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VOLUME 24-NUMBER 6
Search :     Thursday, September 09, 2010      June, 2009
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Semicon Firms: Meeting Economic Challenges
In-process semiconductor wafer gets visual inspection. (Photo: Texas Instruments)
By Scott Grant (scott.grant@accenture.com)
When the global recession ends, the semiconductor industry will be a different world with different competitive dynamics and different priorities than when the recession began. Faced with this reality, semiconductor companies on the path to achieving high performance need to consider investments now in five key areas: maintaining morale and energy in the workforce, especially in innovation; reducing the time to cash for new products; introducing a higher degree of operational excellence into the business; pursuing alliances to share cost burdens of new product development; acquiring new assets.

Maintaining morale and energy in the workforce, especially in innovation. In a downturn, cash flow is king. Cost-cutting becomes a critical concern. But cost cutting can have serious negative repercussions for a company's workforce, often paralyzing a business due to fear among workers that they may soon lose their jobs or that their internal organization may be the next part of the company to be jettisoned. The impact of such a mindset can be especially damaging to a company's ability to continue innovating. Even so, when cutting costs and divesting of assets, semiconductor companies must ensure they keep the organization — particularly areas engaged in innovation — stable, energized and productive. As such, companies need to make deliberate, targeted investments in employee training and development to help ensure they have the skills to be productive. They also should conduct periodic reviews of employees' career paths and succession plans to give employees insights they need to progress within the company. In addition, regular assessments of employees' mindsets and perceptions, such as a quarterly employee survey, can help executives keep tabs on the overall mood of the workforce and identify possible issues to deal with before they become a drag on morale and productivity.

Reducing the time to cash for new products. Despite the economic downturn, to remain competitive, semiconductor companies need to continue to bring innovative new products to market. They also should identify and execute on opportunities for competitor displacement and/or growth within key market segments. But they must do so quickly and economically to maintain profit margins where possible.

For integrated device manufacturers, this means streamlining the design and engineering process to improve efficiency and accelerate product development and delivery to market. By industrializing the design flow, product life cycle process and new product introduction approach, semiconductor companies can reduce the frequency and amplitude of change late in the chip design cycle, thereby reducing overall chip design costs. By moving more features out of the chip itself and into embedded software, companies can extend the lives of the semiconductor hardware while accelerating and simplifying product updates. And by standardizing product data and technologies, a semiconductor company can more easily decide whether to manufacture internally or externally.

Infusing a higher degree of operational excellence into the business. During the past few years achieving operational excellence on a global scale through consistent, harmonized global processes and systems, has become a critical imperative for companies around the world. Semiconductor companies are no exception. By creating and applying common processes and operating models to all markets in which they operate, and coupled with making targeted improvements to existing key processes and systems, semiconductor companies can significantly boost efficiency while reducing overall operating costs.

Some of the areas especially attractive for operational improvements, and key metrics to emphasize, include: supply chain; factory, where spins per product, time to volume, cost per wafer and throughput should be emphasized; planning, including metrics such as which and how many chips are available to promise for delivery to customers; research and development, especially the time it takes to progress from one stage of chip design to the next; engineering tasks that help reduce scrap and rework.

Pursuing alliances to share cost burdens of new product development. As the cost of bringing innovative new semiconductor products to market has soared, interest in alliances has heightened. Semiconductor companies view such arrangements as a way to spread around research and development and manufacturing costs, speed product introductions, accelerate development of new technologies and platforms, and share risks.

Alliances have their benefits. Typically they deliver from 50 to 60 percent of the intellectual property (IP) required for a particular process technology node. This means the other 40 to 50 percent of the IP consists of unique, customized and differentiating IP from individual companies.

But some multiparty alliances also carry a risk of complicating and confusing value propositions of alliance members. As a result, a semiconductor company that joins an alliance must ensure it can extend its IP and make unique platform modifications to differentiate itself from other alliance members and other competitors.

Acquiring key assets. Semiconductor companies can also help themselves during the downturn by focusing on core areas of their business. When assets are acquired within two companies, several practices can smooth the integration process. These processes help chip companies generate greater value from their mergers and acquisitions.

Fine-tune merger and acquisition strategies and screening methods to help ensure that acquisitions will fill strategic gaps. For integrated chip manufacturers or fab-less companies, this means being vigilant in searching for vital IP that can strengthen their IP portfolios. For founding or manufacturing services businesses, this means gaining production capacity to differentiate themselves from less-equipped competitors.

Target companies with a solid track record financially that have been dragged down by the overall market and/or by weaker companies in their peer group. Once they have identified potential acquisition targets, chip companies must accurately identify synergy potential, which requires skillful blending of industry-comparable benchmarks (to determine the magnitude of what's possible); and opportunities specific to the merging companies (such as consolidating redundant manufacturing facilities). By combining the two perspectives, a semiconductor company can determine if industry benchmarks are realistic and targets specified are aggressive enough.

Semiconductor companies need to realize that the name of the game in this tough market is simplifying their businesses. This means eliminating unnecessary costs and unproductive assets to become more lean, more streamlined, more efficient, and more focused on the products/services, capabilities, markets and customers that matter most.  

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