Positioning In the Semiconductor Value Chain to Capture Value Prof. Clair Brown and Dr. Greg Linden University of California, Berkeley Berkeley's Competitive Semiconductor Manufacturing Program (a Sloan Foundation Industry Center) has studied the semiconductor industry’s transformation during the past decade as global competition intensified, products diversified, and companies disaggregated. The primary manifestation of these changes is the rise of the Taiwanese chip foundries, which have lowered the barriers to entry for fabless design companies seeking to enter the chip market. Location of activities in Asia, particularly Taiwan, China, and India, are changing the dynamics of competition on manufacturing and design. The industry has been recovering from the severe and extended downturn while the cost of new manufacturing capacity escalates and application markets become more fragmented. Only the very largest companies can afford to remain vertically integrated and produce a broad array of chips. The communications and consumer electronics markets, each requiring specialized skill sets, have become major application areas alongside, and even overlapping, the long-dominant personal computer market. The chip industry, even as it confronts these structural and market changes, has maintained the remarkable record of technical progress described by Moore’s Law. But lately this very progress has led to new challenges as the CMOS process is stretched to its physical limits. At linewidths of 130nm and below, reduced process predictability has made it more costly for design and manufacturing to maintain an arm’s-length relationship. Intra-die variation and other systematic problems are best addressed by a more tightly-linked design-for-manufacturing system. This holds true for both foundries and integrated firms. This study will encompass two sets of questions related to these phenomena in order to understand how the evolving structure of the semiconductor industry has influenced competitive advantage and labor market outcomes. Is yield loss at process nodes of 130nm and below causing companies to rethink how they link design and manufacturing? Are integrated firms adopting different solutions from foundries and fabless firms? How does the interdependence between process and design knowledge vary across products? How are demand and supply of skilled labor, particularly design engineers, shifting globally? How has greater use of outsourcing to Asian providers of fabrication and design services affected the quantity and quality of jobs in the home countries of chip firms? What are the primary conduits for the diffusion of semiconductor design know-how? Our data will be derived from interviews with industry participants, careful reading of the trade press, and several databases related to the location of process and design engineers and semiconductor employment over time. We plan to conduct interviews of leading integrated and fabless companies in Japan, China, the United States, Europe, and, possibly, India and Korea. The research team for this two-year program encompasses both economists and engineers: Prof. Clair Brown (UCB Professor of Economics and Director, Center for Work, Technology, and Society) as director, Dr. Greg Linden (Center for Work, Technology, and Society, UCB), and Dr. Takashi Yunogami (Doshisha University School of Management), with input from Prof. Rob Leachman (UCB School of Engineering), Prof. David Hodges (UCB School of Engineering), and Dr. Neil Berglund (Northwest Technology Group). The semiconductor industry is a dynamic global industry on the leading edge of technology. Our study of the impact of technological progress on competitive advantage and skills distribution by type of company and regional location will improve knowledge about how the evolution of the semiconductor industry has affected employment, innovation, and competitiveness.

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