The Changing Business Model in IC Design House Jeremy Wang, Asia Pacific Executive Director, FSA

1. The Changing Business Model in IC Design House Jeremy Wang, Asia Pacific Executive Director, FSA 亞太區執行長 全球IC設計與委外代工協會

2. Agenda • Review of the Fabless Semiconductor Association • Status of the Global Fabless Segment • Regional Fabless Company Progress • Trends Creating Opportunities for Asia • Summary

3. About the FSA • History: Established in ‘94 to achieve a more optimal balance between wafer supply and demand • Today: Improve growth and increase the return on invested capital of the global fabless business model through a conducive environment for innovation. • Provide a platform for meaningful global collaboration between fabless companies, their partners and among partners; • Identify, debate and discuss business and technical issues and a focused effort to impact solutions to certain challenges • Provide members with timely research, resources, publications and survey information • Promote the fabless business model

4. Why Fabless Works

5. FSA Spurs EcoSystem Development Photomask EDA/IP Design Services Foundry Partners Over 200 Fabless Semi Companies OEM and ODM Customers Packaging Assembly Testing and Subsystems

6. FSA Global Strategy Benefits for Global Members Collaboratively identify and address industry challenges Education, networking and partnership events Global Industry Leadership Visibility Plug into an existing infrastructure of best practices and global leadership network Business and technical tools and solutions Access to comprehensive data, surveys and resources

7. = FSA member The Global Voice Membership Growth • The FSA has grown 10x since its inception in 1994 • Nine of the ten largest fabless companies worldwide are FSA members • Taiwan fabless leaders are members of the FSA Source: FSA

8. Jensen Huang NVidia A Global Community of Leaders Dr. Chin Wu ALi Bob Bailey PMC Sierra Woody Yang Silicon7 David French Cirrus Logic Chia Song Hwee Chartered Robert Tsao UMC Over 450 corporate members worldwide KY Ho ATI Dwight Decker Conexant Ming Kai Tsai MediaTek Jimmy S.M. Lee ISSI Sanjay Jha Qualcomm Wim Roelandts Xilinx Dr. Morris Chang TSMC Richard Chang ASE Dr. Nicky Lu Etron

9. Chairman Dr. Nicky Lu Etron Dr. Chin Wu ALi Gordon Gau Holtek Leadership Council Members Ming Kai Tsai MediaTek H.P. Lin Faraday Chou-Chye Huang Sunplus Dr. Woodward Yang Silicon7 Korean Delegate Wen-Chi Chen VIA Japanese Delegate Chinese Delegate

10. The Need for a Global Voice We are at a critical point in the semiconductor industry facing serious challenges. • An industry in transition: Fabless/hybrid model is the future business methodology for all but a few players…this in turn… • Creates serious challenges: A dominant outsourcing model will put a significant strain on the foundries, combined with the challenges of transitions to more advanced technologies. • The FSA seeks to identify solutions: A global unified voice is necessary to reduce industry barriers. Partnerships are more vital than ever at every point in the supply/design chain.

11. Now a Global Model Fabless Companies by Geography Regional Company Distribution Approximately 1,000 Fabless Companies Worldwide Source: FSA

12. Now a Global Model CY2003 Public Company Revenues Regional Public Company Revenue Distribution Source: FSA

13. Fabless Leaders Top Public Company Revenues Note: CYQ2’04 revenue will be available in early August Source: FSA

14. Fabless Leaders Market Capitalization Source: FSA

15. Fabless Funding Trends 2003 Investment Focus VCs primarily attracted to the Wireless, Networking and Consumer markets

16. Fabless Funding Trends Dollars/Deals by Quarter 156 Deals $2.6B Total 162 Deals $2.5B Total Up 52% Y-o-Y 135 Deals $1.6B Total 109 Deals $1.6B Total 92 Deals to Date

17. Regional Report - EMEA Leaders in Europe Leaders in Israel

18. Regional Report - Taiwan A Surging Segment of the Industry • Second in worldwide fabless revenue • Now focused on greater value-added offerings • Gig Ethernet • Wireless LAN • Cellular • System company abundance • Quick follower design capability Taiwan Fabless Revenue Source: IEK/ITRI (March 2004)

19. Regional Report - Taiwan Major Taiwan Fabless Companies

20. Fabless Industry Trends System-level knowledge is a must for success Software becoming an increasingly important part of the fabless offerings Accelerating shift to 300mm Accelerating scale of leading-edge manufacturing and process technology

21. The Tail that Wags the Global Semiconductor Industry The Great China Debate

22. China’s Role in the Global Semiconductor Industry • The Customer — a Huge Silicon Consumer • The Manufacturing Ally • A Huge Reservoir of Design Talent • Potential Design Partner or Competitor

23. China—As The Customer • Large potential market base • China accounted for approximately 18% of global semiconductor consumption in 2003. • China used $25 billion in microchips in 2003 • Consumer Demand • 1.3 billion consumers • Domestic demand for television sets exceeds 30 million units per year with 380 million TVs installed. • Yearly demand for PCs in China is expected to grow by more than 17% over the next three years. • Domestic Chinese cell phone manufacturing is forecast to reach 140 million in 2005.

24. China—The Manufacturing Ally Planned Groundbreakings/Openings ‘04 Strong/High Likelihood of Groundbreaking or Upgrade Possible Likelihood of Groundbreaking or Upgrade New Openings Source: Strategic Marketing Associates

25. China—The Manufacturing Ally “WTO membership will bring China into [compliance] with normal global business practices.” —Chris Chang, SMIC

26. Regional Report—China Semiconductor demands in China are serviced by 6-inch wafer suppliers building 0.30 to 2.0-micron technology… Q1 2003 Technology Migration Wafer Size Production by Feature Size 3, 4, 5-inch wafers 8-inch wafers 6-inch wafers 48% 42% 10% Source: iSuppli Feature Size (Micron)

27. Advantages vs. Disadvantages Disadvantages Advantages • IP protection limited • Immature design skills—no product, system or architectural talent • Lack of management • Lack of 3rd party IP • No technology roadmap • Quality issues • Lack of IP-rich content • Older technology • Lack of high gate count design expertise • Inability to keep pace with the market • Immature VC market & no IPO market • Proximity to end markets—24% CAGR • Ecosystem developing—end mkts, mfg., design, test, assembly and human capital • Government tax incentives • Reduction in VAT • Tax free and then 50% reduction • Training bases • Duty-free treatment for material imports for fabs • Free land and infrastructure assistance

28. The Shift to 300mmEnormous Capacity Ramp 300mm Fab Status Source: Strategic Marketing Associates, 2004

29. Foundry Capex Foundries Doubling 2004 Capex • Capex by the chip industry for new tools, plants, property and other long-lived assets will grow 42% in 2004, while capital spending by foundries will double • Strategic Marketing Associates (SMA) expects foundry investment at $9.9B represents 23% of the total $43B, more than double last year's amount. • Largest amount ever spent by foundries, both as a percentage of total spending and in absolute terms • Slightly more than $4B will be spent to add 0.13um capacity and almost as much will be spent to add 90-nm capacity. • TSMC, UMC and Chartered are focusing mainly on 90nm capacity, primarily in their 300-mm fabs. Source: SMA

30. Foundry Capex Foundries Doubling 2004 Capex • Altogether, Chinese foundries will increase capacity by 64%, adding 140,000 in equivalent 200-mm wafer capacity. • SMIC will account for 60% of added capacity, not only by continuing to ramp its fabs in Shanghai and ramping its recently acquired Motorola fab in Tianjin, but also by finishing its Fab 7 in Beijing, China's first 300-mm facility. • Six more foundry fabs to come on line in 2005, four of which will be 300mm. Those six fabs could add as much as 250,000 equivalent 200mm wafers in monthly capacity to the foundry industry, possibly fueling the next round of overcapacity early next year. Source: SMA

31. 2004 Foundry Capex Rankings Pure-play & IDMs Sources: iSuppli, IC Insights *UMC includes revenues from UMCj **Chartered includes revenues from SMP

32. Fabless Industry Challenges Increasingly complex supply chain Aggressive product, process and packaging roadmaps—developed independently Escalating product development costs Accelerating scale of leading-edge manufacturing and process technology

33. An Industry Challenged Escalating Cost of Chip Design • Design costs are rising from $2M for designs at 0.35-micron to more than $13M at 0.09-micron. • These costs assume that much of the design and verification can be done in low labor-rate geographies. • Today, design and verification of complex ICs is now running at 80% of total design cost.

34. Summary • The fabless model is now considered the future of the semiconductor industry • The FSA is The Global Voice for this critical industry segment • Difficult technology transitions and increasing product development complexity challenge our members • Taiwan/China are uniquely positioned to take advantage of certain industry trends and challenges

35. Thank you!王智立博士亞太區執行長e-mail: jwang@fsa.org全球IC設計與委外代工協會Fabless Semiconductor Association (FSA)