by Phil LoPiccolo, Editor-in-Chief, Solid State Technology
Against the backdrop of this year’s overall theme at The ConFab, “Managing the New Economics of Chipmaking,” an issue that’s top-of-mind for many participants is the migration of semiconductor operations to Asian countries. Jean-Marc Pandraud, EVP and COO of Entegris, offered his perspective as a mid-tier equipment supplier to chipmakers and OEMs, in an exclusive interview with SST.
Given the enormous and rapidly growing consumer market in Asia, it’s no surprise that chipmakers are expanding operations into these regions to satisfy local demand for semiconductor devices at the lowest possible price points. But what does this movement mean for American and Western European equipment suppliers trying to serve device manufacturers in Asia? “Basically, there’s no alternative: If you want to participate, you have to be there,” Pandraud says.
Moreover, suppliers cannot just “be there” from a sales-and-distribution standpoint — they must also be there with engineering development to support their products quickly with sufficient technical expertise, with “application specialists close to the customers to support them at their doorstep and speak their language,” Pandraud advises. And “speaking their language” means not just translation, but also keenly understanding the culture and knowing how to interact with customers who have high demand for your services. Alternately, trying to support development at a distance, with North American or European engineers, for example, would clearly be prohibitive in terms of both time and expense, he adds.
One option for “Western” suppliers seeking to establish product development activities in Taiwan, China, Singapore, Korea, and even India is to outsource or develop other partnerships with companies in those nations. “Given the speed at which Asia is expanding manufacturing operations today, it’s difficult to start from scratch and be able to serve big customers in a timely manner,” Pandraud says. He adds that a major limit to partnerships in some Asian countries is intellectual property protection, “especially if you’re a Western company that wants to bring innovation into the equation,” so it’s preferable to try to acquire companies in these regions. “Personally, I think this is the way to go,” he says.
A key ingredient a company must possess to succeed in making the transition to Asia is a management team that is broad enough in terms of cultural diversity and ethnicity, Pandraud believes.”It is important to make sure that the first 30-40 people on our executive committee come from all parts of the world, “so we can leverage their knowledge of their respective cultures and have all viewpoints fairly represented,” he says. “I would encourage any American or Western European company to do that as well.”
It’s also important to develop people in each region so they can become future managers and executives, Pandraud notes, adding that there is no lack of talent available in many Asian countries. The quality of the engineering in China and India, in terms of the number of graduate students, for example, is “absolutely amazing,” he says, “so there are plenty of opportunities to work with a pool of very skilled people.”
Regarding development plans for India, where chip industry interests have heated up in recent weeks, Pandraud says Entegris currently has limited investment in the country, but hopes to establish a subsidiary there by year’s end. “There are incentives now for semiconductor companies to set up manufacturing in India, so even though there is limited silicon being made there now, that’s no reason not to be there,” he asserts. “Having our own people in India to train and develop and immerse into the world of semiconductor business is the way to go. You need to put a stake in the ground.”
In the rest of Asia, the time to expand operations is now, since that’s the region with the largest potential for growth, Pandraud says — especially for mid-tier suppliers such as Entegris, given that the larger suppliers are already well established there. Currently, some 32% of Entegris’s revenues are from Asia (excluding another 22% from Japan), and of that only about 3% is from China, and even less than that comes from India, he points out. So migrating to these regions is one way for an American company to grow. “When you are a public company today, you need to enhance your growth prospects and attract a lot of attention to your company. So growth in Asia is absolutely essential.”
One of the biggest challenges of accomplishing a migration to Asia, Pandraud cautions, is to make the move while ramping up and down to serve changing demand levels in what is still a very cyclical industry. “It’s a kind of dual charge,” he says. “You have to execute the transfers while conducting your normal business.”