UK leads Europe in chip design

Despite reports of a UK brain drain, the UK continues to lead the way in independent chip design firms - despite being absolutely fabless

The UK is well ahead of other European countries in what industry analysts say is the next big trend in the microprocessor world: chipless and fabless design.

Britain accounted for 39.2 percent out of a total of $1.99bn (about £1.27bn) of revenues from European contract design, fabless and silicon intellectual property companies, according to the European Chipless & Fabless IC Design House Report published by UK research firm Future Horizons. These firms, including well-known names such as ARM Holdings, rely on third-party manufacturers, focussing their efforts on chip design.

Sixty-nine of a total of 195 European firms in the sector were located in Britain, Future Horizons said.

"The UK is well out ahead of other European countries in terms of that cycle, it is very de-industrialised," said Future Horizons semiconductor industry analyst Chris Ryan.

Israel had the second-largest share with 15.5 percent, while Germany and Benelux both took in 12.2 percent.

Industry analysts say that such companies, and particularly chip intellectual property (IP) firms, are a growing force in the microchip industry. Fabless companies manufacture their own products but outsource silicon wafer processing to foundries such as Taiwan Semiconductor Manufacturing Co. (TSMC). Contract design companies are used by large manufacturers as a dedicated source of chip designs. Chip IP companies do not build or manufacture complete chips, but design and license chip building blocks to a large customer base of manufacturers.

The biggest semiconductor companies, such as Intel, Texas Instruments or Infineon still control most of their own design and manufacturing process, but they are increasingly turning to third-parties for designs or IP, as chips require more and more complex capabilities. For example, Intel uses ARM designs along with its own technology in the XScale chip architecture for embedded devices such as PDAs and tablet PCs.

"System and semiconductor companies alike are increasingly challenged to find both the knowledge and resources necessary to achieve the mammoth task of managing and designing the complex ICs, and are increasingly resorting to outside expertise," the report said.

Future Horizons said that the European IC design, fabless and chipless sector grew by compound annual growth rate of 29.7 percent between 1995 and 2001, to its current size of nearly $2bn, the European semiconductor industry over the same period declined by 0.6 percent.

IC design firms first became a force in the industry in the early 1980s, with fabless companies emerging in the late 1980s and chip IP companies, or "chipless" companies, becoming mainstream only in the mid-1990s, according to Future Horizons. IC design activity is now decreasing, with the emphasis increasingly on fabless and chipless firms.

Other examples of chipless companies are ARC International of the UK and Rambus and Mips of the US, while well-known fabless chip makers include Broadcom and 3DLabs of the US.

Ryan said that the UK's strength in the contract design, chipless and fabless sector is partly due to a strong pool of design skills in the country, and partly because Britain no longer has many large electronics companies.

"There aren't many electronics companies left in the UK that originate in the UK. Those companies have shrunk to a very small percentage of the GDP," he said. "Those designers have started their own companies over the past 20 years."

Other European countries still have world-class semiconductor manufacturers, including ST Microelectronics, the result of a French-Italian merger, which is headquartered in Geneva; Infineon, in Germany; and Phillips in the Netherlands.

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