sloan 2004 annual conference outsourcing and offshoring in ...€¦ · sloan 2004 annual conference...

11

Sloan Industry Studies Annual MeetingSloan Industry Studies Annual MeetingApril 19April 19--21, 2004 21, 2004 –– Atlanta, GAAtlanta, GA

Sloan 2004 Annual Conference Sloan 2004 Annual Conference

Outsourcing and Offshoring in the Outsourcing and Offshoring in the Semiconductor IndustrySemiconductor Industry

David A. HodgesDavid A. HodgesRobert C. LeachmanRobert C. Leachman

Competitive Semiconductor Manufacturing Competitive Semiconductor Manufacturing Program Program

UC BerkeleyUC Berkeley

Insert your logo

here


U.S. Integrated Device ManufacturersU.S. Integrated Device Manufacturers(e.g. Texas Inst., Motorola, Intel, …)(e.g. Texas Inst., Motorola, Intel, …)

LaborLabor--intensive chip assembly work mostly intensive chip assembly work mostly offoff--shored since the 1960sshored since the 1960s

Initially, plants served just one companyInitially, plants served just one companyMore recently, independent assemblers and More recently, independent assemblers and testing firms are serving multiple customerstesting firms are serving multiple customersIBM automated in the 1960sIBM automated in the 1960sAutomation of assembly and testing now Automation of assembly and testing now spreading industryspreading industry--wide and worldwide and world--widewide


U.S. U.S. IDMsIDMs, 1960, 1960--19901990

CapitalCapital--intensive wafer intensive wafer fabsfabs were offwere off--shored shored selectively: important aid market accessselectively: important aid market access

Cost of direct labor not a significant factorCost of direct labor not a significant factorUS ownership, international professional staffUS ownership, international professional staffHazards: weak infrastructure, long supply Hazards: weak infrastructure, long supply lines, business and political climatelines, business and political climateEarly examples: Texas Instruments (Japan), Early examples: Texas Instruments (Japan), Analog Devices (Ireland), Intel (Israel)Analog Devices (Ireland), Intel (Israel)


U.S. U.S. IDMsIDMs, 1960, 1960--19901990

SkillsSkills--intensive process development and intensive process development and product design mostly remained in the USproduct design mostly remained in the US

Firms sought advantages from proprietary Firms sought advantages from proprietary technologies technologies Few skilled professionals available abroadFew skilled professionals available abroadSome exceptions: Chip design centers in Some exceptions: Chip design centers in England (TI), Israel (Intel); typically devoted to England (TI), Israel (Intel); typically devoted to specific products for worldwide marketsspecific products for worldwide markets

Sales, marketing, customer support efforts Sales, marketing, customer support efforts carried on worldcarried on world--widewide


Changing business models:Changing business models:IDMsIDMs forced to become specialistsforced to become specialists

Intel, AMD: microprocessorsIntel, AMD: microprocessorsSamsung, NEC, Micron, Samsung, NEC, Micron, InfineonInfineon: memory: memoryTexas Inst., STM: chips for cell phonesTexas Inst., STM: chips for cell phonesThese are standard products, MM units; These are standard products, MM units; same designs purchased by many competing same designs purchased by many competing original equipment manufacturers (OEMs)original equipment manufacturers (OEMs)Above categories represent about ½ of total Above categories represent about ½ of total worldwide semiconductor productionworldwide semiconductor production

What about the other half?What about the other half?


Factors leading to “foundries”Factors leading to “foundries”Competitive modern wafer Competitive modern wafer fabsfabs cost $2cost $2--4B4B

employ ~ 1000 people (total for 7 x 24 operation)employ ~ 1000 people (total for 7 x 24 operation)Annual revenues > ½ fab cost for profitabilityAnnual revenues > ½ fab cost for profitabilityWorldwide standardization of mfg. process Worldwide standardization of mfg. process Innovative design firms require only a fraction of Innovative design firms require only a fraction of one one fab’sfab’s capacitycapacityVastly different management skills: design vs. fabVastly different management skills: design vs. fabIDMsIDMs rarely succeed in serving rarely succeed in serving fablessfabless firmsfirmsFoundries were established to serve this needFoundries were established to serve this need

Leadership of Morris Chang!Leadership of Morris Chang!


FablessFabless--foundry business modelfoundry business modelFablessFabless firms define, design, & market chipsfirms define, design, & market chips

small investment, quick responsesmall investment, quick response$300$300--500K revenue/employee500K revenue/employee~50,000 well~50,000 well--paid U.S. jobs; ~13,000 ROWpaid U.S. jobs; ~13,000 ROW

Asian foundries fabricate chips for many firmsAsian foundries fabricate chips for many firmshuge investments; fixed costs ~75% of totalhuge investments; fixed costs ~75% of total~15,000 factory jobs, well~15,000 factory jobs, well--paid by local scalespaid by local scaleshighly automated for tight process controlhighly automated for tight process controlshort production cycleshort production cycletimely intro of new technology generationstimely intro of new technology generationsexcellent customer serviceexcellent customer servicesome niche specialists with old technologysome niche specialists with old technology


Outsourcing, Offshoring?Outsourcing, Offshoring?FablessFabless design centered in the U.S. design centered in the U.S.

MS, PhD grads of top U.S. universitiesMS, PhD grads of top U.S. universitiesU.S. is #1 (78% of ‘03 revenues)U.S. is #1 (78% of ‘03 revenues)Taiwan is #2 (11% of ’03 revenues)Taiwan is #2 (11% of ’03 revenues)Equivalent design skills very rare elsewhereEquivalent design skills very rare elsewhere

Most silicon foundries are in AsiaMost silicon foundries are in AsiaMany process development jobs in Asia Many process development jobs in Asia

Many grads of top US universitiesMany grads of top US universitiesWeak U.S. domestic investment (except Intel)Weak U.S. domestic investment (except Intel)


““Food chain” for Food chain” for semicsemic. industry. industrySemiconductor production equipment & raw Semiconductor production equipment & raw materials are supplied mainly from U.S., materials are supplied mainly from U.S., Japan, and EuropeJapan, and EuropeU.S. leads in key areas:U.S. leads in key areas:

MS & PhD educationMS & PhD educationComputerComputer--aided design for semiconductorsaided design for semiconductorsUniversityUniversity--industry cooperation industry cooperation Climate for innovationClimate for innovationMarket for advanced technologyMarket for advanced technology

Government support is strongest in AsiaGovernment support is strongest in Asia


Factors influencing location for Factors influencing location for manufacturing investmentsmanufacturing investments

Trophy valueTrophy value of semiconductor of semiconductor fabsfabs(Think about the steel industry in the 1960s)(Think about the steel industry in the 1960s)

Trophy sought by Trophy sought by gov’tsgov’ts worldwide: worldwide: tax incentives!tax incentives!China is the current leader in incentivesChina is the current leader in incentivesMost capital comes from outside PRCMost capital comes from outside PRC

Fading concerns about investment risksFading concerns about investment risksWeaker controls on U.S. equipment exportWeaker controls on U.S. equipment exportCommodity status of manufacturing technologyCommodity status of manufacturing technologyReturn of expatriates; spread of higher educationReturn of expatriates; spread of higher educationProtected IP less important than knowProtected IP less important than know--how how Improving infrastructure in China, other nationsImproving infrastructure in China, other nations


Chinese competition for foundry businessChinese competition for foundry businessSemiconductor Manufacturing Int’l Corp. (SMIC)Semiconductor Manufacturing Int’l Corp. (SMIC)

largest, most advanced Chinese foundrylargest, most advanced Chinese foundryfounded in 2002; 3 8” founded in 2002; 3 8” fabsfabs in Shanghaiin Shanghaipurchased Motorola’s 8” purchased Motorola’s 8” TianjinTianjin facilityfacility12” fab in Beijing under construction12” fab in Beijing under construction3/17/04: $1.8B IPO in HK & NY; 3/17/04: $1.8B IPO in HK & NY; --12% as of 4/6/0412% as of 4/6/04

U.S. filed WTO complaint re: China’s lower VAT for U.S. filed WTO complaint re: China’s lower VAT for locally designed or manufactured semiconductorslocally designed or manufactured semiconductorsChina remains far behind in chip design capabilityChina remains far behind in chip design capabilityChina establishes unique domestic standard for China establishes unique domestic standard for cellular telephony; Chinese partners requiredcellular telephony; Chinese partners required


2003 Foundry revenue leaders2003 Foundry revenue leaders1. TSMC (Taiwan)1. TSMC (Taiwan) $5.9 $5.9 billionbillion + 26%+ 26%2. UMC (Taiwan) 2. UMC (Taiwan) 2.72.7 + 27%+ 27%3. Chartered (Singapore)3. Chartered (Singapore) .73 .73 + 49%+ 49%4. IBM (U.S.4. IBM (U.S.--IDM)IDM) .56 .56 -- 27%27%5. NEC (Japan5. NEC (Japan--IDM)IDM) .43.43 + 33%+ 33%6. SMIC (China) 6. SMIC (China) .37 .37 +630%+630%7. 7. HynixHynix (Korea(Korea--IDM)IDM) .34.34 + 39%+ 39%8. 8. DongbuAnamDongbuAnam (Korea)(Korea) .33.33 + 27%+ 27%9. Jazz (U.S. ex9. Jazz (U.S. ex--Rockwell)Rockwell) .19.19 + 16%+ 16%10. HHNEC (China) 10. HHNEC (China) .17.17 + 13%+ 13%11. SSMC (Singapore)11. SSMC (Singapore) .16.16 + 82%+ 82%12. X Fab (E. Germany) 12. X Fab (E. Germany) .13.13 + 27%+ 27%


Survival strategies of U.S. Survival strategies of U.S. IDMsIDMsIntel: heavy investments; try new marketsIntel: heavy investments; try new marketsTexas Inst: limit investments + use foundriesTexas Inst: limit investments + use foundriesIBM: partnered with Chartered, IBM: partnered with Chartered, InfineonInfineonAMD: more German incentives in DresdenAMD: more German incentives in DresdenMicron: innovation; more cost reductionsMicron: innovation; more cost reductionsMotorola: divesting semiconductor businessMotorola: divesting semiconductor businessNational: product focus; use foundriesNational: product focus; use foundriesAnalog Devices: limit investments + foundriesAnalog Devices: limit investments + foundries


Conclusions for semiconductor industryConclusions for semiconductor industryIt’s a fully It’s a fully globalizedglobalized industryindustryMicroprocessors: Intel unchallengedMicroprocessors: Intel unchallengedMemory is a commodity; Samsung leads by farMemory is a commodity; Samsung leads by farIDM business model is dead for other productsIDM business model is dead for other productsU.S. leads in innovative chip designU.S. leads in innovative chip design

U.S. unchallenged in design softwareU.S. unchallenged in design softwaredesign & software skills are bound to spread!design & software skills are bound to spread!

Asia leads in foundry manufacturingAsia leads in foundry manufacturingU.S. is not a serious competitor; poor ROIU.S. is not a serious competitor; poor ROITSMC, UMC are likely to remain leadersTSMC, UMC are likely to remain leadersOvercapacity looms; SMIC payoff is uncertainOvercapacity looms; SMIC payoff is uncertain

sloan 2004 annual conference outsourcing and offshoring in ...€¦ · sloan 2004 annual conference...

Documents