35 million) R&D investment the company had announced in November 2007. According to him, such investments have resulted in SSMC being able to produce 53,000 wafers each month, up from an output of 30,000 wafers when the plant was first built 10 years ago.

On the overall chip landscape, Jagadish said that the market will continue to follow the "six quarters of growth followed by two quarters of correction" cycle, and predicted that the current "strong uptrend" in demand for chips is likely to continue until mid-2011 before slowing in the subsequent two quarters.

This was a slightly different prognosis given by TSMC Chairman, Morris Chang, who said that the chip market is expected to slow in the second half of this year, before picking up again in 2011, according to an EE Times report.