Venture capitalists are avoiding chip investments like the plague. In the third quarter, chip design and chip manufacturing companies raised $231.6 million, down 44 percent from the second quarter and down 57 percent from a year ago, according to the Global Semiconductor Alliance.
The industry trade group’s report says that funding deals have decreased for two consecutive quarters. The total number of transactions of fabless (chip design houses that don’t have their own factories) and IDM (integrated device manufacturers that do have factories) chip companies were down 13 percent from the second quarter and down 45 percent from a year ago.
This adds some context to stories I’ve written lately on chip companies such as ZeroG Wireless, although many of these companies I’ve written about are exceptions to the rule. Other recent fundings include Silicon Blue, Advanced Micro-Fabrication, Movidia, Samplify Systems, Achronix, and Altair Semiconductor.
Many companies have complained that the costs of custom design “masks,” or the templates needed to manufacture a chip, have skyrocketed. That has driven the cost of making a chip way up, and there’s no guarantee that the first set of masks will result in a working chip.
Years ago, companies responded to the growing complexity of the chip business with dis-integration. Chip design tool makers such as Applied Materials split off from the chip manufacturers. Chip design companies such as fabless firms, which don’t have factories, split off and used contract chip manufacturers known as foundries. And these days, intellectual property companies such as ARM supply designs or technologies that can be used in somebody else’s chip. Even with all of this dis-integration, costs are running high in each segment. Hence, the money is moving into areas where it can generate better returns.
About 35 chip companies of all categories raised $511.7 million in the third quarter, down 4 percent from the second quarter and down 36 percent from a year ago. The total number of deals was down 10 percent from the second quarter and down 44 percent from a year ago.
The group cited the weak economy and the increased cost and time required to go public as reasons for the weakness in the semiconductor sector. There were no venture-backed initial public offerings for chip companies in the quarter — although one, Avago Technologies, filed to go public in the quarter.
There were 31 semiconductor industry merger & acquisition deals in the quarter, down 11 percent from the second quarter and up 15 percent from a year ago.
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