Innovative financing options a must for the industry

06/01/2010

James Quinn,
Replisaurus Technologies, Kista, Sweden

All over again! After two consecutive years of declining revenues, the semiconductor industry is growing again. The industry's rebound is expected to continue to follow the global economy recovery and benefit from specific markets such as PCs, cell phones and consumer electronics. The particulars may differ from past recessions and recoveries, but broadly speaking, we're seeing a familiar cycle.

Even during these times, many companies have continued to pursue research and development. There has been steady focus on ever-smaller feature sizes, more functionality per chip, lower power consumption, and less-expensive production. These investments in development and the continuing increase in demand for high-value and more powerful electronic devices are expected to support the industry's recovery over the next few years.

The companies that gain the most from the recovery will be led by managers who position them to stand up to the competition and to take advantage of key technology trends and market drivers. Moore's Law will survive alongside More than Moore: enhanced functionality on chips (systems on chip), 3D integration and innovative chip designs. This is particularly relevant for makers of logic chips, analog chips, RF chips and processors.

Indeed, we should expect to see this year bring continued progress on several key technology transitions, including copper replacing aluminum in interconnects, 3D integration for improved functionality at advanced nodes, and wafer-level packaging. As always, consolidation will play a role in reshaping the industry. Companies will look for ways to leverage the growing opportunities that are presented (or demanded) by change.

"Clean" technology, the creation of an environmentally clean value chain and the development of energy-saving devices and components, will play a noteworthy role in the recovery. The costs of energy, and disposal and treatment of hazardous chemicals, will become excessive if manufacturers do not implement appropriate solutions. Therefore, the development of clean production solutions that make efficient use of resources will generate a genuine competitive advantage.

These economic, technological and environmental trends will require new business models and more management agility and bandwidth. Each manufacturer will need to consider where its strengths within the value chain are found and which aspects can be better handled by other companies through collaborative partnerships and strategic alliances. In the end, the companies that will be rewarded will be those that can spread the cost of necessary investments, scale with the demands of the market, and maintain and expand core expertise.

Governments recognize certain industries or systems that are critical to its economic strategy and policy. In some countries, such as the U.S., the financial system is recognized as the main value driver and governments invest in that. In Asia, where the electronics industry has created so much value and wealth over the previous 20-25 years, government intervention is quite reasonable. Here in Europe, government support has primarily been directed towards the larger companies in the automotive industry.

But a critical issue is emerging. With the tightening of the traditional capital markets (i.e., European venture capital, bank loans) and the urgent need for smaller semiconductor companies to find alternative sources of capital, it has become extremely important for future economic growth and the continued development of advanced technology to have access to equally innovative financing options. Some European governments, France in particular, are recognizing this need at this critical point for the industry and structuring innovative financing solutions for specific-partner supported projects.

James Quinn is CEO of Replisaurus Technologies, Isafjordsgatan 22c 5fl, 164 40 Kista, Sweden; phone: +49 151 1491 5569; email: [email protected]

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