Outsourcing and Offshoring in the Semiconductor Industry

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U.S. Incorporated Device Manufacturers (e.g. Texas Inst., Motorola, Intel,

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Outsourcing and Offshoring in the Semiconductor Industry David A. Hodges Robert C. Leachman Competitive Semiconductor Manufacturing Program UC Berkeley Sloan Industry Centers Annual Conference Atlanta, GA April 19-21, 2004

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U.S. Incorporated Device Manufacturers (e.g. Texas Inst., Motorola, Intel, … ) Labor-concentrated chip gathering work for the most part off-shored since the 1960s Initially, plants served only one organization More as of late, free constructing agents and testing firms are serving numerous clients IBM robotized in the 1960s Automation of get together and testing now spreading far reaching and around the world

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U.S. IDMs, 1960-1990 Capital-escalated wafer fabs were off-shored specifically: critical guide advertise get to Cost of direct work not a noteworthy component US proprietorship, global expert staff Hazards: feeble framework, long supply lines, business and political atmosphere Early cases: Texas Instruments (Japan), Analog Devices (Ireland), Intel (Israel)

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U.S. IDMs, 1960-1990 Skills-concentrated process improvement and item configuration generally stayed in the US Firms looked for favorable circumstances from restrictive innovations Few talented experts accessible abroad Some exemptions: Chip configuration focuses in England (TI), Israel (Intel); normally dedicated to particular items for overall markets Sales, promoting, client bolster endeavors carried on around the world

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Changing plans of action: IDMs compelled to wind up masters Intel, AMD: microchips Samsung, NEC, Micron, Infineon: memory Texas Inst., STM: chips for PDAs These are standard items, MM units; same outlines bought by many contending unique gear makers (OEMs) Above classes speak to about ½ of aggregate overall semiconductor creation What about the other half?

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Factors prompting to "foundries" Competitive present day wafer fabs cost $2-4B utilize ~ 1000 individuals (add up to for 7 x 24 operation) Annual incomes > ½ fab cost for benefit Worldwide institutionalization of mfg. handle Innovative outline firms require just a small amount of one fab's ability Vastly unique administration aptitudes: plan versus fab IDMs once in a while prevail with regards to serving fabless firms Foundries were set up to serve this need Leadership of Morris Chang!

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Fabless-foundry plan of action Fabless firms characterize, outline, & advertise chips little venture, brisk reaction $300-500K income/representative ~50,000 generously compensated U.S. employments; ~13,000 ROW Asian foundries create chips for some organizations immense speculations; settled costs ~75% of aggregate ~15,000 manufacturing plant occupations, generously compensated by nearby scales exceptionally computerized for tight process control short generation cycle auspicious introduction of new innovation eras magnificent client benefit some specialty masters with old innovation

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Outsourcing, Offshoring? Fabless plan focused in the U.S. MS, PhD graduates of top U.S. colleges U.S. is #1 (78% of '03 incomes) Taiwan is #2 (11% of '03 incomes) Equivalent outline abilities extremely uncommon somewhere else Most silicon foundries are in Asia Many process improvement occupations in Asia Many graduates of top US colleges Weak U.S. residential venture (with the exception of Intel)

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"Natural way of life" for semic. industry Semiconductor generation gear & crude materials are provided for the most part from U.S., Japan, and Europe U.S. leads in key regions: MS & PhD training Computer-helped plan for semiconductors University-industry collaboration Climate for development Market for cutting edge innovation Government support is most grounded in Asia

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Factors impacting area for assembling speculations Trophy estimation of semiconductor fabs (Think about the steel business in the 1960s) Trophy looked for by gov'ts around the world: impose impetuses! China is the present pioneer in motivations Most capital originates from outside PRC Fading worries about speculation dangers Weaker controls on U.S. gear send out Commodity status of assembling innovation Return of ostracizes; spread of advanced education Protected IP less critical than know-how Improving foundation in China, different countries

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Chinese rivalry for foundry business Semiconductor Manufacturing Int'l Corp. (SMIC) biggest, most developed Chinese foundry established in 2002; 3 8" fabs in Shanghai bought Motorola's 8" Tianjin office 12" fab in Beijing under development 3/17/04: $1.8B IPO in HK & NY; - 12% starting at 4/6/04 U.S. recorded WTO grumbling re: China's lower VAT for privately outlined or fabricated semiconductors China stays a long ways behind in chip plan capacity China builds up special residential standard for cell communication; Chinese accomplices required

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2003 Foundry income pioneers 1. TSMC (Taiwan) $5.9 billion + 26% 2. UMC (Taiwan) 2.7 + 27% 3. Sanctioned (Singapore) .73 + 49% 4. IBM (U.S.- IDM) .56 -27% 5. NEC (Japan-IDM) .43 + 33% 6. SMIC (China) .37 +630% 7. Hynix (Korea-IDM) .34 + 39% 8. DongbuAnam (Korea) .33 + 27% 9. Jazz (U.S. ex-Rockwell) .19 + 16% 10. HHNEC (China) .17 + 13% 11. SSMC (Singapore) .16 + 82% 12. X Fab (E. Germany) .13 + 27%

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Survival procedures of U.S. IDMs Intel: overwhelming ventures; attempt new markets Texas Inst: constrain speculations + utilize foundries IBM: cooperated with Chartered, Infineon AMD: more German motivating forces in Dresden Micron: advancement; more cost diminishments Motorola: stripping semiconductor business National: item center; utilize foundries Analog Devices: restrain ventures + foundries

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Conclusions for semiconductor industry It's a completely globalized industry Microprocessors: Intel unchallenged Memory is a ware; Samsung leads by a wide margin IDM plan of action is dead for different items U.S. leads in creative chip outline U.S. unchallenged in plan programming outline & programming aptitudes will undoubtedly spread! Asia leads in foundry fabricating U.S. is not a genuine contender; poor ROI TSMC, UMC are probably going to remain pioneers Overcapacity looms; SMIC result is questionable