Thursday, June 16, 2005
Semiconductor Manufacturing: Is the Industry Maturing?
Semiconductor Manufacturing: Is the Industry Maturing? A few years ago, during one of SEMI's Industry Strategy Symposiums, I participated on a forecasting panel. The subject of "semiconductor industry maturity" was discussed. The topic hit hot buttons with a number of the panelists. A couple of the panelists stated that there was no way the chip business was entering a mature state because we had barely scratched the surface of innovation. It's hard to argue with that view, innovation is not dead. That said, even mature industries innovate. The Automobile industry creates and manufactures innovative features all the time. Is Automobile manufacturing mature? Most would say yes. In my view the answer to the question of whether or not the chip industry is mature should not center on innovation. It should center on the profitability of the industry as a whole - which, based on the chart below, is not as good as it has been in the past:
The chart says: Profits made manufacturing "Dwidgetal Devices" are dwindling (sorry, couldn't resist). While others will argue against it, I believe the industry is and has been, maturing.
If you scroll down to the other posts on this page you'll see that I've written about the growing push by chip equipment suppliers to grow the "services" portion of their business. I've also talked about equipment life cycle management and the older capital equipment used in fabs around the world.
What does all this say about the chip industry? Does the increasing OEM focus on services suggest that the industry is maturing? I think it does.
There's a nice whitepaper over at the Diamond Cluster website on this subject. The paper talks about maturing industries and how companies must shift strategies to gain a share of "Wallet" or, as we like to call it around here, the "Monthly Check."
Here's a great chart from the paper - one that should be hanging on the walls of semiconductor equipment companies:
Source: Diamond Cluster
A case study in the paper highlights the way the Otis Corporation developed their services business. It's relevant because Otis had a large customer base but had lost control of relationship. Independent service providers, a number of which were ex-Otis employees, had grabbed a large portion of the services market (where the entire margin resides). Recognizing that they were losing control of the service business Otis embarked on a program to capture the customer need without disrupting the existing channel. From there they used the knowledge they gathered to understand what exactly was in the field - which opened up new sales opportunities.
Does this scenario sound familiar? There's definitely a bell ringing.
Frankly, I don't see many in the equipment business approaching the services market like this and they are facing the same scenario. In fact, I don't know if there is a good estimate of the amount of equipment that is installed in the field. (If you know who has one let me know - I am all ears!)
Maybe there are a few that see the light but if they are they are not making their presence very visible (press releases do not count!). I find it ironic that semiconductor equipment service companies, particularly those providing spare parts, refurbishments and inventories of older equipment, can be found advertising via Google. I recently added some AdSense links to the Resource links and the Tutorial at this site. It's notable that very few OEMs appear via these links.
In a maturing industry you can only beat your supply base to death so many times. At some point you have to acknowledge that conditions have changed. As for services in the semiconductor equipment business, it is clear to me that there is a market out there. Seeing potential in the services market (wallet/monthly check) is one thing, grabbing a portion of it without creating total chaos is another. Right now I think the strategies that many are pursuing leave a lot to be desired.
Don't expect too much.....
I'll write more about this in the days ahead.