I agree mostly with the myths listed in the article. Many companies think that investing in fab is not a strategic decision. Its always easy to outsource. Because manufacturing brings lots of worker issues and other production issues. I guess this business needs much higher patience. It doesnt give you much excitement that research gives. And reserach wont give you money immediately. No one can deny the truth that its very important to keep manufacturing control in your hand because ultimately thats the area that brings ideas to reality. So whoever has fabs would dictate the market.
I tend to agree with most of Penn’s views and his take on the myths seem to make common sense.The only one that I am not really sure about is Myth #2: Average selling prices will keep on falling."Just like house prices kept on rising?" What is the rationale on this one?Is that prices will not fall because there will be more demand?But with more demand there will be more production, which means cheaper overall manufacturing runs.Or is it that as the economies of the countries that Western countries outsourced manufacturing to will significantly improve, which will increase the cost of living and hence, cause prices eventually to keep increasing?
In fact in the past few years, a number of companies have gone fabless. And typically japanese companies are still retaining their fabs. The trend is more and more startups (in IC design business) are pure fabless and they will go to asia for producing their chips.
Getting the semiconductor industry to change--or at least question--its business model is a really good concept. But I'm worried it will be like trying to turn the Titanic around. On one hand, the chip industry has a track record of changing with the market. On the other hand, is there an industry--maybe aside from the financial industry--that can be as arrogant at times? I'm not sure if drawing a parallel to the auto industry is even fair, but it's worth thinking about.
On "forever falling prices", I'll say one thing: in semiconductors, we do this to ourselves. There is no logic behind creating products with increasing performance, increasing functionality and decreasing footprint for an electronics industry that values increasing performance, increasing functionality and decreasing footprint in its semiconductor components. As was once said, "in the ocean there's nothing below whale excrement", and in the electronics industry foodchain, semiconductors are on the same level as whale excrement. We sit at the bottom of the electronics foodchain, absorbing all the excrement that falls down to us from the OEMs and ODMs. OEMs and ODMs need price reductions, they turn to semiconductor vendors for fundamental innovation. They need footprint reductions, they turn to semiconductors.
Marketing is the reason we're willing to do this. As a marketing exec in the semiconductor industry, I can say that the worst marketing people on the planet are in the semiconductor industry. Competitive analysis is usually shoddy at best; definition of product differentiation is, when it exists at all, thin. Without product differentiation and competitive analysis in which they can have faith, sales teams turn to price to win business. And so the wheel turns, each loser of market share turns to price to win back that share, dragging down the entire sector of semiconductor vendors with them. Winning business at lower margins is better than an empty fab. As I said, we do this to ourselves.
When everyone assumed that unutilized fab capacity drove price reductions in the semiconductor industry, the fabless model was seen as the business model savior for the sector. But alas, not having a fab to feed doesn't have any relation to the lack of quality in marketing.
@Barbara: I agree that tha auto industry has stood the test of times and has been fairly stable. The growth has been slow but controlled and predictive. I think it's one industry other industries can look up to and may be try to adopt the model.
The most intriguing thought of Penn for me was "You cannot grow your economy only on services: You have to do some manufacturing. You don't make money out of research, either. It's good for the brain but not for the pocket." I also share the same opinions somehow but i have not analyzed it deeply. Does this thought has any economic backing or just a philosophy? I will love to read a detailed article and findings based on some hard data on the abovementioned quote.
"Today's more Moore is tomorrow's more than Moore."
I already have a tune for this in mind.
Good catch on the assumption that prices will keep falling. Interestingly, there was an attempt many years ago to trade future contracts on semiconductors on a commodity exchange, but it didn't work back then because, yes, semiconductor component prices only went down! Or at least they only went down back then. I wouldn't want to bet on that forever.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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