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