9/1/2008 – Semiconductor International

The semiconductor industry may be heading into an “era of profitless prosperity,” according to Stephen Newberry, president and CEO of Lam Research Corp. (Fremont, Calif.), in a recent SEMI Industry Strategy Symposium presentation.

Tom Mariano, Vice President, Industrial Equipment Practice, Foliage, Burlington, Mass., http://www.foliage.com — Semiconductor International, 9/1/2008

The semiconductor industry may be heading into an “era of profitless prosperity,” according to Stephen Newberry, president and CEO of Lam Research Corp. (Fremont, Calif.), in a recent SEMI Industry Strategy Symposium presentation. Since 2003, the price per bit/function has been declining faster than the cost per bit/function, creating a situation of widespread profit erosion in the industry. This would seem to be an untenable market situation that is bound to correct itself over time.

To the equipment companies this means a tangible reduction in the total available market. Lack of profits in the industry puts downward pressure on capex by the chip companies, which results in a market size decrease for equipment and, of course, increased competition among equipment suppliers. In fact, Gartner Inc. (Stamford, Conn.) is estimating a 19.8% reduction in capex for 2008. Equipment suppliers will need to cut costs because of the shrinking market while still continuing to get new, differentiated products to market to compete. Essentially, they will need to do more with fewer R&D dollars. But isn’t doing more with less exactly what the equipment companies have been doing for the past five years?

We believe that there are as-yet unexploited areas of R&D efficiency to take advantage of. Here are several areas of untapped potential:

  • Automated testing — Testing by equipment suppliers tends to be a very manual process. This applies to all phases in the product lifecycle. The main benefit of automating the testing at these various stages is not, as many would think, to reap the savings of the labor associated with the testing. Rather, the main benefit of automated testing is finding problems sooner in the development process. It is commonly understood that the cost to fix a problem in the field is on the order of 10–100× more expensive than fixing it earlier in the development process. In many cases, the savings that result from the implementation of an automated test initiative dwarf the initial upfront investment, resulting in a much more productive use of R&D funds.
  • Agile development methods — Most equipment companies have adopted some form of a phase-gate product development process. This lock-step process strives for close coordination between functional areas and controlled management checkpoints to tame the product development process. Phase-gate development processes offer high levels of predictability and control, but they are also fairly rigid and can be very inefficient and slow. Borrowing from lean manufacturing concepts, the software development world has been embracing agile development methods that apply an iterative and more flexible approach and are achieving some success. Momentum is building for the adoption of lean methods for mechanical, electrical and system design as well. Breaking the mold of the phase-gate process and allowing more flexibility with lean/agile approaches may offer significant opportunities to improve R&D efficiency.
  • Product line architectures (PLAs) — With the promise of PLAs comes the promise of rapid new product development. Consolidated PLAs mean that the underlying structure and technologies stay the same from product to product, and only the higher level product “personality” needs to change. PLA is the embodiment of doing more with less. Unfortunately, the reality of our industry is that the vast majority of equipment products were designed without consideration of a PLA. In most cases, the architecture that acts as the foundation of the product is too specific to the product and too intertwined with the rest of the system. Creating a new product all too often means major rework of the architecture. Investment in implementation of PLAs in the early stages of a product development effort can pay huge dividends down the line, especially in the current economic environment.
  • Product lifecycle management (PLM) — PLM systems provide the tools and processes for control, communication and coordination of all product-related information and tasks in the organization. The potential to streamline the product development process and reduce cycle time and efficiency is substantial. But, few senior executives seem to understand the substantial investment in time, management focus and cost required for proper implementation and rollout of a PLM system. Perhaps the most misunderstood aspect is the major culture change needed for the organization to embrace the system. For companies that can effectively deploy and leverage a PLM system, substantial efficiencies across the organization can be achieved.

These areas of untapped potential represent significant opportunities for improved R&D efficiency. Of course, not every one of these is appropriate for every company. But in their own right, they are all certainly worth some consideration. Now, while the semiconductor industry faces an era of profitless prosperity, what’s an equipment company to do? Answer: Even more with even less by taking advantage of ways to maximize R&D dollars that make the most sense for their company. For the rest, there is always the solar industry.