RealTime IT News

SigmaTel a Bright Spot in Fabless Landscape

Funding for fabless semiconductor plants may be flip-flopping, but that is not frightening one firm from filing for that formally forbidden word -- IPO.

Chipmaker SigmaTel filed a prospectus last week with the Securities and Exchange Commission (SEC) on the road towards its initial public offering; a debut that is expected to raise $75 million by year's end. The company is expecting to be traded under the symbol SGTL. The process could take as much as three months to process.

The Austin, Texas-based company, known for making PC audio encoder/decoder (codec) chips has turned its eyes toward designing mixed-signal integrated circuits and digital signal processors to other areas. As a fabless company, SigmaTel now makes audio codecs and other chips used in cell phones, MP3 players as well as chips that link PCs, printers and digital cameras through high-speed infrared links.

The company's major customers include Sony , Samsung, Holystone Enterprise and Creative Technology. Creative also owns about 30 percent of SigmaTel; Battery Ventures owns another 25 percent. The company also recently achieved ISO status. Currently, SigmaTel holds 34 U.S. patents with as many as 42 applications pending.

Funding Off in Q2
SigmaTel's success is not shared by the majority of fabless houses. According to the Fabless Semiconductor Association's "2003 Q2 Fabless Fundings Report" issued Tuesday, fabless funding deals experienced a relatively weak second quarter, as the dollar amount raised by fabless companies declined 21 percent quarter-over-quarter.

Fabless design production firms focus on the design, development and marketing of their products and form alliances with silicon wafer manufacturers, or foundries. The practice is extremely beneficial for smaller chip companies, which can't afford their own facilities.

The trade group also found fabless funding deals declined in the first half of 2003 for the third straight year. No fewer than 62 fabless companies closed $758.8 million in funding during the first six months of this year. That pales in comparison to the $940.9 million closed by 58 companies in the first six months of 2002 and $1.4 billion closed by 90 companies in during the same time period in 2001. And although the total number of dollars raised was lower than before the FSA says the total number of deals closed by fabless companies increased by 7 percent.

"The investment environment for private fabless companies is improving, with IT spending accelerating in the second half of 2003," said Mark Stevens, a partner with Sequoia Capital. "Companies that have completed chips and are just entering production (i.e. middle-stage companies) are especially attractive given the present risk/reward profile expectations over the next three years."

FSA says funding to all semiconductor-related companies is on the decline so far this year. According to VentureWire figures, 76 semiconductor companies raised $897 million in the first half of the year, compared with the $1 billion that 90 companies raised in the first half of 2002.

On a positive note, the group says fabless sector is continuing to outperform the semiconductor industry as a whole, raising 85 percent of all semiconductor funding since the beginning of this year.

SigmaTel is hoping to continue that trend and become one of less than 100 publicly traded fabless companies that include the likes of QUALCOMM, NVIDIA, Xilinx, Broadcom, Altera, CirrusLogic, Adaptec, SanDisk, Transmeta, Marvell and QLogic.