New rules create opportunity for OEMs headquarted in China
03/01/2007
As in many industries, the growth lifecycle of the semiconductor industry can be described by the three phases of a classic S-curve. In the first phase, growth began with early innovators such as IBM and Texas Instruments pioneering new technologies. This period, all about technological innovation, was characterized by modest growth. The innovation period was followed by a second phase, during which the technology was commercialized for mass production. Companies like Intel, Toshiba, Samsung, and TSMC combined technology innovation with productive business models to drive the growth curve steeply upward.
The semiconductor industry is now entering the third stage of the S-curve, characterized by a return to flatter growth, and where cost must be combined with innovation and productivity to drive further growth and success. What makes cost the most important driver at this phase is that mature industries typically have many players vying to compete, often causing supply to exceed demand and prices to erode. Lower prices, in turn, heighten demand, which turns the products into commodities and further drives costs down.
As the semiconductor industry enters into the third phase of its growth, Shanghai-based Advanced Micro-Fabrication Equipment Inc. (AMEC), a developer of semiconductor etch and CVD tools for 65nm technologies and beyond, is harnessing the advantages of three dominant trends: the rise of China, the forces of globalization, and the industry’s shift to Asia. In fact, these three trends are converging to form a new value statement predicated on technology innovation, leading productivity, and economics.
Converging trends in chip manufacturing
Nowhere is the rise of China more evident than in its thriving electronics industry. This trend provides numerous advantages to an emerging Asia-based high-technology company. Primarily, it allows AMEC to take advantage of the fastest-growing region in the industry and enables the recruitment of valuable human capital to develop leading-edge technology in a low-cost region with necessary physical infrastructure.
Moreover, to support this thriving industry, China’s universities are fueling the talent pipeline with highly educated technology graduates. In Shanghai alone, there are 63 colleges of higher learning, graduating more than 100,000 students annually. China Education News reports that the country graduated more than two million scientists and engineers in 2006, an increase of more than 10% over the previous year, thus providing a steady infusion of top-class talent into Chinese and other Asia-based technology companies.
New graduates are only one part of the equation. The emergence of China is also attracting returnees-experienced and accomplished scientists, technologists, and management executives who began innovating in China, where they first established their careers, then took their talents overseas, and are now returning to the region to contribute and take advantage of its increasing opportunities. Companies like AMEC are benefiting from this returning army of talent.
 AMEC’s facility in Shanghai, China. |
China’s rise is also creating growth for our industry with the emergence of a vibrant new community of indigenous semiconductor design-to-silicon value chain members. This growth is evident in the explosion of new fabs in the country. Beijing and Shanghai are the prime locations for manufacturing fabs, with other cities like Chengdu, Shenyang, and Guangzhou competing to attract indigenous and foreign manufacturers. (see figure). The city of Suzhou has become a magnet for test and assembly companies, adding yet another city playing host to China’s expanding electronics ecosystem.
China’s emergence as an economic powerhouse has much to do with the second dominant trend: globalization. Globalization provides access to great talent, customer markets, and a broad, efficient supply chain. It also enables Asia-based companies such as AMEC to attract capital with the most appealing terms from financial institutions and venture capital firms around the world.
The third and arguably most important trend is the shift to Asia, due to the size of the market, the educated workforce, and low operating costs. Asia’s voracious consumption of integrated circuits is powering the rising volume of consumer devices manufactured in the region. To support this demand, the region’s IC manufacturers are bolstering their production efforts. This trend is especially evident among foundries. In 2005, overall foundry revenues were US$18.24 billion, and the contribution of Asian foundries was close to 91%, at US$16.56 billion. Revenue from Asian foundries is expected to reach US$31.8 billion in 2010. Currently, Asia is home to 75% of the world’s new wafer fabs, and more than three-quarters of the worldwide processing equipment is now being sold to this region.
Returning to the S-curve
As a supplier of leading-edge equipment that enables the production of advanced, affordable ICs, AMEC is well positioned to support this growth. Being located in the heart of Asia places us in the hub of the world’s semiconductor manufacturing industry.
Riding on the strength of these converging trends, AMEC is entering the industry during the lifecycle phase when growth and success belong to the companies that offer cost advantages along with leading technology and productivity. If it was just about low-cost labor, then the semiconductor industry might be shifting to other developing regions, not Asia.
Based in Asia with a strong presence in China, AMEC operates in a low-cost, fast-growing region with a talented and educated workforce. This prime location offers regional and cultural proximities to customers and enables close collaborations and tight partnerships. The Asian hub also provides easy access to a supply chain that exploits the region’s productivity and efficiency strengths. While our goal was to build a network of best-in-class global vendors, we’re finding that more than 50% of our supply-chain partners are located in Asia. This proximity allows us to create great cost benefits for customers, while still delivering innovative, leading-edge technologies.
Meanwhile, AMEC is a global company, which enables access to the leading technologists with the most innovative ideas. Globalization also means access to elite venture capital firms and financial institutions. In fact, a glance at AMEC’s investors reveals globalization-in-action with a line-up including firms from multiple continents.
Another example of our globalization was the speedy conclusion of our fund-raising efforts. These entailed meeting with more than 40 global venture firms in two weeks during our Series A efforts, which resulted in the signing of a term sheet in 24 days, and a Series B closing that included the participation of investment bank Goldman Sachs.
Technology direction
AMEC is inventing next-generation technical solutions for system architecture and process chamber technology. So far, the company has filed critical patents aimed at delivering new levels of on-wafer performance and productivity. But to be successful a company needs both ideas and the business structure to deliver on them. Throughout 2007, AMEC will be shipping beta products to customer sites in multiple Asian locations. To support the beta strategy, the company has built a network of global service centers staffed by local engineers to provide support.
AMEC is an example of a company harnessing converging trends in an industry where technology, productivity, and cost are the success drivers. We are not the first Asia-based semiconductor equipment company serving a global market. But with the rise of China, globalization, and the industry’s shift to Asia, our strategy is the way of the future.
Gerald Z. Yin is the chairman and CEO of Advanced Micro-Fabrication Equipment Corp (AMEC), 188 Taihua Road, Jin Qiao Export Processing Zone (South Area), Pudong, Shanghai 201201, China; ph 21/6100-1199; e-mail [email protected].
Steve A. Chen is a board director and executive VP of AMEC.
Zhiyou Du is VP of corporate operations of AMEC.