Q: How has Marvell been able to produce operational efficiencies within its supply chain?

A: Marvell runs one of the most efficient business operations in the industry. Over the last 12 months, we shipped more than one billion units of roughly 600 active products. In Q1 2010, our gross margin was 60 percent, and Marvell's on time delivery was close to a historical high while the inventory level was at a historical low. This means that although supply remains constrained, we believe we manage our supply chain very well.

Marvell has a small operations team, so how do we deliver this great efficiency? First, our industry has a fairly simple supply chain—a few foundries, a handful of packaging/testing houses and other suppliers. Since the founding of Marvell, we have formed strong partnerships with key supply chain vendors with the belief that the partnership must be long-term and reciprocal. The partnership cannot be transaction-based. Second, the past has proven that flexibility and agility are the most crucial elements of superior supply chain management, and Marvell deeply values both. Third, as a fabless semiconductor and an IC component company, Marvell optimizes its supply chain based on the assumption that its crystal ball used to forecast the market is obscure at best. This sounds pessimistic, but it is very true. As such, instead of only focusing on improving forecast quality, we put forth a large effort in hedging the risks of demand misforecast. With this in mind, our supply chain helps us deliver magic consistently.

Q: Scott Grant, managing director of Accenture's semiconductor business, recently stated that companies must shift from transaction-based companies to value-valued companies to succeed. What value-add is Marvell planning to deliver to its customers?

A: Marvell is definitely in the value-add business. Ten years ago, Marvell's value proposition was delivering differentiated intellectual property (IP) or functionality. Today, however, in addition to providing differentiated IP, we must be a complete solution provider. We also need to integrate more IP into a single chip which will, in turn, reduce the overall cost for our customers.

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Q: As a VCP, eSilicon's unique business model addresses the critical need for strategic collaboration within the semiconductor ecosystem. Define a VCP and how it can ease the difficulties fabless companies face early in the chip development process.

A: A VCP company is a direct response to the disaggregation of the global semiconductor supply chain. We strive to re-aggregate the companies that have disintegrated. We combine both commercial interests and value-added engineering to create an one-stop shop for complex chip development. The resulting product has our customer's name on it, not ours.

We ease the burdens fabless companies face on several fronts. Commercially, we have aggregate buying power, which is enhanced by suppliers encouraging us to be a channel for them. We can find and eliminate financial inefficiencies within the ecosystem. Technologically, as chip complexity increases, having at least one organization in the supply chain with in-house engineering talents that can be shared across multiple companies and chips is essential. This keeps companies from having to hire a stable full of experts that would not need to be utilized on a full-time basis.

Q: Who are some of eSilicon's partners, and what criteria does the company consider when developing its supply chain relationships?

A: Over the last 10 years, the supply chain has undergone significant change which has required eSilicon to engage with virtually every company in the chain. However, our lead and most important supplier has been and continues to be Taiwan Semiconductor Manufacturing Company (TSMC).

In terms of selecting supply chain partners, more often than not, our customers approach us with a set of technical requirements that dictate a specific area of the supply chain and specific suppliers. But from time to time, customers ask us for advice when it concerns deep technology. For example, they might have trouble choosing intellectual property (IP) from 10 different suppliers. eSilicon has the expertise to advise customers on picking the most optimal IP solution within an acceptable budget. I would say 80 percent of the time eSilicon's partnerships are previously determined by the customer, and the remainder is spent recommending suppliers that will optimize the customer's chip.

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