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Silicon Is Back in the Valley

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Cypress Semiconductor is putting the silicon back in Silicon Valley.

With the IPO of Groupon behind us, and mobile-gaming juggernaut Zynga in the queue, it seems that Americans make only social-media software, computer games and iPhone apps. And while U.S. tech outfits lead the way in innovation for these categories, most people now overlook the boring stuff, such as computer chips. But those chips are as important to San Jose as the combustion engine is to Detroit.

So it is worth noting that a promising chip-related startup is open for business. Last week, Cypress (ticker: CY) CEO T.J. Rodgers unveiled Deca Technologies, achip startup at his winery and estate in Woodside, Calif. Deca plans to change the process of "packaging" semiconductors—and no, this doesn't involve shrink wrap or foam peanuts. Cypress has invested $35 million in the venture, which has been quietly ramping up for two years.

Packaging typically occurs after chips have been processed on silicon wafers. After they're cut out of the wafer—rather like microscopic cookies cut from dough—they are encapsulated with plastic and/or metal so they can be plugged into tiny circuit boards. It is the mixing and matching of packaged chips that creates the miniature systems that run our favorite smartphones, tablets and other gadgets.

The name Deca signals its founders' hope that their brainchild will reduce the cost and time it takes to package chips by a factor of 10. The company's first product uses "wafer-level packaging" to connect circuitry on the wafer. Wafer-level packaging allows, among other things, more chip functionality to be crammed into even smaller spaces. Aside from power-related innovation, size and production time are the most important nonfinancial issues for chips.

Deca founder and CEO Tim Olson, who was previously a top exec at Amkor Technologies, says that only 10% of chip makers now use wafer-level packaging. He expects demand for the process to grow about 12% a year, though he declined to explain what that means in dollars and cents.

DECA IS MAJORITY-OWNED by Cypress, which was responsible for incubating solar pioneer SunPower (SPWRA). In 2002, T.J. Rodgers essentially saved SunPower by writing a personal check for $750,000 to help the company make payroll, later convincing Cypress's board to buy it.

That worked out well; Cypress spun out SunPower in 2008. In April, France's Total (TOT) acquired 60% of SunPower for $1.38 billion. SunPower has a 10% stake in Deca.

SunPower developed a lower-cost and more flexible process for use in manufacturing photovoltaic cells for the solar-panel business. Deca is using a variant of SunPower's technology to manufacture its wafers, and Deca has set up shop inside SunPower's wafer facility in the Philippines.

In addition to lower-cost production and size reduction, the wafer-level approach is more flexible and faster than other packaging processes. And in the highly competitive world of smartphones and tablets, speed to market is critical.

SunPower CEO Thomas Werner, who also attended the launch event, said it best: "We [Sunpower and Deca] have the world's highest efficiency" manufacturing process, and "that changes everything." 

E-mail: mark.veverka@barrons.com