IBM Global Business Services Thought Leadership White Paper

Electronics

Semiconductor success
How to compete in the industrys largest market

Semiconductor success

Contents
2 Asian semiconductor success 2 A great opportunity

This is because these firms confront all of the typical challenges created by working in China, magnified by the intensity of the high-tech industry. These challenges include:

3 How Chinese IC manufacturers can succeed 7 Chinese fabless firms: design for success 8 A blueprint for global IC manufacturer success 11 How IBM can help you succeed 11 For more information

Dramatic market shifts Fierce price competition Security of intellectual property (IP) Local versus foreign technology development Talent growth and retention

Asian semiconductor success

In one corner of Asia, the semiconductor market continues to grow impressivelydriven by a unique combination of government policy, global corporate strategy and domestic capabilities. Its consumption of semiconductors has reached 50 percent of the global market.1 It is probably no surprise this market is Chinademonstrating once again the tremendous influence this region has on global trends. By itself, however, the regions sheer size does not mean that success in China comes easily to market competitors.

At IBM, we believe that to succeed in the Chinese semiconductor market, companies need constant diligence and innovation and they need to enhance their management capabilities. Fortunately, there are tools that can help you strengthen strategic and management oversight while unleashing your organizational creativity.

A great opportunity
While the overall growth of the semiconductor market in China vastly outpaces the rest of the world, it is not uniform across industry segments. In particular, Chinas domestic chip production is lagging.

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Players in China's semiconductor market

Chinese IC fab Ability to: Shape market Innovate for cost improvement Innovate for product differentiation Impact of: Accelerating design and development costs Rapid commoditization Dramatic market shifts Focus on lowest price Enhanced collaboration ecosystem High High High High Medium High Medium High Low High Medium Medium High Low Medium Low Low Low Medium Medium Medium High Medium High Chinese fabless companies Foreign-owned IC fab

China dominates the global electronics assembly market, especially for mobile devices and for the export market. However, the quantity of semiconductors consumed for device assembly far outnumbers those produced domestically in China. This means the Chinese integrated circuit (IC) market is heavily dependent on imports. Depending on how it is measured, the Chinese IC self-sufficiency ratio is 10 - 20 percent.2 Although domestic Chinese IC production has grown in recent years, it has yet to close this self-sufficiency gap. As a result, Chinas chip supply is still dominated by global companies based outside of the country including Intel, Samsung, Texas Instruments, Toshiba, SK Hynix, and Taiwan Semiconductor Manufacturing Company (TSMC). This is especially true for chips based on cutting-edge technologies which have the highest profit margins.3

This self-sufficiency gap has been highlighted as one of the Chinese governments priorities in their Twelfth Five Year Plan. The plans stated goal is to improve the semiconductor selfsufficiency ratio to 27.5 percent by 2015.4 Time will tell if they achieve that goal. But either way, the goal itself reinforces the governments financial commitment to domestic IC productionand that will benefit those domestic and global companies who can deliver.

How Chinese IC manufacturers can succeed

China-based fabs face large challenges with their strategy and operational models. Heavy reliance on foreign technology and expertise jeopardizes both their current profitability as well as their future organic growth potential.

Semiconductor success

Yet leading-edge technology development has become so capitalintensive that only the largest firms can easily participate. Average selling prices for components continue to decline, and global IC OEMs that design and sell finished products capture the markets greatest value. These competing factors have squeezed Chinas chip makers into narrow operating zones characterized by commoditized products and thin profit margins. For some, survival may require merging with larger market participants. But if China-based fabs want to compete and survive, focusing on operational efficiencies offers one of the best alternatives.
Improve yields

Further, yield efficiency also directly affects on-time deliveries, customer satisfaction and corporate reputation, and impacts the successful achievement of development milestones. Therefore, a manufacturing control infrastructure based on bare minimum requirements is a poor business strategy, and will ultimately lead to disappointing results. Advanced manufacturing execution systems (MES) offer dynamic and scalable process controls. These controls allow the engineering team to systematically discover and correct yield detractors wherever they occurwithout creating customized, one-off solutions. Similarly, integrated analysis tools and a comprehensive information management strategy enable efficient yield improvement for both volume production and technology development. While these tools are crucial to improving yields, big data technologies are also becoming increasingly important to yield optimization. Multivariate modeling and advanced statistical techniques for understanding complex data interactions offer the potential for substantially increasing yields.

Manufacturing yields remain one of the main drivers of fab profitability, particularly for advanced technology nodes. The pursuit of higher yields makes sophisticated control systems and analysis capabilities an absolute requirement.

Participants

Areas of focus for improved performance

Tools for enablement

Chinese IC manufacturers

Costs - yield Costs - cycle time Costs - maintenance Costs - energy Product and strategy Product and strategy Multi-site integration

Analytics, controls Optimization, analytics Analytics, prediction Monitoring, optimization IP management IP management, collaboration ecosystem, digital marketing Integrated planning, global production view

Chinese fabless companies Foreign IC manufacturers

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Summaries

Parametric Relationships

Health of Lot

Parametric Sensitivity

Cluster Analysis

Process Differences

Differences Between Groups

Trend Analysis

Process Tool Sequence

Split Lot

Data Commonality SPC Analysis

Spatial Patterns

Process Change Analysis

Tool/Date Analysis

Zonal Analysis

Repeater Analysis

Components of Variance, for systematic wafer patterns Best/Worst Analysis Spatial Signature Analysis Systematic Yield Analysis

Figure 1. Integrated yield analysis for the fab

Increased yields lead directly to bottom-line profits. The software tools and techniques described here can help dramatically improve yields. Therefore, to maximize profitability in this intensely competitive industry, every fab should place a priority on enhanced controls and yield management tools.
Reduce cycle times

challenge even the most technically sophisticated firms. To develop solutions that really work in manufacturing, fab owners require an interconnected set of execution, simulation and analysis tools. An example of one such solution is a real-time scheduler for advanced decision management that has been developed by IBM. This solution has enabled 10 - 30 percent cycle time reductions within individual fab process areas and has decreased overall production bottlenecks. Solutions like this complement industry best practices. For example, the SEMATECH global forum continues to map out new standards and recommendations such as single wafer processing and load port optimization.

Reducing fab cycle time presents another opportunity to improve manufacturing efficiency and thereby enhance profitability. But to successfully decrease cycle times, your team must solve a series of complex optimization problems that require advanced mathematical and modeling skills, and this can

Semiconductor success

Advanced commercial MES systems incorporate those new standards and make them available faster than is possible through internal development by fab owners. When combined with solutions like the real-time scheduler, these commercial MES systems can enable dramatic cost savings.
Enhance equipment maintenance

A 2011 industry study by the International SEMATECH Manufacturing Initiative (ISMI) showed that 49 percent of total fab energy consumption occurs at the production-level process tools and supporting subsystems.6 Therefore, any strategy to reduce energy usage must carefully consider wafer production flow as well as impacts to product quality or yields. IBM Research has been at the forefront of maximizing fab energy efficiency. They have developed a dynamic solution that includes sensor networks and visualization tools for energy monitoring. It also includes optimization tools for energy management, production planning and scheduling.

Equipment maintenance represents another opportunity for cost savings and efficiency gains. In fact, SEMATECH estimates that for a 300mm fab, annual process tool maintenance averages 17 percent of the original asset value.5 This recurring annual maintenance cost means even small improvements can translate quickly into substantial savings. As an example, one major Asian IC manufacturer implemented an integrated maintenance solution and reported savings of over USD1 million in the first year due to redundant inventory reductions. The semiconductor industry is also moving from a preventive maintenance model to a predictive maintenance model. While this offers the opportunity for additional reductions in maintenance costs, it requires advanced analytics capabilities to realize those benefits. As semiconductor firms become more sophisticated with asset management, they will see equipment maintenance differently. Rather than viewing maintenance as a painful expense, they will recognize it as an investment that generates value through improved return on assets and equipment utilization.
Maximize energy efficiency

Manufacturing

Energy

Equipment

Smarter Manufacturing Operation Center

Utilities

Energy Supply

Energy consumption is another major expense getting increased attention from Chinas semiconductor firms. Cost savings and environmental concerns make energy efficiency a top priority for fab operations throughout the world. Government regulations, industrial guidelines and potential supply constraints create a growing need to use a total energy management system (EMS). An effective EMS takes advantage of integrated analytics and supports informed decision-making.

Building

Figure 2. Smarter manufacturing operations center

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In addition, IBM has been working closely with semiconductor equipment providers to develop industry standards and solutions that manage equipment green mode throughout the fab process. The result is an integrated energy management approach which can be implemented without major customization or a long learning curve.
Optimize business strategy

Semiconductor firms must manage their IP portfolios for both protection and partnering globally. This requires worldwide support for patent docketing and legal defense. As a result, IP management systems are essential to maximize efficiency, especially for smaller Chinese firms that are less mature in this area. Leading manufacturers have also moved IP management beyond the boundaries of the legal department. They implement tools and processes that allow all employees to participate in invention, collaboration and recognition. Taken together, these systems form a platform for efficient management of the entire IP lifecyclefrom creation to commercialization. And that helps foster a culture of innovation that can be lacking in Chinese firms today.

Fab efficiencies are critical to profitability. But without a successful long-term strategy as a foundation, those efficiencies alone will not lead to growth. The complex challenges faced by most Chinese semiconductor firms have made it increasingly difficult to develop solid product strategies. Today, leading-edge technology development requires massive financial capital which is beyond the capacity of most manufacturers. The strength and dominance of TSMC in the foundry market has pushed Chinese competitors to cut prices or find niche markets. An overemphasis on low prices, however, clearly limits a companys ability to reinvest and develop more profitable products. It is also critical that Chinese companies respond quickly to changing markets. Doing so will help them avoid the fate of some mature Taiwanese and Japanese DRAM makers that did not anticipate or adjust to the dramatic shift to mobile devices. These competing forces drive a greater need for strategic management tools. Chinese IC manufacturers need such tools to enable a flexible product strategy, as well as identify the most profitable opportunities for their current and future capabilities.
Manage intellectual property

Chinese fabless firms: design for success

With a projected CAGR exceeding 20 percent through at least 2015,7 Chinas fabless design sector has been the fastest growing semiconductor segment in recent years. The potential profits for design firms are tremendous, but success will require innovation and integration. These companies must maximize the power of their intellectual property and their business relationships.
Intellectual property management

Similar to chip manufacturers, Chinas fabless companies must be able to survey their competitive position and identify new opportunities for their IP portfolio. This requires effective tools to search external sources such as patents and publications. These tools then tag the search results and map them to the companys internal capabilities, as well as its strategic plans.

A key enabler here is intellectual property analytics. They allow management to understand the competitive landscape and navigate a path that is profitable, sustainable and secure.

Semiconductor success

In addition, fabless companies must be prepared to take offensive and defensive actions in the competitive IP market. This can introduce a wide variety of requirements such as:

Lastly, these fabless design firms need to move up-market and get closer to their customers customers. This will enable them to anticipate future requirements and create competitive advantage through differentiated products.

Maximizing opportunities for licensing revenue Improving their negotiating strength with potential partners Identifying gaps within their current portfolios

A blueprint for global IC manufacturer success

For leading global semiconductor manufacturers, the potential financial rewards of Chinese operations demand attention. The financial possibilities make China a likely target for any new fabs outside the traditional strongholds of Japan, the US, Taiwan and Korea. These possible financial benefits are bolstered by local political support. For example, the Chinese central government will invest USD30 billion in semiconductor design and manufacturing through 2020, while local governments are expected to invest another USD25 - 30 billion.9 Even with this level of financial commitment, global IC manufacturers have been slow to invest in China. As of 2013, only five global companies have opened a wholly-owned fab in China, and only two of these fiveowned by Intel and SK Hynixare 300mm fabs. IP concerns and technology export regulations have certainly been major factors slowing the influx of global manufacturers into China. But the regulatory hurdles have eased in recent years, particularly as relations with Taiwan have improved.10 For example, the new Samsung fab in XiAn represents the first time a global firm has placed its leading-edge technology node in China. It is only natural to expect an increased focus on information security and access controls around such fabs. But even if all of the IP concerns are addressed, further capabilities are needed to maximize the economic potential of new fabs in China.

Comprehensive IP management systems provide the tools necessary to successfully meet these requirements as well as manage a global IP portfolio. Once they are securely established and used effectively, these tools can drive increased profitability for fabless design firms.
Business-to-business relationships

In addition to IP management, successful fabless companies must provide a platform for open business-to-business (B2B) collaboration. This will be an essential requirement to succeed in the advanced technology nodes below 65nm, where only a small portion of Chinas design companies currently compete. Industry forums continue to highlight such close collaboration between fabless firms and their foundries as an essential area for improvement.8 This becomes more important each year due to increasing technology complexity and design-process interactions. Chinas design firms require a comprehensive data security solution, to enable secure collaboration within a multi-company ecosystem. Like most companies, Chinas fabless firms also need to maximize the effectiveness of their marketing. B2B buyers are increasingly using electronic channels to research solutions and narrow their selections. Therefore, fabless companies must engage those potential customers in a compelling dialog across multiple channels. IBM has developed tools for customer, marketing and sales analytics, which provide deeper insight into these client interactions. With these advanced capabilities, fabless companies can implement an effective B2B marketing strategy.

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Modify your business approach

As global semiconductor firms expand their footprint in Asia, it may be tempting to follow the old paradigm of a replicated, multinational corporation. In todays competitive market, however, this no longer makes sense. Instead, the traditional business model should be replaced by the globally integrated enterprise that taps into skills and expertise wherever they exist. This provides horizontal integration worldwide, no matter where the stakeholders reside or functions are performed.

The reason is simple. Global IC manufacturers cannot afford the inefficiencies that result from independently-managed and disconnected processes. This includes core functions such as production scheduling, product delivery, inventory management and quality assurance. While global integration starts at the corporate policy and procedure level, it also requires specific systems and integration capabilities. To compete successfully, these companies need comprehensive solutions for planning, scheduling and execution. These systems must also provide increased visibility of the entire supply chain through a single, integrated view.

Global supply chain network (physical) Enables Available To Promise to the customer based on the plan and capacity of each production site.

Worldwide visibility Assembly China Suppliers: Korea Germany Japan US Philippines Argentina India

Global supply chain model (logical) Consistent production planning by using a global model can reduce unnecessary adjustments between sites
Demand Product Assembly Demand Demand Product Assembly Demand Product Assembly Demand Product Assembly

Organization
Customer Distribution Assembly plant

Parameters
Demand priority Distribution lead time Manufacturing lead time and yield

Logistics lead time

WIP Capacity Processing

WIP Processing

WIP Processing

Capacity
Frontend plant

Manufacturing lead time and yield

Logistics lead time

Parts Purchase

Parts Purchase

Parts Purchase

Capacity

Parts
Suppliers Supply capacity

Purchase

Figure 3. Global semiconductor supply chain

10 Semiconductor success

Gain insight into your global operations

Execute across the enterprise

To effectively manage the complete production of distributed manufacturing lines, global chip manufacturers need the insights provided by enhanced analytics. This begins with tools for planning and scheduling, and the solutions used today are often inadequate. Traditional planning systems used in the semiconductor industry are a compromise between speed and accuracythey are either fast but simplistic, or detailed but slow. Often, this tradeoff leads to a static plan that precludes effective global operations planning. The outcome is less timely and less accurate scheduling, along with elevated risk to both supply commitment and inventory levels. Fortunately, dynamic planning tools exist that allow both detailed analysis and speed. IBM has helped companies throughout Asia implement improved solutions for Sales and Operation Planning. This adaptive system enables high-speed collaborative simulation to reduce planning cycles, and provides the capability of modeling multiple what-if scenarios. These solutions use a modular approach that is designed and built for scalability, and can truly support the end-to-end requirements of a global semiconductor supply chain. They also produce consistent production planning and eliminate unnecessary manual adjustments between manufacturing sites.

In addition to company-wide planning, large semiconductor manufacturers require a single view of production across multiple fabs. Even companies possessing rigorous controls within their individual fabs often struggle to manage a disconnected supply chain. This can lead to poor wip management and inefficient production control across the enterprise. By contrast, an enterprise-level MES provides true global product visibility and traceability. The MES accomplishes this by creating a virtual single factory that can extend to business partners and outsourced operations. More than simply a data conversion hub, the enterprise MES synchronizes business events within a standard data model. It can integrate multiple heterogeneous manufacturing systems to operate as oneand in near-real-time. Related functions can enable centralized control of fab assets, recipes, parameters and business rules. Working together, these capabilities provide corporate managers with the global visibility they require, while bringing greater efficiency and improved decision-making throughout the organization. The advanced insights delivered by these systems create a powerful blueprint for success.

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How IBM can help you succeed

With a 50 percent share of global consumption, Chinas IC industry has become the center of the semiconductor market. Succeeding in the global semiconductor industry increasingly requires success in Chinaand that demands greater capabilities in both corporate strategy and operations management. IBM provides a unique perspective within the semiconductor industry as a manufacturer, consumer, research leader, software solutions provider and consultant. From experiences in these roles, IBM has identified a common themean increased need for analytics and optimization tools. Domestic firms can avoid the tendency to compete on price only, while at the same time creating deeper, more effective relationships with their customers. They can use these tools to differentiate, innovate and collaborate, even as they remove cost from their operations. Global manufacturers can improve the efficiency and integration of distributed factories, and thereby truly see the benefit of investments in China. The true market potential of Chinas semiconductor industry is not yet fully realized, but IBM can help you get there. IBM has a successful track record of delivering these tools and resources to the worlds leading electronics firms. With the recognition of being one of the largest information technology companies in the world11, over 400,000 worldwide IBM employees stand ready to help you succeed in Chinas semiconductor market.

For more information

To learn more about semiconductor fab solutions, please contact your IBM marketing representative or IBM Business Partner, or visit the following website: ibm.com/electronics Additionally, IBM Global Financing can help you acquire the IT solutions that your business needs in the most cost-effective and strategic way possible. Well partner with credit-qualified clients to customize an IT financing solution to suit your business goals, enable effective cash management, and improve your total cost of ownership. IBM Global Financing is your smartest choice to fund critical IT investments and propel your business forward. For more information, visit: ibm.com/financing

About the author

Andrew Vogel is a member of the electronics industry team within IBM Global Business Services. He has over 20 years of experience working with microelectronics factories, and focuses on solutions for the semiconductor market. With deep knowledge of analytics requirements for the industry, he has helped to optimize and reduce cost in the end-to-end supply chainfrom chip fabs through electronic packaging, assembly and testing, and system build. Andy is based in Shanghai, China and can be reached at vogela@us.ibm.com. Contributors John Constantopoulos, Senior Managing Consultant, IBM Global Business Services Cristene Gonzalez-Wertz, Associate Partner, IBM Global Business Services Matthieu van Bilsen, Electronics Industry Leader

7 PwC

Technology Institute, Chinas impact on the semiconductor industry: 2012 update, February 2013 State Technology, Bridging the fabless-foundry gap: Highlighted ConFab presentation, May 18, 2012, accessed July 27, 2013,

8 Solid

http://www.electroiq.com/articles/sst/2012/05/the-confab-2012-bridging the-fabless-foundry-gap.html?cmpid=ENLConfabJune62012
9 Knowledge

at Wharton, Chipping Away: Chinas Long March toward a Strong Semiconductor Industry, June 20, 2012, accessed July 29, 2013,
http://www.knowledgeatwharton.com.cn/index.cfm?fa=viewArticle&articleID= 2615&languageid=1

10 PwC

Technology Institute, Chinas impact on the semiconductor industry: 2012 update, February 2013 500, Annual Ranking of Top Companies 2012, accessed June 24, 2013, http://money.cnn.com/magazines/fortune/fortune500/2012/performers/
companies/biggest/

11 Fortune

12 WSJ

Live, What Tech Company Holds the Most Patents?, January 2012, accessed June 24, 2013 http://live.wsj.com/video/what-tech-company
holds-the-most-patents/4DB2E798-A4A6-45DA-B5BE 2AB7EC3D77C7.html#!4DB2E798-A4A6-45DA-B5BE-2AB7EC3D77C7

Please Recycle

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