RIP Microprocessor Startups

I’ve been talking about the enormous amount of cash it takes to create any kind of chip company and expressing doubts about the number of startups we will see getting financial backing to create truly innovative ideas in semiconductors. Analyst Linley Gwennap apparently feels the same way, because he looked at the sale of P.A. Semi to Apple and the recent sale of Montalvo to Sun (likely for less than the $73 million it raised) and concludes:

“The Apple deal will double the $126 million invested in P.A. Semi, a positive return but modest by VC standards. With the possible exception of RMI (which predates Dobberpuhl’s company), we expect P.A. Semi will be the last processor startup to generate a positive exit after such sizable funding. Montalvo will probably be the last processor startup to even raise that kind of money. Microprocessors have become a big-boy game; newcomers need not apply.”

As the last big microprocessor startup standing, Raza Microelectronics (RMI) was the brainchild of Atiq Raza, who formed a company that was later bought by AMD and turned into one of the company’s core microprocessors. RMI has raised more than $120 million to build communications and networking processors. I don’t want to believe it’s the end of startups trying their hand against the likes of AMD or Intel, but until we come to a breakthrough in materials, ways to reduce the IP hurdles or the cost of masks and design, entrepreneurial chip engineers will have to focus on power managment and cooling, MEMS and RF.