The largest ASIC supplier for two years standing chalked up $2.7 billion in ASIC revenue in 2001, more than twice that of its nearest competitor, Agere Systems Inc., according to a new report from Gartner Dataquest, San Jose.

Though IBM's ASIC revenue grew a meager 1.2%, most of its rivals posted double-digit declines.

What's Big Blue doing right? Just about everything, analysts said.

"IBM is showing a focus on the ASIC business from a high level within the company that very few other vendors are showing right now," said Jordan Selburn, an analyst at iSuppli Corp. in San Jose.

That focus is evident in its technology as well, which has helped IBM lure a number of high-performance communications designs away from rivals in the last few years, Selburn said.

How much of IBM's ASIC revenue is derived from sales to customers outside IBM Corp.'s systems divisions has not been verified by market researchers, though IBM claims noncaptive ASIC sales in 2001 surpassed 50% of its ASIC revenue.

Its progress will be closely watched by LSI Logic Corp., which has long been the largest merchant market ASIC supplier. At $1.2 billion in revenue, LSI Logic tied NEC Corp. for third place in Data-quest's ASIC ranking.

An aggressive merchant market push sparked IBM's meteoric rise in the ASIC market, after essentially starting from scratch in the mid-1990s, analysts said.

"IBM continues to bring a lot to the party: superior fab technologies, a superior breadth of IP, and strong industry alliances," said Jerry Worchel, an analyst at In-Stat Group in Phoenix. "This is especially impressive when you consider that they were late in coming to the party when they first entered the merchant market."

Like its top-tier rivals, IBM attributes its position to creating more challenging ASIC designs that integrate more capabilities per chip, said Tim Ravey, director of design services at IBM Microelectronics' ASIC Group in Essex Junction, Vt.

"Our customers' demands have shifted toward system-on-a-chip designs with embedded controllers and more memory content based on either SRAM or DRAM," he said, noting that networking and server applications drive the bulk of IBM's ASIC business.

"Our customers are trying to integrate a higher level of functionality on a single piece of silicon. And whether the application is based on copper technology, DRAM or SRAM, or our [process technologies], we're doing things our competitors can't do, which [market research] numbers demonstrate."

Meeting the challenge

The ability to meet greater technology demands is a key reason the top four or five ASIC vendors have remained fairly closely matched over the years, even as they collectively distanced themselves from the pack.

"The biggest change we've seen is there are fewer and fewer competitors at the high end of the ASIC market," said a spokesman for LSI Logic, Milpitas, Calif. "The reason is, as the market shifts to smaller feature sizes, there's more pressure for suppliers to offer a full suite of IP, develop flexible and robust design methodologies, and maintain the engineering resources to handle the real challenging designs."

Analysts noted that the number of ASIC design starts has declined dramatically, and volume sales have also dropped. Additionally, designs are more complex, and the cost of ASIC technologies has skyrocketed.

In the '90s, there were more than 100 ASIC suppliers; today there are only about 12, In-Stat's Worchel said.

LSI Logic attributed the dramatic decline in 2001 worldwide ASIC revenue to a high concentration of business in communications applications.

"The communications space is very ASIC intensive," the LSI Logic spokesman said. "From the tail end of 2000 forward, communications has probably been as acutely affected by the [semiconductor industry] downturn as any other vertical market."

Staying on track

But the tough business climate has not altered LSI Logic's focus. Though it derives a growing share of its revenue from storage systems and standard components, the company still considers itself an ASIC contender-and, inherently, a communications company, the spokesman said.

IBM's ASIC offerings target different applications according to the processes with which they are produced, Ravey said. The company, for example, gears its 0.25-micron ASICs toward high-volume, price-sensitive applications; its 0.18-micron products for applications that require rapid production cycles; and its 0.13-micron process for high-performance, leading-edge uses.

In addition to networking and server applications, IBM is seeing more demand for its high-end technologies in "pervasive computing," such as PDAs, for which low power and high integration are especially crucial, Ravey said.

"We'll continue to proliferate our system-on-chip offerings by taking blocks of IP that are ready to be integrated," Ravey said. "We'll also continue to make investments in IP, which is integral [for success] in this space, especially for emerging applications."

In addition to continuing to offer a wide breadth of IP, supply chain management is key in the ASIC business, said John Boodhansingh, ASIC senior marketing manager at Agere Technologies Inc., Allentown, Pa.

"Our production chain strategy has always been based on a combination of third-party and internal fabs," Boodhansingh said. "So we got our supply chain systems to operate in that manner, which involves tight management of third parties, setting up ERP in conjunction with how we man our factories, and setting up electronic data transfer systems."