Chips With Everything

Ryan Gillanders Curtis Goodman Will Kim Wade Tywoniuk Jeff Wilson

Overview & Background
Global Shifts & Patterns of Consumption
Production Costs & Technology Development
The Role of the State
Corporate Strategies
Case of East Asia
Discussion
Agenda

How many products can you think of that use semiconductors?
What types of business are most impacted by the use of semiconductors?
How would they operate without them?

1947 – BELL labs develop transistor
First computer introduced ~93m 2
1958 – Texas Instruments develop integrated circuit
Solve space issue
Limitations:
Difficult to assemble
Loss of electronic capacity

1971 – INTEL develops 4004 a 4-bit chip
1974 – INTEL 8080 first “true microprocessor”
Moore’s Law:
#of transistors/area to double every 1.5years
1980s – first 32-bit chips
1990s – first 64-bit chips
Today – quad-core processors

Participants in the VALUE CHAIN

PRODUCTION & LOCATION: TAKE ADVANTAGE OF LAs VALUE CHAIN DESIGN FABRICATION ASSEMBLY CHEAP LABOUR SCIENTIFIC PERSONNEL LAs SHIFT

First industry to be called a “Global Factory”
Clear geographical separation between stages of production process exist
Capital and research intensive
Increased miniaturization and performance
Requires specialized labour-force

Each stage has different characteristics;
Total Cycle ~ 1 year
Geographical proximity relatively unimportant
Low-weight/high-value characteristics allows for easy transport
Production stage has been most susceptible to relocation.
Assembly carried out by low-skilled labor
Design – Wafer Fabrication – Assembly & Testing - Consumption

Case of East Asia
Discussion
Agenda

1950s – Production began in USA
Decline in capacity post-1970s
1980 – 42% of World production capacity
2001 – 29%
Production shift towards Asia-Pacific region
1985 – Japan ½ of World production capacity
1995 – largest Korean export
90% of total production
1990s – Taiwan is 4 th largest producer in World, overtaking Germany
Attract investment with LOW production costs

Stage 1: U.S. grew, Japan entered
Stage 2: U.S. lead, Japan grew, Korea entered
Stage 3: U.S. dwindled, Japan lead, Korea grew
Stage 4: Korea lead, Japan dwindled, Taiwan entered
Stage 5: U.S. rejuvenated, Korea stable, Taiwan grew, China entered

40% 8% 40% 20% Approximate Ownership of Production

Semiconductor market based on derived demand
Historically driven by government procurement
USA defense and aerospace programs
‘ Invisible’ product
Large corporations benefit from increased efficiencies
Microprocessor spur PC market
Specialized applications
Communications
Digital consumer goods

Correlation of semiconductors and computers:
Demand for computers drives semiconductor demand
Newest/Latest technology release stimulates computer demand

Price decreasing
Technology development
New generation effect
Fierce competition
Sales increasing
1984 = $24 billion
2004 = $213 billion

TOP THREE REGIONS
North America
Europe
East Asia
FUTURE EXPECTATIONS
Determined by health of overall economy
Segments:
Mobile phones
Consumer Electronics
“ Smart” products
CHINA
60% growth between 2007-2012
Domestic clusters develop
$42 billion/year industry

Case of East Asia
Discussion
Agenda

UNBUNDLING THE VALUE CHAIN DESIGN FABRICATION ASSEMBLY FABLESS (US) SPECIALIZED PRODUCERS FOUNDRIES (EAST ASIA) VERTICALLY INTEGRATED CAPTIVE PRODUCERS ( IN-HOUSE USE ) CAPTIVE-MERCHANT (HYBRID) MERCHANT PRODUCER (SALE)

Case of East Asia
Discussion
Agenda

Government as stakeholder in development of local semiconductor industries
Key technology used in most electronics
Expensive and rapidly changing technology
Three ways that government can help develop industry
Indigenous production capacity
Attracting foreign firms
Purchasing from open market and developing for end use

Comparison of government involvement
United States
Japan
South Korea
Taiwan
Singapore
Europe

Heavy government involvement to build indigenous capacity
Initially developed in federal defence and aerospace sectors
As US lost market share (1980s) the government sought trade agreements with Japan (Successfully) as well as Korea and China (Unsuccessful)
Global competition encouraged privatization of US industry

Government stimulates local economy by protecting domestic producers
Limiting direct foreign competition (up to 1970’s)
and through a VLSI project (1976)
VSLI project:
Government subsidies up to 40% of total costs
Encouraged collaboration of five major Japanese firms:
NEC, Toshiba, Hitatchi, Fujitsu and Mitsubishi

Strategy:
Emulate both USA and Japanese policies
Government Investment in two major projects responsible for many factors of the industry:
Korea Institute of Science and Technology (KIST)
Korea Institute of Electronics Technology (KIET)

Government involvement with industry is very low
All firms are privately owned and managed
1960’s Taiwanese government establishes the world’s first “export processing zone”
Provided US firms with cheap assembly locations
Established the Industrial Technology Research Institute (ITRI) to promote technological leverage
Eventually evolved into Electronics Research Service Organization (ERSO)

Heavy reliance on foreign firms to develop local industries
Government industrialization policies set strategy:
Continuously upgrade sector through leveraging technologies and resources of foreign TNC’s

Most of Europe’s production capacity derived from US, Japanese, and Korean-owned plants
Governments have supported collaborative ventures of information technologies
Initiatives:
Accelerate innovation,
Protect European capacity of microelectronics,
Encourage cross-border links between national electronics firms within Europe

Case of East Asia
Discussion
Agenda

IDM (Integrated Device Manufacturer)
Vertical integrated captive producers
Vertical integrated captive-merchant producers
Merchant producers
Fabless
Foundries (merchant foundries)

Comparison of industry strategy by country
United States
Japan
South Korea
Taiwan
Singapore
Europe

Market starters
Overtaken by Japanese firms
Wintelism- Intel
Merchant producer system
Offshore assembly plant- Fairchild, GI
Change into fabless

Concentration on DRAMs
Production for in-house use
Squeezed by reviving US firms and newly entering Korean firms
Under-estimated the influence of Korean firms
Solutions for stagnant market shares
NAND flash memory
Outsourcing
M&A and Joint ventures

From Imitator to Innovator
Crisis from decrease in RAM price
Solutions:
NAND flash
M&A
Targeting non-memory semiconductors

Government driven industry
Typical foundry companies
TSMC
UMC
70% of market occupancy
Increasing competition with China

Orientated towards internal European market
European producers – Custom
STMicroelectronics
Infineon (spin-off from Siemens Semiconductors)
NXP (spin-off from Philips Semiconductors)
Qimonda (bankrupted)

Case of East Asia
Discussion
Agenda

East Asian production networks have been particularly critical in the development and resurgence of the US semiconductor industry

Stage I (1960 to late 1970s):
US firms sought low-cost production locations throughout East Asia
Stage II (1980 to 1985):
US owned facilities expanded to encompass wider range of production stages.
The result was Asian affiliates replicating – causing rapid growth in electronics production
Stage III (1985 to early 1990s):
US firms shifted focus to product definition and software design
Asian affiliates gained greater manufacturing responsibilities and greater autonomy in sourcing key components

“ The strongest indigenous Asian producers began to control their own production networks…
the division of labor between the US and Asia, and within Asia… deepened significantly,
and US firms effectively exploited increased technical specialization in Asia.”
(pg. 344)

Case of East Asia
Discussion
Agenda

What type of cluster exists in the USA’s ?
Generalized or specialized
What are Intel’s FSA?
Which are (non) location bound?
How can the firm develop competitive advantage?
How does distance impact firm strategy?
Culture | Administrative | Geographic | Economic

Which of the three different strategies governments use to help out local industries is the best? Why?
Does government involvement aid or hinder industry evolution?

Manufacturing has significant environmental impacts on host regions – how can government and private industry cooperate to mitigate destructive processes?
Metals, acids, and solvents:
Copper, lead, nickel, silicone, silver, zinc
Trichloroethylene
E-waste: cellphone, TVs, computers, etc.
Responsibility?

Global shift in production location and organization
Rise/fall and re-emergence of US firms
Increasing importance of East-Asian firms
Improved competition has resulted in:
Increased degree of functional integration
Diversification into new product lines and applications
Relocation of production to ‘favorable’ locations
Rationalizing operations on a global basis
Government involvement differs across regions
New opportunities
Emergence of fabless design houses and foundries

Chips With Everything

by Project Goodman on Feb 28, 2010

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