Chapter 12
Chips With Everything
The Semiconductor Industry
Overview
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Brief History
Production Chain
Global Shifts in the Industry and the
Dynamics of the Market
Production Sequence and Labour
Case Studies (Government Policy)
Corporate Strategies
Pretty Much the Best Game You’ll Play………
Ever
History
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The semiconductor industry is now know as the
industry of industries, but that always wasn’t the
case.
Step 1- 1947, Transistor replaces vacuum tube
and makes possible micro-electronics
Step 2- Late 1950’s, Invention of the integrated
circuit
Step 3- Early 1970’s, The advent of the
Microprocessor
Step 4- 1980’s on, Increased miniaturization and
diversification (Zach Morris to Derrick Zoolander)
History
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Zach Morris, Was it really worth it?
History
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Derrick Zoolander
is thankful for the
R&D that has taken
place in the
semiconductor
industry
History
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First industry to which the label
“Global Factory” could be applied
• Offshore assembly
• Spatial hierarchy of production
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Geographical separation
The Production Chain
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Varieties of semiconductors
• Memory Chips (DRAMs)
• Microprocessors
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Manufacturing is a very capital
intensive undertaking
• TNC’s
Production Chain
Production Chain
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Rapid Expansion since the 1980’s
• An increase of 2000%
• Concentration of growth in USA and
Japan
Production Chain
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1950’s-Production dominated by USA
1980’s-Shift to domination of Japanese
• By 1989 US production down from 60% of
industry to 37%
• But in 1994 US retook the biggest market
share, why?
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US Shift from DRAM’s to Microprocessors
Japanese attempt to achieve leadership in DRAM
technology
Problem, DRAM’s are now a commodity
Dynamics of the Market
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Semiconductors have a derived demand
• Depends on growth of products and processes in which they
are used.
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Growth in USA thanks to Aerospace/Defense
Japan and Europe growth due to home electronics
1990’S, 60% of revenues from computer manufacturers (Thanks
to increasingly powerful chips)
By 2000 the market share was down to 40%(Thanks to
diversification of DRAM use)
Industry growth due to decline in selling price
• DRAM price per megabyte $25
$1
Dynamics of the Market
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Market fluctuation
• Supply gluts
• Severe shortages
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Main problem is massive amounts of fixed
costs and a strongly segmented character
of demand
Geographically, demand is in three regions
• USA, East Asia and Western Europe
• But watch out for China!
Production Costs
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To keep the semi conductor industry competitive the
manufacturers must try to keep down production costs any way
they can.
There is Two Basic Parameters for Production
• Reliability of the product: The factories must be kept very clean to
keep batch’s from contamination and lower costs of replacing faulty
chips.
• To Pack as many Circuits onto one chip: Manufacturers try to fit as
many circuits onto one chip to cut down costs to them
• Unfortunately due to the two requirements to both increase the yield
and the number of circuits per chip that accounts for the steep
increase in the cost of setting up a new semiconductor plant. For
example in 1960 it was $2 million and in the new millennium it is now
roughly $2 billion
New Developments
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There are many new developments
in the semiconductor industry.
Especially most recently the Wafer.
The semiconductor production
sequence
Labour Force
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There are two very separate labour forces
working in the semi conductor industry
• There are the highly trained workers who work mostly in
the developed world.
• And there are the low skill workers who work in the
developing world.
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The most surprising fact of the labour force is
that women fill most roles either in the highly
trained side or the low skilled work. This occurs
the world over.
There is also two types of wages
• There are the well paid jobs with excellent work
conditions. (In every area expect mass production)
• Then there are the low paid and long hour shifts in old
factories.
The Role of the State
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The State plays an important role.
• To avoid being left behind in this intense
market. Country’s use 3 ways to keep up.
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By building and indigenous production capacity based
upon domestically owned firms.
By attracting foreign semiconductor firms to establish
production units.
By purchasing semiconductors on the open market
and concentrating on developing the end uses.
But there is problems !!!!!!
The US Governmental Policies
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Originally the dominant forces included National
defense and Aero-space
• Not as important but still have influence
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1980’s, production decreases
• Problem, threat to national economic and military
dominance
• This led to the development of two new policies
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The first dealt with trade policy, The US-Japan
Semiconductor Trade Agreement in 1986
• This gave US producers access to highly restricted Japanese
market
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The second policy dealt with facilitating inter-firm
collaboration
• 1987 SEMATECH was formed
The US Governmental Policies
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SEMATECH
• Founded by 14 US semiconductor
manufacturers
• Funded by the federal Government and
the private sector
• Most funding defense related
• After the Cold War, the R&D has helped
the private sector
The Role of the State in East Asia
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The state has not had as large as a
hands on role as was present in
America
Japan
• Has been called the “rice of industry”
• Have concentrated mostly on DRAM’s
Japan
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As stated before the government has had a
watchful eye over the industry
The first goal of the industry was to take
some market share away from America
• Advert to technological dominance
• Restriction of FDI
• Restriction of foreign companies ability to
achieve market access
South Korea
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How have things fared in a NIC/NIE?
• South Korean government has control over
the telecommunications industry
• This can foster the growth and entry into
markets for South Korean
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How has the evolution of the industry in
South Korea taken place?
South Korea
Taiwan
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“Taiwan’s semiconductor industry is flourishing
market driven industry. It has no nationalized
firms within it: all are privately owned and
managed. It is strongly export oriented. It has
never imposed any protective tariffs on its
semiconductor products. There are no government
handouts to any of the firms involved in the
industry for any of their current activities. And yet
its creation, its nurturing and its guidance have
been entirely the product of government and
public sector institutions”
J.A. Mathews, “A Silicon Island of the East” 1999
Taiwan
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Initial development in the 1960’s
• US firms relocate some assembly plants
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Taiwanese government builds the worlds first
export processing zone (EPZ)
Government also set up the Industrial Technology
Research Institute (ITRI) in in early 1970’s
• Promotion of technological leverage
• Later renamed Electronics Research Service Organization
(ERSO)
Taiwan
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No internal firms were entering the market
at this time
• Solution, a public firm was created
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United Microelectronics Organization (UMO)
Private companies soon followed
• Today UMO is no longer publicly owned
The State in Europe
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The semiconductor industry is one which
lags behind the ones established in
America and East Asia
• Production capacity and technology
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European governments have openly courted
international firms to invest in the industry
There has been an evolution with three
stages
• Stage one- 1960’s, Mostly defense related
• Stage two- Mid 1970’s- Focus on the computer
industry
• Stage three- Onwards, Information
technologies and communications
Europe
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Since the 1980’s government has been
involved in collaborative ventures in
information technology
• The JESSI Program (Joint European Submicron
Silicon Initiative)
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Develop microchip technology
• Pressure from government to locate more than
assembly plants in Europe
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Would like to see R&D, as well as fabrication plants
Europe
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Problem with this idea
• French industry- “National Champions”
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Public Companies
Should outside TNC’s be allowed to take part in
collaborations with these firms?
Somewhat protective
• 1990, Signed an agreement with Japan to set a minimum
on the price of semiconductors
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Safeguard against dumping
• Later South Korea was added
Corporate Strategies
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Small companies are having trouble competing
with large transnational corporations (TNC’s) and
have either closed or moved into a niche in the
market.
The USA: During the 60’s to 70’s the USA lend
the way in the market with up to 30 percent of
global semiconductor sales. Unfortunately in the
80’s this dropped to 18 percent with fewer top
firms coming to the states. Now they own a 20%
share but actually have less companies in the top
10 manufactures.
Global Connections
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To compete in the global market semiconductor firms have
increasingly interconnected themselves with other firms in processes
such as acquisitions, mergers and strategic alliances.
By the 1980’s only 36 US post WWII companies where still
independent. And the figures for Europe where the same. Recently the
Eastern Asian companies have had to merge with each other to
compete. Such as LG and Hyundai in 1999.
But even more noticeable are the strategic alliances companies are
making. These happen for many reasons but the main ones are the
massive cost of R & D, and the incredibly rapid pace of technological
change.
Strategic Alliances
All three major
regions in this
alliance
Variations in Strategies
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Semiconductor firms can be classified into five broad types:
• Vertically integrated producers: They manufacture
semiconductors entirely for their own in-house use.
• Merchant Producers: They manufacture semiconductors for
sale to other firms.
• Vertically integrated captive- merchant producers: They
manufacture semiconductors partly for their own use and
partly for sale to others.
• “Fabless” semiconductor firms: They Design semiconductors
but do not manufacture them.
• Foundry Companies: They manufacture semiconductors to
specifications of customers but do not design them.
Strategies of US semiconductor
firms
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Semiconductor firms in the United States lend the industry from 1950 up
to 1980 until the Japanese took over the market.
This left the US firms to make a move away from DRAMS into the more
sophisticated semiconductor devices. This Strategy is know as
“Wintelism”.
The basis of this approach was to increase the use of merchant
producers. This meant they could specialize in developing and selling
semiconductor devices to a wide variety of end users.
Because of the diversification in the market the US firms moved into
inventing new ideas. On of these ideas was the PC. And now you can see
what “Wintelism” is it is Windows and Intel.
The US started building new plants in Boston in the newly developed
Route 128 corridor and in Santa Clara or Silicon Valley. Later these firms
look for offshore assembly plants where costs were cheaper. These were
established in regions and countries like Hong Kong and Taiwan.
This kept costs down they also used advantage of the EU to locate into
Europe. They now could build there chips in Scotland and ship them
throughout the EU for less than shipping from the US.
Strategies of US semiconductor
firms
Strategies of Japanese
semiconductor firms
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The Reasons why the Japanese semiconductor firms dominated
the global market during the 1980’s and 1990’s was because of 3
basic elements
• State Involvement.
• Concentration on the memory chip (DRAM) Market
• The fact that most Japanese Semiconductor production was for in
house use that is , within the large and diversified electronics business
groups.
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The Japanese have had some problems with only producing there
chips inside Japan to compete the Japanese are using three
different ways to compete.
• The First is to Diversify away from DRAM into flash memory e.g. for
mobile phones.
• The next is to outsource manufacturing of there products such as
DRAM.
• The final way they are competing is Dropping DRAM completely and
moving their industry into newer technology.
Strategies of European
Semiconductor firms.
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Unlike the USA and Japan. The
Europeans don’t really have to much
production of semiconductors within
Europe. The main 3 companies chose
to outsource there manufacturing to
Asia. And both US and Japanese
companies use Europe to build there
components.
Why the Far East is the preferred
location for semiconductors.
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There are three main stages why the
development of such an intricate production
network form in Eastern Asia
• Stage 1 (60’s to 70s): Low cost production locations
were sought by US firms, these firms established Asian
affiliates as part of their transnational production
network aimed at selling in advanced country markets
outside Asia.
• Stage 2 (80’s to 85): The move from just
manufacturing chips to testing chips in Asia took off.
• Stage 3 (85 to 90’s): The Asian affiliates took more roles
with production and research and moved the US
companies forward.
The Semiconductor Industry
Bye-Bye
The Semiconductor Industry
It’s time to see
what you’ve
learned today. Get
ready for some
test action!!!!!!
Discussion Questions
1.
2.
3.
At what point, if any, do you see the
semi conductor industry slowing down
(R&D)? At present “smart” appliances
are being sold to the public.
We have seen government involvement
in the semiconductor industry at a few
different capacities. Which in your
opinion has seemed to work out the
best?
Which corporate strategies do you feel
are more helpful to national industry?
Those in the USA or those from Japan?