Chips off a New Block (2002)

Consumers have long benefited from the profusion of ever more powerful and less expensive silicon semiconductors, the building blocks of all electronic devices. For the chip manufacturers, though, the story is less rosy. While the market price of their products has steadily fallen, the cost of building a new fabrication facility to produce increasingly complex chips has soared-to $2 billion or more. Capital productivity has plummeted as a result (Exhibit 1). And now, an industry already reeling from the general slowdown in high technology faces an even greater strategic challenge from emerging technologies. Plastic transistors, also called organic thin-film transistors (OTFTs), may be that rarity: a truly disruptive technology in a mature, $226 billion industry. Semiconductor manufacturing at present involves hundreds of steps performed with incredible precision in a near vacuum. Foundries are usually huge and highly efficient, but the process that takes place in them still generates heavy metals and toxic gases and consumes billions of gallons of water. Moreover, it takes days to produce a single, albeit large, batch of conventional semiconductors. OTFTs, by contrast, can be produced in minutes using sophisticated inkjet or rubber-stamp printing technology. They can be made singly, and with projected costs of less than a tenth of a cent apiece manufacturers of OTFTs will be able to recover those minuscule costs on far smaller lots of chips. Although OTFTs still underperform silicon, and will for some time, the gap between the two technologies is steadily closing (Exhibit 2). Plastic semiconductors could be used in a wave of new products, including disposable radio-frequency tags designed to replace bar-coded labels in baggage-handling or inventory-control systems--potentially a $4.2 billion market by 2004. Other uses include the driving electronics for digital paper (flexible, handheld displays for applications such as e-books), possibly a $1.3 billion market by 2003, as well as flat-panel displays, which are used in cell phones, laptops, and personal digital assistants (PDAs), already, in all, a $24 billion market. Incumbents are generally slow to respond to game-changing innovations, thus ceding, first, the fringes and, eventually, large chunks of these markets to nontraditional challengers. (1) Companies such as Toshiba, Hitachi, and Rohm, which produce most of the world's commodity chips, are vulnerable to this type of incursion. And as OTFTs gain hold, there will be less need for the sort of capital-intensive foundries operated by contract manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) and for the electronic-design and -automation houses (such as Mentor Graphics and Synopsys), whose products help simulate and test immensely complicated silicon chip prototypes. Likewise, manufacturers of multimillion-dollar chip-making equipment (Applied Materials, for example) may be threatened by this cheaper, technology. Plastics and chemical companies, such as Dow Chemical and DuPont, and printer makers, such as Canon, Hewlett-Packard, and Seiko Epson, may command the lion's share of the profits. Sound far-fetched? Consider the OTFTs' near cousins, the OLEDs. Organic light-emitting diodes, or plastic color displays, entered the market in mobile telephones (Motorola) and car audio displays (Pioneer) in 1999. While silicon-based liquid crystal displays dominate the market, OLEDs are brighter, crisper, easier to view--even in bright light--and soon will be much cheaper to produce. Although these early devices are small and last only about 10,000 hours, compared with 60,000 hours for LCDs, large, robust displays are sure to follow. Advanced plastic color displays will replace conventional color LCD screens on mobile phones, PDAs, notebook computers, desktop monitors, near-eye displays (small, head-mounted displays for use in medical imaging and military aviation), and perhaps television sets. …