SAN JOSE, Calif. — In the early 1990s, semiconductor companies that didn't own their own fabs were considered runts. Today at least five of them rank among the world's largest chip vendors. Some of the credit for the shift goes to the sector's trade group, which will celebrate its 20th anniversary on December 11.
"It was generally understood, when you get to $150 to $200 million in revenues, you'd have your own fab, but I said no," said Robert Pepper, who in 1993 was chief executive of Level One, an up-and-coming startup in communications chips.
Pepper was deeply influenced by a 1964 article from the business guru Peter Drucker, who wrote that companies should invest only in activities that really add value, outsourcing everything else. "In retrospect, I see that's what the fabless semiconductor model is," Pepper recently told us.
At an October 1993 financial conference, Pepper buttonholed Mike Hackworth, a friend and CEO of Cirrus Logic, a much-larger chip company that also had no fab of its own. "I said we need to have some kind of organization to push the fabless model."
He was not alone. Bill O'Meara, CEO of C-Cube Microsystems, was pushing the same idea in private conversations, as was a hard-driving investor relations consultant named Jodi Shelton.
"All these guys went to same investors' conferences, and at every event they were asked, 'When are you going to have a fab?' Not why or if, but when -- there was no business model for being fabless," said Shelton.
Even though Level One and other companies were growing rapidly, Pepper said, "we didn't quite have the respect of the financial community, because as long as didn't have a fab, we were still considered pipsqueaks."