Semiconductor Industry
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BY CSANAD
INTRODUCTION
During its short history, the electronics industry has gone through a development that was never
seen before. The electronics industry developed in a number of steps. First the very basics of the
industry started in 1901, with the introduction of the radio. The next step was when in 1948 the Bell
Telephone Laboratories invented the transistor. A transistor is “a semiconductor device, usually
having three terminals and two junctions, in which the load current can be made to be proportional to
a small input current, so that it is functionally equivalent to a valve but is much smaller and more
robust, operates at lower voltages, and consumes less power, and produces less heat.” (The
Hutchinson Encyclopedic Dictionary, page: 1131) In other words transistors transfer certain kinds of
electric impulses into other type or electric currents.
DISCRIPTION OF SEMICONDUCTORS
The first Bell transistors were bipolar. Bipolar means that a transistor creates information as
combinations of only two numbers; 0 and 1. If the electric currentdoes flow through the specific
transistor then the information that the electric current carries will be stored in the memory on the
same silicon plate as the number “1”. If the current does not flow through the transistor than the
memory on the same silicon chip will be stored as the number “0”. These digits are also called “bits”.
Transistors also make impulses of the electric currents that enter them stronger. The transistors
replaced the thermionic valve, which was invented by John Fleming in 1904. These thermionic
valves improved the quality of radios. Since transistors were much smaller than thermionic valves,
which caused their fast spreading. Transistors caused a previously unbelievable decrease in the size
of electric devices. Since transistors are so tiny, their introduction not only was a step in the
development of the electronics industry, but it also created what is today known as the
“microelectronics” industry. Later when certain chemicals started to be added to
silicon, semiconductors, which slow the flow of the electric currents, were created. These
semiconductors soon started to be manufactured for the public and were sold commercially. A about
a decade after the introduction of semiconductors, towards the end of the 1950’s, something called
the “integrated circuits” came into existence. The integrated circuits were also a very important
invention in the history of the electronics industry, because they further improved the power of
electric devices. On an integrated circuit there are a number of transistors located, which are all
located on silicon chips. Over the years the number of transistors on these chips increased
dramatically from Intel’s first commercial processor, which are “computers on a chip”, containing only
3500, until the current ability to jam as many as 5.5 million transistors. Texas Instruments claims that
it has a technology available by which 125 million transistors can be packed on one chip. By the
early 1970’s it was possible to incorporate very complicated solid-state circuits on one single chip
the size of a finger-nail to create the microprocessor. These tiny microprocessors were so tiny that a
single of them was able to perform, what previously were performed by valve computers that
occupied very large rooms created solely for this purpose. Obviously miniaturization was one of the
key concepts of the industry.
MAJOR TRENDS IN THE SEMICONDUCTOR INDUSTRY
Although the industry nowadays is very large, with literarily billions of dollars invested in only its
Research and Development (R&D), its importance today lies in the fact that it is so intensively
present in everyone’s life. In our modern, digital life their absence, and it affects are almost
unimaginable for us. In fact, as our book puts it, it is “the engine of the digital age” (Global Shift,
page: 353) of ours. This great significance in the everyday life is the reason why more and more
governments are inclined to be involved in it, because if they don’t than it will hurt the whole
domestic economy. In it short history, the semiconductor industry has been the cause of many
political debates, from tariffs on them to protectionism of the domestic microelectronics industry.
Many governments give financial aids to these home-based processor and transistor manufacturers.
As in many other industries, the trend of shifting every day, and routine type of jobs into countries
with lesser wages can be observable especially by Asian, North American, and Western European
corporations. Another reason for why firms start production in certain countries or regions, especially
in the case of big markets, firms start to produce to be able to get around the imports quotas and
barriers.
THE CONSUMER AND SEMICONDUCTOR INDUSTRIES
Within the electronics industry there are two major branches; the components industry, most notable
the semiconductor industry, and the consumer electronics, most notably the television manufacturing
industry. The semiconductor industry can further be divided into the still broad memory chips, and
the microprocessors industry. Memory chips are chips which has the sole purpose of containing and
the storing of its preprogrammed informations. Microprocessors interpret, control and carry out all
the instructions that are inputted by the user. Semiconductor parts are used in a wide range of ways,
which, for the sake of simplicity, can be divided into two major categories also; the electronic
equipment and the consumer electronics sector. Within the electronics sector there is much overlap,
mostly because of the computer. Computers can be used in many areas such as in the industry,
where it was originally used. Later computers, when they were started to be sold to the public
through retailers. From then on computers became a very common thing, until the current state,
where virtually all households in the developed world own a computer. Since billions of computers
are being sold all over the world today, and given the fact that all computers need a processor,
billions of semiconductors are being sold today to the public only. Both the consumer and the
semiconductor, but especially the semiconductor industry is very capital intensive industries, which
mean that a lot of money is required just to start the company. Their R&D department are very labor
and knowledge based industries. At the same time, mostly in the United States the more every day
and routine type of activities is let to the smaller corporations to carry out. We will see that the global
distribution, and also the degree to which the different developed countries are involved in the
industry.
THE DEVELOPMENT AND GROWTH OF THE SEMICONDUCTOR INDUSTRY
The development and the growth of production of semiconductors in its history of half of a century
has been a real impressive one. Twenty years after its invention, it reached the state in which the
volume of its production started to double every single year. Their production first started out in the
country where they were invented, in the United States, which dominated the worldwide production
up until the 1970’s. A decade later, however Japan overtook this very honorable title of being the
number one producer of semiconductors. From then on a commercial war began between the US
and Japan to be the world leader. During this war, Western Europe, mainly Germany, France, and
the United Kingdom, lagged behind, just trying to stay on its feet, and to keep the pace that these
two and some NIE countries dictated. The most notable of these NIEs, Newly Industrialized
Economies, were South Korea, Taiwan, and Singapore. Which also started to invest large sums of
money in R&D. Because the Japanese, North American, and to a certain extent, Western European
firms shifted the low skill needing productions in southeastern Asia, Malaysia, the Philippines, and
Thailand also produced vast amounts of the semiconductors.
The most notable development in the world went trough in South Korea, which from being a modest
producer in the 1980s, emerged to the notable place of being the third largest producer only after
Japan, and the United States, thus the country became a key player in the world of the
semiconductor industry. There are a number of newly emerged production centers today. Within the
United States, in the beginning only the Santa Clara valley, or as many know it the “Silicon Valley”,
was the only producer of the industry. Later a multiple of centers emerged, particularly in Colorado,
Oregon, and Utah. In Western Europe, the first production centers developed in Ireland, Wales, and
Scotland. In the case of Scotland, the semiconductor production was so dominant in the European
market that it received the name of “the largest ‘chipshop’ in Europe”. The central valley of Scotland
where the production is concentrated, has the other popular name of the “Silicon Glen”. In Southeast
Asia new centers of production also emerged recently, most notably China, Malaysia, the
Philippines, Thailand and Indonesia.
PRODUCTION TRENDS OF CONSUMER ELECTRONIC INDUSTRY
As we could see semiconductors are manufactured in a couple of centers of the world. However this
is not what the consumer electronic industry is like. The production of consumer products are much
more evenly spread out in the world and it is much more global, however there are still a couple of
foci of it. This can easily be seen if we take into consideration the fact that whereas Japan, the
United States, North Korea, and Western Europe produce four fifth of the total semiconductors, in
the case of the consumer electronics industry this figure is only 60 per cent of the whole consumer
products production. The leading region of east and southeast Asia, together with Japan also,
produce only two-thirds of all the consumer electronics devices. Also the global shift of the
production activities can be seen more clearly. In the case of the consumer products industry the
emergence of the Southeast Asian countries are more significant, than in the case of the
semiconductor industry.
MARKET SHARE CHANGES
One example where this shifts between the major regions of the world can be easily and clearly
observed is the worldwide manufacture of television sets which started its significant change in the
late 1970s and in the late 1980s. Probably the most important reason why these products’
production became so globally widespread is the fact that television set originated in the developed
world of North America and Europe. During the decades when the changes started the world
production of television sets grew by as much as 68 per cent, whereas in Europe this figure was only
9 per cent, and in the States it was only 21 per cent. The major growth took place in Asia, with it
impressive 168 per cent. But in Asia there were many significant changes; Japan, which in 1978 was
the world leading television producer, managed to increase its production volume by only 13 per
cent. China, on the other hand, who produced next to nothing in the year 1978, by 1987 it became
the world’s highest production level owning country. The other big bangers of the continent were
Malaysia with 725, South Korea with 204 and Singapore with 193 per cent. The trend of Asia
increasing market share of the production of television set continued all through the last decade
also. A glance at the trading figures will also strengthen our sense of east and southeast Asian
dominance in the consumer electronics market. East and southeast Asia had a trade surplus of
close to $17 billion, whereas Europe had a deficit of a little over $7 billion and the United States had
a deficit of $15.4 billion in the year 1994. In the States between 1948 and 1962 were totally self-
sufficient in the market of television sets until the first Japanese imports appeared. In fact, the effect
of Japanese and other Asian import were so great that currently there are no American television
producers, although originally it had 16 of so television producing firms. Besides the fact that east
and southeast Asia has such a great trade surplus, the fact that most of the European and North
American firms have plants in the region, which means that the television sets of European and
North American based firms are Asian imports. Obviously the manufacture of television sets is very
volatile.
THE SEMICONDUCTOR INDUSTRY IN DIFFERENT REGIONS AND COUNTRIES
OF THE WORLD
The growth of the semiconductor depends very much on the growth rate of the products in which
they are incorporated in. In the beginning, in the US, unlike the semiconductor industries of the other
three major focus regions, Japan, North Korea and Europe, most of the chip orders came from the
defense sector, particularly from the Airforce. In Europe and even more so in Japan most of the
stimulus for the industries development came from and were adapting to the needs of the industry
and of the customers of the day. Although the governments of Western Europe, Japan, and the NIE
countries were not among the direct consumer of semiconductors, they often got involved in the
happenings of both the domestic and the foreign semiconductor industry. Many of the governments
imposed tariffs and quotas on imports. They also supported the home based semiconductor industry
with non-tariff methods, like giving financial aid to the microprocessor manufacturer of the country. At
the same time there were governments that encouraged foreign producers to build a plant in the
country. Besides supporting domestic firms and foreign producer to build production units in the
country, there is a third way in which governments encouraged, and does so today, is to purchase
semiconductors on the open market, and develop its end-uses.
PROBLEMS
There are problems with these solutions also. For some countries to set up a domestic producer is
behind their means, but on the other hand relying on the foreign producers to set up plants may
cause dependency on them.
THE GROWTH OF THE SEMICONDUCTOR INDUSTRY
The growth of the semiconductor industry were very intense; we only need to look at the decade
between 1985 and 1995, during which the total sales of semiconductors tripled to exceeded $150
billion of sales. This trend is likely to speed up; some estimated that that the global market of the
industry will triple every five years. As it was mentioned before, the biggest user of the chips is the
computer industry, which is seen from the fact that about 60 per cent of the semiconductors sold are
incorporated in computers. The relationship between personal computers, PCs, and semiconductors
are symbiotic; more powerful computer require more powerful semiconductors to drive them, and as
the leading semiconductor manufacturers, notably Intel and AMD, develop more powerful chips, it
increases the demand for more powerful PCs also. This cycle is also reinforced by, the leading
software developers, most noteably Microsoft, which introduce programs that need more and more
powerful microprocessors. In fact, it is predicted that the life cycle of a new generation of
semiconductors last up two years only and then an even newer generation comes out.
OTHER PROBLEMS
This fast development causes problems also. It often happens that not long after a new plant has
been built, or an old semiconductor plan was modernized for billions of dollars the technology has to
be renew again because it is not sufficient for the manufacture of the new generation of
semiconductors. This is the reason why this industry is so much dependent on large amounts or
capital.
PRICES OF SEMICONDUCTORS
Another major reason for the higher and higher demand for semiconductors stems in their constant
and drastic fall in price, which besides developing less costly manufacturing technology and
techniques, each time a new generation comes out the previous ones become outdated, driving their
price down even more. This fact can be best illustrated with the fact that in November 1995 a
memory chip costed $13, in March of 1996 its selling price was only $9.
MAJOR TYPES OF SEMICONDUCTORS
There are six major types of semiconductors, each with different patterns of demand:
1. Standard devices: they are standardized and can be used in a wide variety of ways.
2. Exclusive devices: these are basically the same as standardized devices with the difference
that these devices can only be produced by a couple of producers only, as they have
technological monopoly on the particular semiconductors.
3. Specific devices: these are also mass produced, but unlike the previous two, can only be
used in a certain way.
4. Custom devices: these are manufactured for a certain user and according to the user
requirements.
5. Microprocessors: they can be mass produced, but can be programmed for specific purposes.
6. Semicustom devices: certain parts of these semiconductors can be mass produced, and
later the final connections will be arranged according to the requirements of the user. These are
a little like microprocessors. These devices are also known as “application-specific integrated
circuits (ASICs), and the demand for these semiconductors are expanding exceptionally
rapidly.
DEMAND FOR CONSUMER ELECTRONICS PRODUCTS
The demand geographically is concentrated where their productions are. The global demand is
overwhelmingly concentrated in the United States, Western Europe, and in East Asia.
The pattern of demand for consumer electronics products such as television receivers differs in
many ways from the demand of semiconductors. First of all they are final demand products. Also,
unlike the demand of semiconductors, the demand for consumer electronics products are income-
elastic, which means that if prices go up than demand goes down, and vice versa. In the 1960s and
1970s, for example the demand grew rapidly mainly in the developed world, where incomes were
higher, until the end of the 1970s when a recession effects hit the consumers. Another reason for the
decline of demand was the saturation of the market. Ever since that time the demand became a
replacement demand, which was a bad news for the producers, because it is a much slower growing
and volatile kind of demand. This is why television set producers now focuses on developing related
products, like one of the major inventions of the 1980s, the video cassette recorder, or the VCR.
Also they developed previous TVs and came up with newer types of television sets like the digital
and the flat format TVs, of the 1990. It is predicted that these flat TVs will develop to be the main
control center for other electronic consumer products as well, pointing to a future where the
electronic consumer- and the semiconductor industry will be more integrated. After the saturation of
the market in the developed world, producers moved towards the developing countries, where
demand was increasing steadily, and pretty quickly.
MANUFACTURING A SEMICONDUCTOR
In the semiconductor industry the technological has been so rapid that nowadays a generation of
semiconductors has to be replaced every two or three years. The cost of building a plant has also
escalated; in the 1960s a semiconductor plant could be set up for about $2 million, in the early
1970s somewhere between 15 and 20, in the 1980s for 50-75, and in the last decade it costed as
much as $150 million. Currently they cost the company billions of dollars to set one up. Obviously
less and less companies are able to enter the semiconductor industry, because not very companies
have that much money just to get the production to go.
During the manufacture of semiconductors, there are two things that has to be considered especially
carefully:
1. The “yield” of the manufacturing process: decreasing the number of faulty circuits, and
2. To increase the number of circuits on a chip.
Mainly these two factors are due to the steep increases in the cost of setting up a semiconductor
manufacturing plant. Besides the fact that as the number of circuits on a chip increases, it is also a
trend to increase the spending on a larger and more and more modern plant, be more capital and
research intensive.
Since the organization and structure of the production process has great influence on the
geographical spread of the industry.
First the semiconductor is designed. During this stage the location of each element in the
circuit and their connections are set depending on the functions the semiconductor will have to
carry out,
Then the pure silicon rods formed from silicon crystals are sliced into individual “raw wafers”.
This process is usually carried out by specialist firms, although some of the largest one are able
to do it themselves,
In this stage the integrate circuits are etched on the wafers. Each wafer contains large
number of identical circuits,
Each chip is tested electrically,
Assembling; in this stage each wafer is broken down into separate chips, and assembled into
the final integrated circuit or microprocessor;
Finally they are tested and then distributed.
There is a very important distinction between the designing, wafer fabrication and the assembly.
They need to be located geographically close to each other. The design and fabrication require high
skilled labor, and the fabrication stage requires pure manufacturing conditions. For the assembly
low- skilled labor of usually women are used with some extent of pure environment, although in this
case it is not as necessary as for wafer fabrication. Since semiconductors can easily be transported,
they are usually assembled in countries with low wages, where large plants are built in order to
make wafer fabrication profitable, as they need to be produced in large quantities. This first occurred
in the case of the American firms in the 1962 Fairchild moving to Hong Kong.
TRENDS OF TELEVISION MANUFACTURE
Generally, the consumer electronics industry technologically is less developed than the
semiconductor industry, and so more of its activities are present in countries and regions where the
wages are much less and a much less skilled labor is needed. If we take up our previous example of
television sets, than we can see that they are in a mature life cycle stage, however there has been a
technological revival of the product reflected in the new process technology and in the development
of related products.
Cost efficiency of television sets have also improved considerably, due mainly to two factors. First
the number of 1400 components in the 1970s in a television set has decreased to 400, decreasing
the length of the assembly line. The second reason for the large decrease in costs of production
stems in the vast increase of automation, which was pioneered by the Japanese, but by now are
widespread all over the industry.
SEMICONDUCTOR TRADE CONFLICTS AND THEIR RESOLUTIONS
As the semiconductor industry became more and more global, more and more problems arose with
many solutions trying to solve them. First in 1986 the US signed a treaty with Japan, which were
stemming from the conflict that Japan were dumping chips on the US at excessively low prices,
while imposed restrictions on entering its market. This pact expired in 1991, and a further five years
were negotiated, with the emphasis of greater freedom to American semiconductor manufacturers
entering the Japanese market. In 1996 they agreed to set up two new international bodies. In 1990
Japan signed a treaty with the European Commission that set the minimum price of Japanese
semiconductors. These prices were reimposed in 1997.
GOVERNMENT INVOLVEMENTS IN THE CONSUMER ELECTRONICS INDUTRY
Generally speaking the involvements of the national governments have been much less extensive in
the consumer electronics industry than in the case of the semiconductors, and it was mainly
defensive. Until the 1970’s of the industrialized nations, only the Japanese, and to a certain extent,
the French governments have had actions taken to protect their domestic market. In Japan the
industry was seen as an important complement of the semiconductor industry. In France the
government treated the country’s largest consumer product producer, Thomson, as the national
champion, and did everything the help it. In Western Europe, since the 1960s, protective measures
were imposed against the Japanese, so that it could keep out it greatly competitive firms. Before
1970 no licences were given Japanese manufacturers and even after that year only a limited number
was granted to them. The protection was mainly against larger set, although the demand grew very
rapidly for the smaller sets. Finally Japan exported so much that trade restrictions were imposed on
them in 1977 even by the United States, which later were extended to the South Korean and the
Taiwanese producers also. In Europe, most notably the British were keen on attracting Japanese
and other foreign consumer electronics productions, the French on the other hand wanted to keep
them out, however they too softened their attitude, with continuing to support and treat Thomson as
the national champion. Some of the newly industrialized countries, like Taiwan, and Singapore, has
been very open to foreign producers. South Korea was open also to a certain extent, but its policies
have been much more mixed.
CORPORATE STRATEGIES
Besides the governments, the firms operating in the electronics industry have and still are using a
number of strategies. Some are offensive and some are defensive in nature, but the biggest ones all
operate on a global basis, rather than national. The ways they operate depend on different factors,
like the size, and the geographical origins of the company. One important and common factor among
them is that they tend to specialize in certain markets; however some of the big players prefer to
diversify the range of their products. An interesting trend can be observed, in the semiconductor
industry also, not just the consumer electronic industry; now a relatively small number of firms
dominate the globe, reflecting on the fact that these industries al very capital intensive.
EARLY HISTORY OF THE SEMICONDUCTOR INDUSTRY
The history of the semiconductor industry has gone through a couple of well distinguishable stages.
First, after Bell Telephones invented the semiconductor, it was the one and only producer; they had
a monopoly on the industry. Then, later, William Shockley quit Bell and set up his own company.
From Shockley’s company eight young assistants quit and in 1957 founded Fairchild Semiconductor,
which soon became the top producer and merchant in the industry. Two years after its foundation
more and more of Fairchild’s employees left to set up their own company, forming a cluster of many
small semiconductor and related products manufacturing firms in the Santa Clara Valley, of which
some lasted only a short while, and some became big companies. Now the companies tend to be
larger, and fewer in number, given the fact that the industry has become very much dependent on
capital. However there are still many new firms today, but they now focus on certain operations and
products, for example on application-specific products.
TYPES OF SEMICONDUCTOR PRODUCING FIRMS
There are different types of semiconductor producing firms nowadays. The three broad categories
are:
Vertically integrated captive producers: they manufacture the semiconductors entirely for
their own use.
Merchant producers: these firms produce all their semiconductors to sell them to other
companies.
Vertically integrated captive-merchant producers: they produce semiconductors partly for
themselves and partly for other companies.
American firms tend to fall into one of the first to categories, whereas, Japanese and European
producers are of the third categories. These Japanese and European producers are firms that are
large electronic consumer products producing firms that operate in a wide range of spectrum.
Generally the trend was that semiconductor producing firms started to produce consumer goods,
and the consumer electronic producers started to produce semiconductors, both , for their own use
and also for sale. Finally there were semiconductor researching firms, called “fabless” companies
that did not have a manufacturing capability, rather what they researched out, they sold to actual
producer of semiconductors. In the 1990s, because of shortages in the production capacity, they
were forced to actually start producing either by partnering up by an already producing firm or to
build a plant on their own. Usually the previous was the case.
CORPORATE SIZE TRENDS IN THE SEMICONDUCTOR INDUSTRY
In the beginning of the history of the semiconductor industry, most of the producers were small
companies. As the industry developed in its remarkedly fast paste, and more and more complex
manufacturing plants, the cost of setting up these plants also grew very rapidly. Many of the
companies, and even some of the ones that were considered to be bigger, merged or set up
strategic alliances, so they together could increase their market shares and to be able to build
modern plants. Most of these companies were Japanese, North American, and European. These
actions also rationalized and decreased the per company manufacturing cost, as they were shared.
CONCLUSION
Although the history of the electronics industry, and especially of the semiconductor indusrtry’s is the
shortest of all industries that are present today, its impact on the business world and on our
everyday life has been among the greatests. It went trough extremely fast development, and there
are many unique characteristics of it. Its research and production process is among the most
expensive ones. These two industries will probably be the two main industries of the future.
