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Chips and Change

Chips and Change: How Crisis Reshapes the Semiconductor Industry

Clair Brown
Greg Linden
Copyright Date: 2009
Published by: MIT Press
Pages: 272
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  • Book Info
    Chips and Change
    Book Description:

    For decades the semiconductor industry has been a driver of global economic growth and social change. Semiconductors, particularly the microchips essential to most electronic devices, have transformed computing, communications, entertainment, and industry. In Chips and Change, Clair Brown and Greg Linden trace the industry over more than twenty years through eight technical and competitive crises that forced it to adapt in order to continue its exponential rate of improved chip performance. The industry's changes have in turn shifted the basis on which firms hold or gain global competitive advantage.These eight interrelated crises do not have tidy beginnings and ends. Most, in fact, are still ongoing, often in altered form. The U.S. semiconductor industry's fear that it would be overtaken by Japan in the 1980s, for example, foreshadows current concerns over the new global competitors China and India. The intersecting crises of rising costs for both design and manufacturing are compounded by consumer pressure for lower prices. Other crises discussed in the book include the industry's steady march toward the limits of physics, the fierce competition that keeps its profits modest even as development costs soar, and the global search for engineering talent.Other high-tech industries face crises of their own, and the semiconductor industry has much to teach about how industries are transformed in response to such powerful forces as technological change, shifting product markets, and globalization. Chips and Change also offers insights into how chip firms have developed, defended, and, in some cases, lost global competitive advantage.

    eISBN: 978-0-262-25865-4
    Subjects: Economics, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
    Clair Brown and Greg Linden
  4. Introduction The Global Semiconductor Industry
    (pp. 1-14)

    Since the 1960s the semiconductor industry has been a driver of global economic growth and social change. The widespread application of semiconductors has transformed computing, communications, entertainment, and industry. This young and fast-growing industry embraced rapid technological change, and transmitted it to the rest of the economy. Almost all aspects of the economy have been affected by electronic equipment, which derives its capabilities from microchips.

    Steady improvements in semiconductor cost and performance have been a major driver in the improvements in US productivity and growth in the postwar period (Jorgenson and Stiroh 2000). Because of the strategic economic importance of...

  5. Crisis 1 Loss of Competitive Advantage
    (pp. 15-38)

    After its invention in the United States, semiconductor technology steadily spread to other countries during the 1950s and 1960s (Tilton 1971). Western Europe and Japan were the main adopters of the manufacturing and application know-how. In the 1980s, where our analysis of the semiconductor industry begins, strength in process technology determines competitive advantage. In this chapter we discuss how Japanese chip producers raised their share of chip industry revenues above that of US producers by the mid-1980s by improving their manufacturing techniques, which gave rise in the United States to fears of steady US decline. Yet a decade later the...

  6. Crisis 2 Rising Cost of Fabrication
    (pp. 39-60)

    One of the fundamental economic forces in the semiconductor industry, the rising cost of fabrication, reflects new process technology that allows more complex chips to be designed at lower cost per transistor. However the fabs in which this occurs now carry price tags that few chip firms can afford.

    Crisis 2, rising fabrication cost, is related to Crisis 5, which concerns a critical manufacturing step called photolithography. Crisis 2 also plays a role in shifting national advantage as countries willing to directly or indirectly subsidize the cost of new fabs, such as Japan in the 1980s (Crisis 1) and China...

  7. Crisis 3 Rising Cost of Design
    (pp. 61-76)

    Parallel to the rising cost of fabrication (Crisis 2), the chip industry experienced an increase in the cost of design as the complexity of design skyrocketed. While developments in technology rapidly expanded the ability to fabricate circuits, the ability to design chips that took advantage of the large number of circuits available did not keep pace. So there is an urgency to improve design productivity in order to fully use the advances in fabrication and create chips that are being called on to perform an increasing number of functions with improved power usage and networking capability. In this chapter we...

  8. Crisis 4 Consumer Price Squeeze
    (pp. 77-94)

    As the technology complexity for both manufacturing and design boosted the cost side of semiconductors (Crises 2 and 3), the economic challenge facing chip firms was compounded by pressure on the demand side as price-sensitive consumers were becoming more important relative to performance-minded corporate purchasers. This consumerization of demand led to a profit squeeze as chip producers could not easily pass along higher costs in consumer markets. Producers had to search for ways to lower costs in order to attractively price new consumer products and keep consumer markets growing.

    This chapter provides an overview of the evolution of semiconductor markets...

  9. Crisis 5 Limits to Moore’s Law
    (pp. 95-106)

    Moore’s Law, which provides the economic basis for the industry’s dominant business model, is approaching certain physical limits. Although industry leaders have so far stayed on the technology path defined by Moore’s Law, they face growing challenges, such as the power leakage discussed in Crisis 3, that are forcing companies to search for innovative solutions to ensure that continued miniaturization of circuits results in significant performance improvement.

    In our discussion of the rising cost of fabrication (Crisis 2), we touched on photolithography, the central process for achieving Moore’s Law miniaturization of circuits. Here we take a closer look at chip...

  10. Crisis 6 Finding Talent
    (pp. 107-136)

    In this chapter we switch to a close-up on the United States and ask if the US chip industry is facing a talent crisis. High-tech companies have been issuing the “crisis warning” about engineering shortages for at least the past two decades. The warnings from AMD and the National Academies quoted above are only two in a long line issued by companies and government-sponsored panels.

    We saw in Crisis 4 that the price squeeze that led the US industry to globalize its supply chain also led to the fear that engineers in high-cost locations would lose jobs to lower cost...

  11. Crisis 7 Low Returns, High Risk
    (pp. 137-164)

    Although the semiconductor industry has created enormous value for other industries and for society, chip companies have found it difficult to capture this value as net income. The industry’s relatively low and volatile average rates of return reflect the growing costs of manufacturing and design (Crises 2 and 3) combined with competitive product markets that quickly push prices down. Few firms have been able to build sustainable competitive advantage that allows them to capture value above competitive rates, and the severe downturn that started in 2008 brought these weaknesses into sharp relief.

    This chapter begins by documenting the return on...

  12. Crisis 8 New Global Competition
    (pp. 165-198)

    Even as most semiconductor companies struggled to raise profitability and survive demand swings, companies and industry analysts in developed economies were raising warning flags about the potential loss of industry leadership to newcomers Taiwan, China, and India. We have come full circle back to our first crisis in a new guise—fear of loss of competitive advantage to new Asian rivals. Although the rise of chip industries in these countries owes much to foreign investment by industry leaders and to the experience of local engineers in these multinational companies, these rapidly developing countries are now home to local companies with...

  13. Conclusion: The Way Ahead
    (pp. 199-214)

    The eight crises analyzed in this book are interconnected and recurring, so understanding any one crisis relies upon understanding the ongoing dynamics of the related crises. For example, Crisis 8 (new global competition) is a new version of Crisis 1 (loss of competitive advantage) and is exacerbated by competition for the global labor supply of engineers (Crisis 6). Crisis 7 (low returns with high risk) is exacerbated by the squeeze on prices (Crisis 4) and the technological limits to Moore’s Law (Crises 5). Higher fabrication and design costs (Crises 2 and 3) add to the price pressure (Crisis 4) and...

  14. Notes
    (pp. 215-232)
  15. References
    (pp. 233-240)
  16. Index
    (pp. 241-258)