Technology/ Semiconductor/ Industry hierarchy 1 comments

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The semiconductor segment comprises ~15% of Singapore's total manufacturing output, the single largest sub-segment of the all-important electronics cluster. Some see it as one of the last bastions of hope in the local manufacturing segment in the face of the huge Chinese behemoth, because semiconductor design and production demands dependable infrastructure, highly skilled labour, heavy capital investments and intellectual property protection. These are all weaknesses of China manufacturing and strengths of Singapore.

The development of the semiconductor industry mirrors that of general manufacturing, with initial in-house production giving way to outsourcing of production --- a natural progression as an industry progresses such that supporting service providers spring up around the original innovating company. As it is, these two models are still in existence, and are described below:

IDM: Integrated Device Manufacturer. The original model where the semiconductor company designs and manufactures (and even tests) semiconductors in their own fabrication facilities. These are typically business subsidiaries of the big MNCs, and are able to undertake the cutting-edge research and development because of their integrated structure. Well-known IDMs would be Intel (microprocessors), Samsung Electronics (memory), Texas Instruments (communications). This model is not about to become extinct, because many of the parent companies see increasing dependence at "advanced geometries" (ie. increasing miniaturisation) between process design (manufacturing) and chip design (design).

Outsourced production: The entire value chain is segmented into different classes of service providers as shown:

Fabless --> Wafer foundries --> Testing & assembly

Fabless semicon companies focus on design and marketing and utilize external manufacturing capacity; a well-known one is Broadcom which specialises in communication chips.

Independent wafer foundries focus primarily on providing wafer fabrication services to upstream fabless companies and semiconductor suppliers. Increasingly, major semiconductor companies are using these to complement their in-house facilities, to improve profit margins and accelerate time-to-market. It is easy to see why intellectual property protection is important for a full-service foundry. Semiconductor suppliers and systems companies highly valuable and proprietary intellectual property (the IC, or integrated circuit, designs) to the foundries manufacturing their devices, and hence demand foundry partners who understand the importance of protecting intellectual property. Chartered Semiconductor is our shining local example of a wafer foundry.

Testing & assembly service providers will provide the final jigsaw piece in the manufacturing value chain, providing testing services (wafer probing, software testing) and assembly services (packaging etc, to ensure protection from environmental factors). Because assembly is typically sandwiched between initial and final testing, the testing and assembly processes are undertaken by one single service provider (hence STATS, UTAC provide both). The finished tested-and-packaged products are then delivered back to the semiconductor clients or directly to the final destination.

References:
(1) Chartered Semiconductor IPO prospectus
(2) UTAC IPO prospectus