Wharton School and ATREG release key findings of global IDM industry

USA: ATREG, Inc., a global advisory firm to the semiconductor industry headquartered in Seattle, USA and The Wharton School at the University of Pennsylvania today released the key findings of a joint global IDM (integrated device manufacturer) industry study – Managing Complexity & Change in the Semiconductor Ecosystem.

The study, conducted by Wharton management professor Dr. Rahul Kapoor, is based on detailed responses from senior executives at 23 publicly listed IDM companies, including 11 of the 20 largest IDMs (2011 revenue). The study, which sheds light on a broad array of challenges and opportunities that IDM companies face within their ecosystem, reveals that IDM firms are faster to market with new product designs on existing manufacturing processes whereas fabless companies are faster to market with new designs on new manufacturing processes.

The average time-to-market, defined as the period from design start to mass production, is about 11 months for a revision of an existing product design. It increases to about 17 months for a new product design. While IDMs are much faster to commercialize new designs on existing manufacturing processes, they seem on average slower to commercialize new designs on new manufacturing processes. This could reflect inherent differences in the extent of design manufacturing customization between fabless and IDM companies.

The difference could also be due to the fact that fabless companies essentially contract for a newly available manufacturing process at a foundry whereas IDMs internally develop a new manufacturing process. The IDM study results were compared with those from fabless companies collected during an earlier study conducted by Dr. Kapoor in conjunction with GSA.

Other key research findings include:

Manufacturing strategy: In general, while the relationship with foundries is somewhat at an arm’s length, an IDM’s balanced manufacturing strategy seems to be paying off at least in the short term. The importance of having internal manufacturing was reinforced not only in terms of having a high level of coordination between product design and manufacturing activities, but also having greater leverage over foundries.

Intellectual property (IP) reuse: On average, an IDM reuses about 73% of design IP in the revision of an existing product design and about 44% in a new product design.

Source of IP: A large proportion of IP for IDMs continues to be internal (84%) with some IP dependence on third-party IP firms and foundry suppliers.

IDM-foundry relationships: There are lower levels of information sharing and involvement in IDMs’ value-creating activities by foundry suppliers. This may be reflective of the conflicts and challenges that IDMs face in working simultaneously with both internal manufacturing units and external foundries. At the same time, this simultaneity also seems to provide some benefits to IDMs as foundries are much more likely to customize their manufacturing processes around the needs of their IDM customers.

IDM-complementor relationships: Companies providing complementary products integrated in the customer’s application play an important role in enhancing the IDMs’ competitive position. Managing those more complex relationships means that IDMs pursuing collaborative innovation models need to explicitly develop organizational structures to effectively manage these new types of relationships.

“This study provides a systematic analysis of the nature of challenges and opportunities faced by IDMs that have traditionally depended on their internal manufacturing resources,” explains Dr. Kapoor, principal investigator of the research and author of the report. “We believe these findings will help semiconductor industry executives benchmark their business models and design their organizations, so they can leverage their internal capabilities as well as those within their ecosystem.”

“The quickening pace of change combined with increasing technological and market complexity makes the semiconductor industry one of the most challenging environments in which to compete. As a result, many companies are redesigning their business models not only within the company itself, but also at the collaborative interface between the company and its diverse set of partners,” adds Barnett Silver, senior VP and principal for ATREG. “Key indicators such as the different sources of IP, the extent of IP reuse, the nature of competitive differentiation, and time-to-market drivers can help inform semiconductor companies’ technology strategies and outcomes.”