Taiwan's Silicon Integrated Systems Corp. Eighteen months ago, it was riding high, ranking among the top three firms in the world designing chipsets, which link a personal computer's central processing unit to other parts of the machine. Its profits jumped more than six times between 1997 and 1999. Today, SIS is trying to recover from its first loss in over six years, and its shares are trading at a price about two-thirds below last year's high. Most critically, SIS must now run uphill to regain the market share that it lost last year. The woes of SIS are tied to its decision to move one rung down the production ladder, and build costly assembly lines to make the tiny silicon chips it designs.
Many analysts question the wisdom of management's strategy to diversify downstream.
Mr. Liu and others say the economics of the chip business favor nimble design houses that can quickly come out with new products. During the boom times when chip makers are operating their wafer-fabrication unit at full capacity, everyone wants their orders filled first. But instead, SIS made a big push to become an integrated designer and manufacturer like Intel, which uses its in-house fabs to produce chips under its own brand name. We need our own fab. But in February, SIS announced plans to build a more advanced 12-inch wafer fab that would give it the capacity to take outside orders.