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Semiwiki Bloggers Misinformed About Foundry Business

The US semiconductor Industry has undergone a transformation from a few Integrated Device Manufacturers (IDMs) to several Fabless businesses. When author Daniel Nenni asked me to write a review for his book Fabless: The Transformation of the Semiconductor Industry , I agreed eagerly. In that review, I mentioned that the US economy needs major reforms towards a free market economy.

In a recent article published on Semiwiki titled “Intel CEO misinformed on the foundry business,” the discussion revealed that the author of the article prefers fabless business model over the IDM model. He considers the IDM model to be a centrally planned model due to centrally planned design and manufacturing operations. One comment on the blog equated the IDM model to the economic theory of Communism because of central planning, and hence considered it to be a failure given the collapse of Soviet Communism.

As a macroeconomist of microelectronics business, I have a solid grasp on the concepts of macroeconomics. In my upcoming book, I have offered concrete solutions for the progress of Moore's law as well as transition to 450 mm silicon wafers through true free market reforms in global semiconductor industry. I want to help industry professionals (mostly scientists, bloggers, and engineers) understand economics, as well as point out common misconceptions. Before we analyze what Semiwiki bloggers had to say about IDM model and why they think present fabless-foundry model is better than IDM, let us understand some basic concepts of economics.

In one of my blogs, I said, “Communism centralizes production and other economic functions through state-controlled industries, rather than through private ownership. Thus in case of Communism, control of the economy lays in the hands of a few government officials.” From the point of view of centralizing the design and manufacturing, Semiwiki bloggers are correct in equating the IDM model to Communism because of centralized design and manufacturing operations.

However, they are misinformed in considering the present fabless-foundry business model as a free market economic model. Let me explain. In the same blog, I said:

Capitalism in the US has been transformed from a free market enterprise of 1950s to a crony monopoly enterprise system in its search for producing commodities at lowest cost and for selling them at a highest price. To produce commodities cheaply, US based MNCs followed a centralized supply chain to achieve efficient transportation, cheap raw materials, cheap labor, cheap energy, adequate water supply, etc. This kind of centralized supply chain has distorted US manufacturing supply chain.

The fabless-foundry model is certainly superior to the IDM model because it ushers in co-operative collaboration between the fabless businesses and foundries. It has also resulted in growth of several small fabless businesses. However, today major fabless players have offshored their manufacturing operations to foundries in Asia.

As a result of free trade policies, fabless-foundry model is increasing US trade deficits due to centralized supply chains of fabless companies. Additionally, a few Wall Street stockholders have reaped huge profits from offshoring of manufacturing to Asia. This has translated to a sharp decline of semiconductor manufacturing in the US. High unemployment due to decline in manufacturing has forced US government to pay for unemployment benefits of laid off workers. This transformation of US semiconductor industry from IDMs to foundry-fabless players has been a major contributor to US twin (trade and budget) deficits. The monetary policies followed by Federal government to sustain these deficits have resulted in frequent intervention of democratically elected governments into the economy to reduce unemployment.

A true free market economy is an economy where the intervention of government into the economy is minimal. Additionally, in a true free market economy, the real job creators are not only the producers but also the consumers. In fact, jobs are created in a free market economy by means of a co-operative action between the producers and the consumers. Such a free market economy has smaller size of government and hence even taxes are low on all individuals. Crony Capitalism is form of capitalism where the government intervention into the economy is high and government follows policies, which result in creation of corporate monopolies by creating a legal framework for monopolies to thrive. Crony capitalism in contrast to free market Capitalism also results in accumulation of unsustainable deficits against consumer interests and national interest.

That being so, if Semiwiki bloggers equate IDM model to Communism, then the present fabless-foundry business model could be equated to crony Capitalism due to US macroeconomic policies. In order to ensure that there are true free markets in the US economy, the centralized supply chains, which are followed by fabless companies, should undergo decentralization, which would also increase their efficiency. By ensuring decentralization of supply chains, the present fabless-foundry business model can usher in a true free market economy.

28 comments on “Semiwiki Bloggers Misinformed About Foundry Business

  1. Daniel
    October 9, 2014

    “One comment on the blog equated the IDM model to the economic theory of Communism because of central planning, and hence considered it to be a failure given the collapse of Soviet Communism.”

    Apek, is it so? I won't think so. Its due to various other political issues and factors leaded to that. communism is still strong in China, Libya, Vietnam etc  

  2. apek
    October 9, 2014

    Jacob, I agree with you. However, USSR was a representative of Communism around the world and USA as representative of Capitalism…that is what the race was all about. Amongst the two Spviet collapsed first and with way things are going in US…US seems to be the next unless there are good economic reforms.

  3. Daniel
    October 10, 2014

    “I agree with you. However, USSR was a representative of Communism around the world and USA as representative of Capitalism…that is what the race was all about. Amongst the two Spviet collapsed first and with way things are going in US…US seems to be the next unless there are good economic reforms.”

    Apek, you mean US capitalism is going to collapse?

  4. apek
    October 10, 2014

    That is whole reason why I have authored my upcoming book as PANACEA for our economic troubles. If we do not reform our regressing economy…Economic collapse seems inevitable by end of 2015 or early 2016.

  5. Hailey Lynne McKeefry
    October 10, 2014

    The USA, in my opinion, isn't in fear of imminent collapse. At the same time, success in many scenarios (supply chain, general business, etc.) are dependant on spotting potential directions (both good and bad) early and reacting accordingly. that's part of what makes this an important discussion.

  6. apek
    October 11, 2014

    I agree with you Hailey. We can learn from past mistakes and move ahead. But, that willingness to change the direction is very important.

  7. Susan Fourtané
    October 12, 2014

    Apek, 

    As someone who watches history documentaries during my tea/lunch breaks and other free time I can positively tell you that I don't see any chance of humanity learning from their mistakes any time soon.

    Society is not evolving at the same pace technology does, which is a problem all in its own.

    “But, that willingness to change the direction is very important.”

    Yes, that's true. For that to have a positive effect you need plenty of individuals willing to change the direction.

    Do you think there are enough individuals willing to change direction? And in the hypotetical case that there were, why things haven't changed direction yet, then? :/ 

    -Susan

     

  8. apek
    October 12, 2014

    Susan, Good point. The coming economic crisis because of our inability and unwillingness to progress as humanity…will force this change for our best. I think we are nearing a big economic crisis of our lifetime. The steps that humanity takes from here will decide the future of our species. I believe we will make the right choice. Best wishes, Apek

  9. Daniel
    October 13, 2014

    “That is whole reason why I have authored my upcoming book as PANACEA for our economic troubles. If we do not reform our regressing economy…Economic collapse seems inevitable by end of 2015 or early 2016.”

    Apek, all the best for your new work.

  10. Hailey Lynne McKeefry
    October 13, 2014

    @Apek, is there a starting point that you would suggest in terms of reform? it's a pretty complex issue…

  11. Hailey Lynne McKeefry
    October 13, 2014

    I know you are putting forth a solution…what do you see as the biggest stumbling blocks or challenges to getting to the new reality you propose, Apek?

  12. apek
    October 13, 2014

    The biggest stumbling blocks is being unable to convince folks who do not have an open mind to listen to new ideas. Did you know that when US ENTERED GREAT DEPRESSION in 1929….the president of US…FDR did not give any heed to suggestions of John Maynard Keynes for nearly a decade and US economy worsened during firt decade of depression. After FDR followed the heretic ideas of Keynes was US able to come out of its economic depression. Hence, If people are willing to throw back the previous ideas that they have and listen to my ideas and suggestions with a presence of common sense…that is what I need. But, SOme people have preconceived notions and they will not accept any new ideas even though exiisting ideas are failing the businesses and failing the country. This I believe would be the biggest stumbling block that I would face.

  13. apek
    October 13, 2014

    I have some near term and long term proposals. For the near term…I want backshoring of manufacturing to US. In the long term , I want US to go for a balanced economy so that we have low unemployment, no deficits, no national debt, no consumer debt, robust economic growth and no need of any BIG government.

  14. Hailey Lynne McKeefry
    October 22, 2014

    Thank you for the history lesson, Apek. Those who disregard history are doomed to repeat it.

  15. apek
    October 23, 2014

    Absolutely Hailey. I hope you enjoy my book trailer https://www.youtube.com/watch?v=CQoXXbVVZmg&list=UUelEJIyFJxfx9P2_9-4PXEQ

  16. Susan Fourtané
    October 24, 2014

    Apek, 

    “The steps that humanity takes from here will decide the future of our species.”

    That's when it becomes hard to believe in a bright future of this planet. 😀 

    -Susan

     

  17. apek
    November 3, 2014

    I agree with you. I hope you are attending Web Summit in Ireland. I am here and would be blogging about the same.

  18. Hailey Lynne McKeefry
    November 4, 2014

    @Apek, we look forward to hearing new thoughts that you gain from the conference. I wish i could be there!

  19. Susan Fourtané
    November 7, 2014

    Apek, 

    I didn't attend the Web Summit in Ireland. I was in France then. How was it? 

    -Susan

  20. apek
    November 13, 2014

    @Hailey, Internet of Things was the theme of conference. I will make contribution to some great blogs about this conference on EBN

  21. apek
    November 13, 2014

    @Susan….It was best Tech conference that I have attended outside US. Kudos to the organizers

  22. Susan Fourtané
    November 13, 2014

    Apek, 

    There are always great conferences on this side of the world. 😀 You should attend more to see. At the end of this month there is another IoT conference in London. I might be reporting about this one. 🙂 My most recent article on EBN is about the IoT, too. 

    -Susan 

  23. Daniel
    November 13, 2014

    “Internet of Things was the theme of conference. I will make contribution to some great blogs about this conference on EBN”

    Apek, thanks and we are  expecting it at the earliest.

  24. apek
    November 15, 2014

    Thanks Susan.

     

    @Jacob…here is my first blog on my website. Next blog will be sent to Hailey http://apekmulay.com/googles-public-cloud-platform-the-macroeconomics-of-iot/

  25. Daniel
    November 16, 2014

    “here is my first blog on my website. Next blog will be sent to Hailey //apekmulay.com/googles-public-cloud-platform-the-macroeconomics-of-iot/”

    Apek, thanks for the link. But I think its not so far published with EBN.

  26. Hailey Lynne McKeefry
    November 18, 2014

    @Jacob and all, expect Apek's first thoughts on this confernece posting on EBN tomorrow!

  27. Daniel
    November 19, 2014

    “Jacob and all, expect Apek's first thoughts on this confernece posting on EBN tomorrow!”

    Hailey, thanks and that's a great news.

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