August 10, 2004 – Despite the Wall St. community’s increasingly negative outlook on the chip industry, fabless companies still are raking in cash at a rate not seen since the previous peak in early 2001, according to the Fabless Semiconductor Association (FSA).

Fabless companies generated $543.7 million in investments in 2Q04, up 62% from the $335.4 million raised in 2Q03. The number of companies receiving funding jumped from 27 a year ago to 45, the largest number of deals closed since 52 in 1Q01. Compared with 1Q04, the number of funded companies increased, but the amount declined slightly. Through June, 90 firms received a total of $1.2 billion in investments, the largest amount since $1.4 billion was raised in 1H01.

“Investors are continuing to demonstrate faith in the fabless sector,” stated the FSA, noting that the money raised in 2Q04 well exceeded the $211.8 million raised by the rest of the semiconductor industry. A total of 130 different investors participating in funding; the most active were 3i and Intel, each investing in six companies — including one in common: Comlent, a fabless RFIC design house in China.

VCs continued to be drawn to later-stage companies, with 60% of all investments in 2Q04 going to companies seeking their second or third rounds of funding. Investors may be developing a renewed taste for risk, though — that figure was 63% in 1Q04, and 75% a year ago. Also, the average amount raised by first-round companies has increased from $5.0 million in 2Q03, to $9.7 million in 2Q04.
The total average and median amounts of funding raised in 2Q04 declined from the prior quarter, but the number of large deals closed (>$20 million) remained at six. The top segments, consumer and networking, each took 20% of the fundings in the quarter.