Vitesse Gives Japanese Chip Data to Spur Sales

Vitesse Semiconductor is one of a handful of start-up firms trying to establish a market for computer chips made with gallium arsenide, an advanced semiconductor material that enables the tiny circuits to perform faster than those using the traditional silicon material.

Last month, Camarillo-based Vitesse took a novel approach to pump up its sales. It handed the design of its chips to the giant Japanese chip-maker Fujitsu, so that Fujitsu can manufacture the tiny devices. Vitesse effectively told Fujitsu to start competing with it.

Although it was equivalent to Kentucky Fried Chicken giving its secret recipe to another fast-food chain, Vitesse’s move “was a necessary evil,� said Robert Nunn, Vitesse’s director of gate array products, which are the type of chips involved. Such chips control the movement of data within a computer, and the gallium arsenide versions are meant to help computers process data more quickly.

Nunn said Vitesse’s customers were reluctant to buy gallium arsenide chips from Vitesse without having a second supplier available in the event Vitesse’s production was interrupted.

In addition, Vitesse had trouble selling computer makers on the advantages of its chips because none of the big producers of traditional silicon-based chips had yet begun mass-producing the gallium arsenide versions, Nunn said.

But now Fujitsu, with $17 billion in annual sales, has “legitimized the market for all gallium arsenide companies,� he said.

By being able to sell the chips to its customers, Fujitsu also could make life difficult for Vitesse down the road. The impact could be softened if Vitesse is paid a licensing royalty for each chip Fujitsu sells, but the companies declined to release any terms of their agreement.

The worldwide market for such chips already was expected to leap to $88 million this year from $51 million in 1988, and industry sales should reach $590 million in 1993, said Gene Miles, a consultant for Dataquest, a high-technology research firm in San Jose.

Louis R. Tomasetta, Vitesse’s president and chief executive, declined to predict this year’s sales for the privately held company, except to say they would range between $10 million and $20 million and would probably double next year.

Rich Christopher, a senior vice president at Fujitsu Microelectronics, a San Jose-based unit of the Japanese company, said the deal would put Fujitsu “a year or two ahead of what we could have done on our own� to develop gallium arsenide products.

Gallium arsenide chips combine gallium, a rare element, with arsenic to produce the semiconductor material. Initially, it was a costly process that made the chips up to 10 times more expensive than those built from silicon, found in abundance in sand.

But Nunn asserted that the process for creating gallium arsenide has been simplified to where the cost of making gallium arsenide or silicon chips “is about equivalent or gallium arsenide might even be cheaper.�

The chips to be made by Vitesse and Fujitsu sell for about $90 to $800, depending on the amount of computer data each chip can handle, he said.