Dispelling the Manufacturing Myth American Factories Can Compete in the Global Marketplace (1992) / Chapter Skim
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3 SEMICONDUCTORS
3 SEMICONDUCTORS
Pages 45-60
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From page 45... ...
For leading-edge products, such as advanced dynamic random access memories (DRAMs) anct microprocessors, manufacturing is capital intense, with R&D and equipment investment requirements rising steadily.
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From page 46... ...
The combination of these factors means that factory location for advanced products is an integral part of gaining market access to allow sufficient production volumes to amortize high fixed costs from R&D and capital equipment requirements. For low-end products, site selection may be based more on where customers are located to maximize market responsiveness.
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From page 47... ...
Concern about the competitiveness of the U.S. semiconductor industry has been driven almost exclusively by losses in the DRAM market, which have been mirrored by Japanese gains (Figure 3-~.7 The loss of American DRAM production, in turn, has been held responsible for losses in market share in production equipment and materials.
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From page 48... ...
Industry Structure Perhaps the primary factor identified as providing Japanese firms with a distinct advantage is the difference in industry structure in the two countries. The Japanese market is an oligopoly in which semiconductor production is dominated by a few large, diversified, vertically integrated firms (e.g., NEC, Fujitsu, Hitachi, Toshiba, Mitsubishi, Sony, and Matsushita)
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From page 49... ...
equipment and materials suppliers, though a growing number of fabrication facilities have been established, both to assure market access and to exploit exchange rate differentials. IMPORTANCE OF PROCESS CONTROL Semiconductor fabrication is fundamentally capital intensive, though capital requirements vary somewhat by device type, with leading-edge products requiring large and growing investment.
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From page 50... ...
; in the United States, current depreciation schedules for semiconductor manufacturing equipment permit tax depreciation over five years, although some equipment is depreciated over three to four years for financial reporting.~5 Given this capital intensity, the determinants of product cost largely flow from changes in manufacturing process parameters, such as capacity utilization, yields, and production volume. Some insight into the relative impact of changes in various manufacturing process parameters on production costs can be gained using computer modeling.
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From page 51... ...
Despite the difficulties of achieving submicron dimensions, DRAM fabrication is much less complicated than that for microprocessors and ASICs. Because DRAM designs tend to be repetitive arrays, a DRAM plant typically produces one design with minor
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From page 52... ...
As a result, microprocessor factories may produce 20 to 30 major design variations at one time. Compared to DRAMs, batch sizes are smaller and material flow is much more complex; while the nature of the indiviclual processing steps is the same, microprocessors require significantly more steps than DRAMs.
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From page 53... ...
Labor Costs Given the sophisticated equipment involved and the importance of maximizing output from that equipment, it is to be expected that skilled workers comprise the greatest proportion of labor costs in wafer fabrication. According to data supplied by Digital Equipment Corporation, skilled labor accounts for 35 percent of production costs for microprocessor and custom device fabrication (Table 3-~.
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From page 54... ...
LOCATION DECISIONS Since U.S. firms began siting wafer fates abroad in the 1970s and 1980s, the need to achieve high-capacity utilization and rapid time to market have driven site selections based on proximity to customers, market access, and the ability to operate manufacturing and process technologies to achieve high quality and high yields.
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From page 55... ...
This last item did not weigh heavily in the decision because Digital has access to capital worldwide. The fourth item on the list government grants has become a controversial factor in site selection decisions; however, as with the Digital illustration, government incentives are not typically the determining factor.
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From page 56... ...
Already several Japanese firms have set up fabrication facilities in the United States, both to gain access to U.S. markets in the face of protectionist trade policies and to exploit exchange rate differentials.
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From page 57... ...
Domestic manufacturers are at a distinct disadvantage in this respect when either stockholder expectations or depreciation schedules force them to manage capital suboptimally. · As market access and access to technologies/capabilities continue to determine where semiconductor manufacturers locate their facilities, the United States will be a viable place to make semiconductors in the future.
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From page 58... ...
is largely a result of Japanese control of the consumer electronics industry. Texas Instruments once held a lead position in this segment with its TMS1000 and TMS1100 products but lost it as the available market shrank, since the Japanese firms that dominate the consumer electronics market tend to buy from their affiliated companies.
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From page 59... ...
18. Other common incentives include tax holidays and agreements that obligate the host country to build waste treatment facilities or roads for the prospective manufacturer.
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