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they are part of the majority of technical equipment, ranging from PCs, mobile
phones, to home appliance like washing machine and microwave ovens. Usage
of semiconductors in aircrafts, automobile and trains are consistently increasing.
Most technological innovations in terms of hardware are dependent upon
consistent upgrading of semiconductor devices. The current world would not be
the same without semiconductors and would surely be slower.
Malaysias role in the semiconductor industry goes back to the early 1970s when
the U.S. based chipmakers like Intel, National Semiconductor, Advanced Micro
Devices, Texas Instruments, ChipPac, Western Digital and Motorola established
off-shore Integrated Circuit (IC) assembly and test operations. These companies
were started in Malaysia to take advantage of the countrys cheap labor at that
time. Much of the investments are concentrated on the island of Penang, which is
popularly known as the Silicon Island of Southeast Asia. In recent years, most
of
the reputed companies in the chip business have a back-end manufacturing
operation in Malaysia. Eight out of eleven free trade zones in Malaysia are
monopolized by the semiconductor and electronics industry.
The semiconductor industry is high cyclical and often characterized by rapid and
constant change, rapid price erosion, product obsolescence, short product
lifecycles and huge fluctuations in demand and supply of the products. Major
factors that affect the industry are as highlighted below:
Cyclicality
Historically, the market of semiconductors is known to be volatile. Demand and
supply have cyclically fluctuated and caused pronounced fluctuations in margins
and prices. The cyclicality of the industry arises from a set of factors which
include fluctuations in the demand of end products that use semiconductors as
well as fluctuations in manufacturing capacity available for the production of
semiconductors.
Usually, semiconductor fabs take years to construct, plan and start operations.
Manufacturers have also in the past, made capital investments in equipment and
plant during market conditions that were favorable often, in response to
anticipated growth demand of semiconductors.
During the early days of the industry, design engineers with great ideas would
often leave one company in order to start another. With growth of the industry
though, setting up chip fabrication industries requires billions of investment in
dollars. Entry costs therefore make it impossible or at times painful for all but the
big players to enjoy the advantage. Despite this fact, there are indications that
things might be changing again and that the companies will form alliances so as
to spread the costs of manufacturing.
This pressure extends to foundries, chip makers, distributors and design labs. In
essence, the pressure is felt by all connected to the businesses of ensuring the
chips are developed from R&D into high tech equipment. The end result is an
industry that is continually producing cutting edge technology while at the same
time riding business conditions that are volatile.
Substitutes availability
Buyers power
The industry is dominated by small number of large players as such buyers have
little to no bargaining power.