IC Foundry and Joint Ventures

To increase their competition in the international market, more and more IC foundry enterprises have been engaging in joint ventures in the areas if technological support, increased capacity, knowledge sharing, and development, even to the extent of marketing. This triggers competition wars that change the dynamic of the semiconductor market. In general, IC foundry industry joint venture projects can be categorized into four different types: foundry with IDM/ASIC, existing foundry with new foundry, foundry with fabless and foundry with versus assembly test.

Foundry with IDM/ASIC joint venture mostly occurs in IDM/ASIC companies with insufficient capacity. In this situation, the IDM/ASIC companies seek capacity support from foundry companies to meet their market demand.

Existing foundry with new foundry joint venture usually occurs during new technology development and capacity expansion. A new foundry company may have

more advanced technology to support the joint companies. The advanced foundry companies may gain the necessary capacity from the new foundry company.

Foundry with fabless joint venture occurs in the technological support and strategic joint venture for fabless companies. The original relationship of customer and supplier will promote collaboration in this type of joint venture.

Foundry with assembly test joint venture occurs in an extension of customer service from wafer to chip. Most IC foundry customers are from fabless companies and systems. A joint venture of assembly test with foundry companies will provide more service for their customers.

In the IC foundry business, most system companies do not engage in the joint venture game. They maintain the pure relationship of customer and supplier using IC foundry companies to support their capacity since they have less profit conflict issues in the IC foundry business.

Fig. 5.4 Virtual network structure

5.4.2 Vertical Integration of IDM Integrates Plant and Pure play Foundry

In microeconomics and management, the term ―vertical integration‖ describes a style of management control. Vertical integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or market-specific service, and the products combine to satisfy a common need. It is contrasted with horizontal integration. With the increasing complexly of IC design and manufacturing, we propose that the foundry and IC design need to be integrated. This harkens back to the beginning of the IDM model.

Figure 5.5 indicates the schematic diagram of a vertical IDM (integrated device manufacture) and a pure-play foundry. An IDM is a semiconductor company that designs, manufactures and sells IC products. With the increasing technology difficulties, IDMs may need to handle semiconductor manufacturing in house. A fabless semiconductor company, which outsources production to a third-party, is not suitable for next-generation technology.

Fig. 5.5 Schematic diagram of vertical integration of IDM integrates plant and Pure play foundry

5.4.3 Virtual Vertical Integration Model

The virtual vertical integration strategy involves the assembly of most the parts that go into the product, optimization of the integrated flow is crucial for product delivery and profits. In microeconomics and strategic management, vertical integration describes a style of ownership and control. Vertically integrated companies are united through a hierarchy and share a common owner. Each member of the hierarchy products a different product and combines the final goods to satisfy a common need. The virtual vertical integration becomes less profitable if the business scale is too large to manage.

TSMC created a vertical division of labor beyond the framework of the semiconductor industry, changing the business model in the late 1980s. Taiwan‘s semiconductor industry is considered be entering an era of paradigm shift. The semiconductor industry has gradually developed into a common cluster, forming a vertical integration model. The vertical division of labor in Taiwan in the 1980‘s created a ―miracle in the semiconductor industry‖. The transition from vertical division of labor to vertical integration leads to successful complete resource utilization.

5.4.4 IC Foundry and IC Design Alliance

With the increasing difficulties of IC processes for next-generation technology, a close relationship between IC technology and IC design is necessary to fulfill the common requirements. Therefore, pure-play foundry companies might need to change their business model to form alliances with IC designers. The means that the offerings of the pure-play foundry company cannot fulfill the needs of all customers, and the foundry needs to target specific customers and make their specific products. This is consistent with the original IC foundry concepts of providing process to meet the customers‘ requirements. If the technology for next generation products causes bottlenecks in fulfilling varied processes, the IC foundry needs to develop its process based on collaboration with IC design houses. The IC foundry and design alliance could be a more effective and profitable business model. Because alliances between

company‘s results in rapid capacity building with limited risk, a well planned alliance could be the fastest way to maximize operational efficiency to benefit all stakeholders.

Fig. 5.6 vertically integrated market structure diagram

Chapter 6 Conclusion and Future Research

6.1 Conclusions

The complexities of IC technology and the increasing gap between IC design and manufacturing are the current challenges for the IC industry. The IC foundry model has derived from the pure OEM model of operation. The Taiwan IC industry has the top foundry and packaging company in the world. Despite the business proverb,

―Only the biggest survives‖ managers still need to forecast future trends for the IC industry and consider a suitable business model to adjust to market changes.

The business model of the pure-play foundry has been sustained for about 20 years. IC foundries works with IC designers to share the common goal of products released. IC foundries are not involved in IC design work in order to protect the designer‘s intellectual property; therefore, the IC designer can fully trust the foundry with new IC applications. However, difficulty with process technology has driven a change in the business model. IC designers may need to bind with IC manufactures for new product applications to ensure match between designing and manufacturing.

We propose that the main focus of future business should be an alliance between IC foundry and design. A virtual pure-play foundry business would integrate with the IC design house and retain the customer-oriented business model.

Most managers review the enterprise expansion projects as strategic level issues and may ignore the importance of different perspectives on this subject. Our research adopts multiple collaborative views to analyze the processing of enterprise expansion in the high-tech industry, using the IC foundry industry as a basis for exploring the possibilities in multiply the challenges in this research, but also enhance our confidence in pursuing this topic for research. The IC foundry represents the OEM in the manufacturing industry. It follows the current developing trend of enterprise expansion for high-tech industries. The collaborative relationship is not only upstream to downstream but extends to the network with complicated business environments and one that can be generally applied to other related high-tech industries.

6.2 Future Research

The high-technology business model is always a very interesting topic to research. Technology is now moving toward nanotechnology. Technology is down to the atomic and molecular levels. This advanced technology changes human daily life and fuels the electronic device resolution. The operating philosophy of every company is profit. An effective business model is worth studying to discover how to gain the most profit. The managers need to adjust the business model at any time based on the market forecast. Since high technology is tied to the technology revolution, the high technology business model needs to consider the speed of technology development.

Knowledge sharing and the development of intellectual property, and technical information should be defined in pre-project knowledge management. Knowledge management issues are considered to be one of the major interests for future researchers. The study of the core competence for high technology is also an open area. To advocate green technology, IC technology must change to fulfill green technology objectives. Therefore, the study of business models for new ―green‖ IC technology is worthy of future research.

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