REVAMPING JAPAN’S IC MANUFACTURING STRATEGY
I have had the chance to spend a significant amount of time in Japan over the past few months and experience first-hand many of the wonderful things this country has to offer. A long-standing electronics leader, Japan has been a major force in the semiconductor sector for decades and remains a key player to this day. However, Japan, Inc. is facing serious challenges as the semiconductor industry continues to evolve.
In February, Elpida Memory, a global leader in the memory sector with over $6 billion in annual revenue, was declared insolvent in what is the largest-ever bankruptcy by a Japan-based manufacturer. Other prominent suppliers, such as Panasonic and Renesas, have announced the potential elimination of thousands of jobs and divestiture of operations as part of a broader strategic move to reduce their manufacturing footprint in an attempt to regain profitability.
The situation these corporations find themselves in is perhaps more indicative of issues facing Japan, Inc. as a whole – a strong Yen, limited labor flexibility, and an oversupply of underutilized assets. The latter is particularly challenging to overcome as it inflates operating costs and diverts resources, placing companies at a competitive disadvantage.
The majority of Japanese semiconductor companies were born out of major conglomerates that have historically put emphasis on vertical integration as part of an introspective manufacturing strategy. While controlling a larger portion of the supply chain can be beneficial, it may also hamper the effectiveness and profitability of a company through excessive infrastructure build-up. Existing as a division of a conglomerate and insulated by revenues from other business segments, a chip company may be able to sustain operations indefinitely even when saddled with the weight of a bloated asset portfolio, whereas an independent company will be forced to operate efficiently.
The asset-rich approach to manufacturing that provided a successful foundation in the growth stage of Japan’s semiconductor industry now appears to be a stumbling block as the industry enters a new phase of maturity and transformation. Japan will need to decide what technologies it wants to champion and move towards a more efficient operating strategy that breaks from the country’s asset-heavy tradition. Though this process is going to be challenging, there is an intrinsic opportunity to establish a framework to reestablish the nation’s prominence in the industry.
We at ATREG have anticipated the creation of a significant pure-play foundry market in Japan that would act as a pressure release valve for Japanese IDMs seeking to streamline manufacturing while continuing to satisfy demand for domestically manufactured ICs. With recent news reports of the sale of Renesas’ 300mm facility in Tsuruoka to TSMC, it is possible that the first steps in this endeavor may be taken.
President / Managing Principal
ATREG INVITED TO SPEAK AT GSA CEO ROUNDTABLES IN TAIWAN AND CHINA
ATREG is pleased to announce that it has been invited to present Implications for Further Consolidation and Reshaping the Semiconductor Industry Landscape at two GSA CEO Roundtables to be respectively held in Hsinchu, Taiwan on July 5 and Beijing, China on July 11.
These annual, invitation-only events are attended by CEOs in the semiconductor supply chain and designed to focus on discussing top industry issues and challenges. Email us for a copy of our presentations.
EXECUTIVE Q&A: VIVEK JAIN, SVP, MANUFACTURING OPERATIONS, MAXIM
In-sourcing vs. outsourcing: Why adopting a mixed manufacturing strategy makes sense
The foundry model has found its place within the semiconductor sector, with more and more companies pursuing a fab‐lite or fabless strategy. However, in recent months, we have seen transactions running completely contrary to the industry trend entrenched since the early to mid‐2000s, recently illustrated by fabless company Alpha & Omega Semiconductor, Ltd. purchasing IDT’s 200mm fab in Hillsboro, Oregon. ATREG recently sat down with Vivek Jain, Senior Vice President of Manufacturing Operations for Maxim Integrated Products, Inc. to explore this trend and in that context, discuss what makes Maxim’s mixed manufacturing strategy so successful.
Maxim’s business has been very strong over the years. What do you see as the key elements of Maxim’s success in the past and moving forward?
I think Maxim’s continued success lies in its highly motivated leaders and employees pushing the boundaries of creativity. We are in a business that is in constant need of innovative products. In the early days, our growth was fueled by entering into new markets, such as communications, computing, and consumer mobile devices to name just a few. Over the last five years, we have increased our focus on the integration of multiple features and functions into one IC, which requires considerable collaboration between various business units. And, by designing highly integrated products, customers can create systems that are smaller, thinner, and consume less power. We have also changed our manufacturing model in the last five years. We have moved from mostly internal wafer fab manufacturing (more than 95%) to a mix of internal wafer fabs and external foundry partners. Together with our network of strong foundry partners, we can now provide a much better and timelier response to volatile market demand. This flexible, hybrid manufacturing model has served us well and will continue to be our model going forward.
So, as you point out, Maxim has historically relied almost 100% on in-house manufacturing, but this changed around 2006 / 2007 when the company began outsourcing some product to foundries. What factors led Maxim to this outsourcing decision?
Two factors led to this hybrid manufacturing model. The first one was being more responsive to our customers, and the second factor is a better utilization of invested capital into wafer fab manufacturing. Mixed-signal analog technologies are running multiple generations behind on lithography nodes compared to digital technologies. This provides an opportunity to find foundry partners that may have underutilized digital factories, but are ideally suited for running analog mixed-signal technologies. This provides a win-win opportunity for better utilization of invested capital.
What elements did you consider when selecting outsourced manufacturers?
The first thing to consider is mutual fit for technology and capacity needs. The second factor, and one of the most important considerations, is having the confidence and trust as it relates to IP protection. The technology that we create at Maxim is the foundation for making innovative products, and hence, IP protection is a must. The third element is the capability of the engineering team at the foundry partner to enable successful technology transfer and ramp.
Why do you maintain manufacturing in-house?
Investment in research and development is a core strategy at Maxim for creating innovative products. Developing new process technologies is an integral part of this strategy. To create robust and manufacturable technologies, one needs to have a capable and motivated workforce for running high-quality and cost-effective manufacturing in-house. I am proud to have such a workforce at Maxim to run cost-competitive manufacturing.
Where is Maxim headed? In your opinion, will Maxim always maintain some in-house production, and if so, why?
We run at 60 to 65% internal production and intend to have a minimum of 50% internal capacity for any Maxim-developed technology node. The reason for this is as I have stated above.
Do customers really care whether the products they purchase are produced internally or externally?
Customers want high-quality products and a responsive supply chain to meet their market needs at the right cost. For most customers, they would accept internal or external manufacturing as long as it meets the above requirements. However, there are some customers, such as automotive and industrial, that require a 15-20 year supply guarantee. For such customers, an internal wafer fab is critical to meet this need. At the end of the day, you have to earn your customer’s trust with exceptional delivery and quality performance. Maxim has demonstrated great progress in this area over the last five years.
Where do you think the industry as a whole is going? Will the outsourcing trend continue unabated, or will we see the pendulum swing back toward more in-house manufacturing, at least for lagging technologies?
There is no denying the fact that outsourcing is on the rise. As the lithography nodes continue to come down (45nm and below), the cost of technology development and manufacturing has increased dramatically. Economies of scale are required to survive at such nodes. Hence, many IDM houses, as well as many design houses, are using outsource manufacturing. However, mixed-signal analog is in a unique space that can continue to thrive in completely external, completely internal, or hybrid manufacturing. We at Maxim strongly believe that a hybrid manufacturing model brings the best of both worlds.
If another company was considering a mixed manufacturing strategy, what is the best piece of advice you would give them to ensure their success?
Invest time to choose a foundry partner. This is like a marriage. It has to be strategic in nature and ensure it is win-win for both parties.
About Vivek Jain
Vivek joined Maxim in April 2007 as Vice President of Fab Operations, bringing over 23 years of extensive experience in various aspects of semiconductor process technology and manufacturing to the company. He became Senior Vice President of all manufacturing operations in 2000. Prior to joining Maxim, Vivek served as Plant Manager at Intel’s Technology Development and Manufacturing facility in Santa Clara, Calif. The consolidation of Maxim’s manufacturing operations under Vivek’s leadership created a single point of manufacturing accountability for customer delivery performance, product quality, and cost reduction, providing significant improvements in all aspects of the company’s manufacturing operations.
Vivek achieved these improvements by actively benchmarking quality, cost, and service, and by driving the entire operation to best-in-class levels. A critical aspect of these improvements has been the rapid deployment of new process and packaging technologies in production-worthy form. Additionally, Vivek improved the flexibility of Maxim’s manufacturing network to deal with demand swings, which as a whole resulted in higher customer satisfaction. Most recently, Vivek oversaw the qualification and first production shipment of analog product built on 300mm wafers using Maxim’s 180nm proprietary technology.
Vivek has published more than 30 papers related to the fundamental understanding of process technology interactions with semiconductor device reliability and performance. Holding more than 10 patents in the field of semiconductor technology, Vivek received a B.S. degree in Chemical Engineering from the Indian Institute of Technology (New Delhi, India), an M.S. degree in Chemical Engineering from Penn State University, and an M.S. degree in Electrical Engineering from Stanford University.
ATREG AND WHARTON JOIN FORCES FOR NEW INDUSTRY RESEARCH STUDY
ATREG is pleased to announce that it has joined forces with Professor Rahul Kapoor, a management professor at the University of Pennsylvania’s Wharton School, for a new extensive industry study that looks at how IDM firms manage complexity and change in the global semiconductor ecosystem.
All major global IDM firms that have participated in the survey have provided some valuable insights into how they adapt in today’s volatile global economy from various perspectives, including outsourcing, intellectual property, product complexity, time-to-market, supply chain, customization, supplier performance, customers, and complementors. This project follows in the footstep of previous research focusing on fabless companies conducted by Professor Kapoor in conjunction with GSA in 2010. A report presenting the full aggregate findings of this industry research will be published in the fall. Email us to receive a copy of the report.
AVAILABLE FOR PURCHASE: 200MM CLEANROOM MANUFACTURING FACILITY, IRVING, TEXAS
Maxim Integrated Products has appointed ATREG and Citadel Partners to sell its 200mm semiconductor cleanroom manufacturing facility located in Irving, Texas. The 660,000 sq. ft. fab shell offers substantial and reliable dual-feed power. The site is ideally suited for semiconductor manufacturing or adaptive re-use from such industries as data centers, solar, defense, battery manufacturing, and others that would benefit from the facility’s robust infrastructure.
- This 39-acre site based in a world-class location can accommodate future growth.
- Advanced infrastructure for power and cooling makes this campus well suited for adaptive re-use.
- Includes approx. 63,000 sq. ft. of finished cleanroom space, 49,000 sq. ft. of unfinished cleanroom, and a 20,000 sq. ft. test floor area.
- This facility offers large column-free space with high ceilings and low vibration, as well as heavy floor loading.
- A new roof is under construction with a 135mm membrane and a 20-year warranty.
- This is a highly secure location with gated perimeter fence, cameras, control center, and security personnel.