Download - Chips With Everything
Ryan GillandersCurtis GoodmanWill KimWade TywoniukJeff Wilson
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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 ~93m2
1958 – Texas Instruments develop integrated circuit Solve space issue Limitations:
▪ Difficult to assemble▪ Loss of electronic
capacity
1971 – INTEL develops 4004 a
4-bit chip1974 – INTEL 8080 first
“true microprocessor” Moore’s Law:
▪ #of transistors/area to double every 1.5years
1980s – first 32-bit chips1990s – first 64-bit chipsToday – 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
.
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
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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 region1985 – Japan ½ of World production capacity1995 – largest Korean export
- 90% of total production1990s – Taiwan is 4th 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 increasing1984 = $24 billion2004 = $213 billion
TOP THREE REGIONS
1. North America2. Europe3. 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
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. Discussion
Agenda
UNBUNDLING THE VALUE CHAIN
DESIGNFABRICATION
ASSEMBLY
FABLESS (US)SPECIALIZEDPRODUCERS
FOUNDRIES(EAST ASIA)
VERTICALLY INTEGRATEDCAPTIVE PRODUCERS (IN-HOUSE USE)
CAPTIVE-MERCHANT(HYBRID)
MERCHANTPRODUCER (SALE)
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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 industry1.Indigenous production capacity2.Attracting foreign firms3.Purchasing from open market and developing for
end use
Comparison of government involvement
1.United States2.Japan3.South Korea4.Taiwan5.Singapore6.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
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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
1. United States2. Japan3. South Korea4. Taiwan5. Singapore6. Europe
Market starters Overtaken by Japanese firms
Wintelism- IntelMerchant producer systemOffshore assembly plant- Fairchild,
GIChange into fabless
Concentration on DRAMsProduction for in-house useSqueezed 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)
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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)
1. Overview & Background
2. Global Shifts & Patterns of Consumption
3. Production Costs & Technology Development
4. The Role of the State
5. Corporate Strategies
6. Case of East Asia
7. 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