Portfolio News
Strategy of a chip start-up
By Mark Boslet
Mercury News
Like many entrepreneurs, Naveed Sherwani dreams of taking his start-up, Open Silicon, public.
"I think we are getting closer," he said of the Milpitas-based custom-chip company, but no plans have been made.
Sherwani, who is co-founder and chief executive, says his goal is to build up a reservoir of new customer contracts as a foundation for future growth.
"We need to grow this business," said Sherwani, whose firm has seen its revenue increase by about 108 percent to an estimated $54 million last year. That means working the relationships the 47-year-old executive developed over 10 years as an Intel employee and entrepreneur, and that stretch from the United States to India.
In a sense, Open Silicon is a throwback to a time in the late 1980s when valley chip start-ups were as prevalent as Internet companies are today.
The company's growing business is evidence as well that with the right connections, financial backing and strategy, a young chip company can thrive amid today's more mature semiconductor market.
"This is a company that has a historical track record of spectacular growth," said Robert Chaplinsky, general partner at Bridgescale Partners, one of Open Silicon's funders.
"You've got to pay attention."
Bridgescale wasn't the only firm that paid attention. Since its inception, Open Silicon has attracted $45 million in venture funding. Still, it takes more than fresh cash to turn an idea into a successful product or service.
Custom chips
Open Silicon's innovation was its strategy to outsource chip design to lower-cost workers in India. The company designs and contracts to build specialized ASICs - or application specific integrated circuits - for use in cell phones, networking gear and video-game machines.
Customers who don't want to create chips in-house turn to Open Silicon, which sends the project to its design teams in Bangalore, where it employs 60 of its 105 workers.
At a time when the costs of ASIC development are rising, "their whole strategy is cost," said Bryan Lewis, a chief analyst at Gartner, a research firm. "Open Silicon is bringing ASICs to the masses."
Sherwani said he began assembling his network of contacts during a stint at Intel that began in 1993 and ended in 2003. It was there he conceived of his ASIC business and built a similar in-house business for Intel. When Intel changed its mind and closed the business, he lured five co-workers to help start his company. Within nine months, he brought over another 20 former colleagues, both in the United States and India.
"At the time, none of this craziness was going on in Bangalore," he said, explaining why he was able to coax the workers to join him in the now bustling tech center. "Very little was going on."
Along with recruiting key workers, Sherwani attracted chip-industry vendors to work with his company and to expand the services it could offer. On the list are Mountain View-based Synopsys, Advanced Semiconductor Engineering of Taiwan and chip foundry Taiwan Semiconductor Manufacturing Co., or TSMC.
"I think the thing that helped us was our vendors," Sherwani said.
Venture funding
Open Silicon's ability to weave together a broad range of services from chip design to manufacturing to packaging helped lure customers.
"Chips are worse than rocket science," said Jeff Broughton, senior director of engineering at QLogic, a storage products company from Aliso Viejo. "There are many difficulties and opportunities for people to fall into finger-pointing."
Open Silicon has been frank about its challenges, and projects have gone smoothly, said Broughton, who had the company make two chips for his start-up PathScale, which was acquired by QLogic in 2006.
Open Silicon has run up against competition in the $24 billion ASIC market from top chip houses, such as International Business Machines and Texas Instruments, along with several smaller start-ups, such as eSilicon of Sunnyvale.
Yet it was able to increase revenue by more than 100 percent last year and is "right on the edge of making money," Lewis said. "Without the connection to India, it would have been hard to be low-cost," he said. "It played a big role."
The company has attracted funding from big-name venture capitalists, including Sequoia Capital, Norwest Venture Partners and InterWest Partners.
The advantage Open Silicon offers is that it can negotiate pricing with chip factories and other vendors based on a volume of business that none of its customers could attain by themselves, said Ryan Floyd, a general partner at Storm Ventures, a VC firm that has not invested in the company.
"It really can reduce the cost of producing silicon" at a time when "people are counting dimes and nickels," said Floyd.
Shortly after joining Intel, Sherwani began investigating the construction of an ASIC business inside the company similar in design to what Open Silicon does now. Intel launched the business, but closed it a short while later for fears it would steal sales from its flagship computer chip operations, he said. An Intel spokesman declined comment.
Vendor support
With the business shuttered, vendors offered encouragement, suggesting Sherwani form Open Silicon to pick up where Intel left off. He did, and from 2003 to 2006 the start-up won contracts from customers for 85 chip designs.
Sherwani says he might have founded his company without the vendor support.
But they "accelerated it," he said.