THE FUTURE OF SEMICONDUCTOR MANUFACTURING
Back in July, I had the honor to speak at GSA’s CEO Roundtable in Taiwan regarding the future of semiconductor manufacturing, a topic on the minds of many industry executives given the challenges presented by slowing growth, accelerating costs, and constant pricing pressure that results in margin compression throughout the value chain. IDMs have continued the well-documented fab-lite trend by trimming non-essential infrastructure and outsourcing an increasing portion of production to foundries. Nowhere is this more apparent than in Japan, as I outlined in my Q2 column. Japanese IDMs are realizing that high costs stemming from excessive manufacturing capacity is unsustainable and are now moving to outsource a greater portion of chip manufacturing.
Meanwhile, fabless firms are contemplating the benefits of alternative manufacturing options. Facing such pressures as lack of suitable manufacturing capacity, slow response from foundry partners to changes in customer demand, as well as the absence of the virtuous cycle of manufacturing, which provides for continued improvement in design and manufacturing techniques, fabless companies will take a more active role in and control of the manufacturing process. This change is ironic given that fabless companies arguably owe their very existence to the fabless model made possible by IC foundries.
Over the past decade, the semi industry has experienced a slowing growth rate (source: ATREG, Inc.)
For some fabless companies, alternative manufacturing options may mean in-sourcing a portion of manufacturing through the purchase of a fab, as illustrated by formerly fabless Alpha & Omega Semiconductor’s decision to acquire IDT’s 200mm Hillsboro, Oregon fab earlier this year. For others, various joint-venture structures such as those utilized by SanDisk may be preferable.
TSMC’s Morris Chang stated it now makes sense for TSMC to consider dedicating a whole fab to a single customer in certain cases while UMC has made an open invitation for equity investment by strategic partners (source: EE Times). Through these actions, foundries are acknowledging the need to consider new structures to meet the demands of their customers.
Whether IDM or fabless, companies need to continually revisit and refine their manufacturing strategies to ensure they can produce the right products, on time, in the right quantities, and at a competitive cost. The dynamic market forces that led IDMs to adopt an asset-lite operating model will lead to new manufacturing models for fabless companies.
Stephen Rothrock
President / Managing Principal
ATREG AND WHARTON PUBLISH KEY FINDINGS OF NEW IDM INDUSTRY STUDY
The quickening pace of change combined with increasing technological and market complexity makes the semiconductor industry one of the most challenging environments in which to compete.
As a result, many companies are redesigning their business models not only within the company itself, but also at the collaborative interface between the company and its diverse set of partners. An explicit assumption underlying this strategy is that the ability of a semiconductor company to create value from its own products and technologies is critically dependent on its business ecosystem comprised of suppliers, customers, and complementors. However, the success of such collaborative innovation models is often constrained by the technological and organizational challenges that companies face in collaborating and coordinating their activities within their respective ecosystem.
To shed more light on these interdependencies, ATREG and Rahul Kapoor, Management Professor at the Wharton School, University of Pennsylvania, have just published the key findings of an in-depth IDM industry study that provides some perspective on how IDM firms manage complexity and change in the global semiconductor ecosystem. The results of this study are based on detailed responses received from more than 50 senior executives at 23 publicly listed IDM companies, including 11 of the 20 largest IDMs. Survey results look at the different sources of value creation that IDMs can leverage within their ecosystem while cautioning executives about the different trade-offs and conflicts that may exist within the ecosystem. Email us for a copy of the report.