Analysis on Changes of Semiconductor Industry Structure Influenced byBusiness Model Innovations

March 2013
Graduate School of System Design and Management, Keio University
Hsiao, Hung-Chi

Abstract
Innovative capability is considered inevitable for firms to sustain their competitiveness. In therecent rapidly changing global competition environment, the traditional integrated device
manufacturer (IDM) model in semiconductor industry is facing the limitation of sustaining its
profitability   and   competitiveness.   IDM’s   focusing   both   chip   design   and   manufacturing   for  various application segments disperse its resources of innovating sustainable competiveness. The
de-integration business model in semiconductor industry has been emerging since late 1980s.
The dedicated manufacturing-only model, foundry, has developed process capability anddemonstrated cost effectiveness via economies of scale. Chapter 2 develops an analysis
framework with incorporating data envelopment analysis (DEA) approach to measure theefficiency through proper input and output variables setting. This framework aims at providing
guidelines   for   developing   firm’s   business   and   technology   strategies.   We   conducted a DEA
analysis by collecting financial data from twenty-six leading semiconductor manufacturing
2companies, including twenty IDMs and six foundries. The results reveal that the foundrycompanies have higher competitive efficiency than those of IDMs. The empirical analysis
suggests that adopting the asset-light business model may provide IDMs a better resource
allocation and help the increase of relative efficiency scores.
The successful foundries lead technology platforms which enable more value creations
through collaborations with their business ecosystem partners. IDM companies in Japan areallergic to this new competition environment, and have still deep attachment to in-housemanufacturing. Focusing on fabrication cost reduction efficiency, in chapter 3 we analyzed thedefect reduction learning curves of the semiconductor manufacturing. We estimate and compare
the cost reduction performances among major Japanese IDM companies and a leading foundrycompany. Then we discuss the cost advantage brought by demand scales, and the importance oftimely cost reduction to the semiconductor technology life cycles. Finally we suggest acollaboration scheme for the IDMs to commit themselves to the developed semiconductorbusiness ecosystem.
The dedicated manufacturing-only business model, foundry, developed process capability anddemonstrated cost effective economies of scale by attracting demands from global markets.
Starting from design-only chip firms, fabless firms, who outsource the manufacturing tofoundries, recently most traditional IDM firms started adopting a fabrication-light approach tostreamline their assets for achieving better financial performance. In responding to this trend,
foundry firms are expected to prepare sufficient IC (Integrated Circuit) manufacturing capacities.
A precise capacity plan for investing in expensive semiconductor process fabrication that exactly
meets demand is the ultimate objective of foundry firm planners. Chapter 4 examines theimportance of demand forecasting for emerging IC manufacturing new business models. Then,3

we propose comprehensive reference architecture for IC manufacturing aggregators to improveforecast accuracy using systematic approaches
With the increasing cost of setting up a semiconductor fabrication facility, coupled withsignificant costs of developing a leading nanotechnology process, chapter 5 aims to construct amarket intelligence framework for developing a wafer demand forecasting model based onlong-term trend detection to facilitate decision makers in capacity planning. The proposed
framework modifies market variables by employing inventory factors and uses a top-down
forecasting approach with nonlinear growth model to estimate the forecast parameters. The
nonlinear mathematical approaches could be used to not only examine forecasting performance,
but also to anticipate future growth of the semiconductor industry. The results demonstrated thepractical viability of this long-term demand forecast framework.

Dissertation Supervisor: Masaru NAKANO, Ph.D.
Title: Professor, Graduate School of SDM, Keio University
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