`Real Men Have Fabs'

Odd as it sounds, chipmaker Actel Corp. doesn't make chips. It sells them, all right, and its designs for so-called programmable logic devices are hot. But the nine-year-old company farms out production to true chipmakers with spare capacity in their wafer-fabrication plants. This strategy was a winner for six years. Actel's sales took off in 1988--and rose nearly 50% just in 1993's first nine months. Then the downside of going "fabless" showed up. Manufacturing went awry at one of its foundries, and Actel couldn't find a pinch-hitter. Some $3 million in expected fourth-quarter sales went down the drain, virtually wiping out profits.

Actel is hardly alone. "The fabs are full," laments CEO John C. East. And that could signal the end of an era. It means that 250 fabless chip companies--the startup stars of Silicon Valley for a decade--face a growth crisis. As their chip-production options shrink, it will be hard for them to avoid a retreat. At the least, the character of tomorrow's semiconductor industry is going to change.