Productivity and Cyclicality in Semiconductors Trends, Implications, and Questions: Report of a Symposium (2004) / Chapter Skim
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Panel IV: Roundtable on Models for Cyclical Industries
Panel IV: Roundtable on Models for Cyclical Industries
Pages 60-72
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From page 60... ...
the managerial strategies developed in these industries to deal with these cyclical fluctuations, and how these strategies are influencing the evolution of industry structure and investment in areas such as physical capital and R&D; and 4. keeping in mind that the conference was organized by the STEP Board, the implications for public policy of the analysis of cyclical behavior in a given industry, and whether there is a role for government in dealing with the causes or consequences of industry cycles.
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He began by listing some key economic features of the semiconductor industry that might be associated with deep cyclical swings. FACTORS UNDERPINNING CYCLICALITY IN THE SEMICONDUCTOR INDUSTRY Rapid Technical Progress The first is rapid technical progress.
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The Importance of Technology Shocks Finally, the sources of deep cyclical swings are difficult to quantify, but conversations with people in the industry indicate that periodic technology shocks have been important in explaining spurts of robust demand. In the early 1990s, for example, the PC market experienced a boom, and this in turn created an unprecedented demand for memory chips that lasted approximately three years.
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Even in periods of declining overall capacity utilization, the leading-edge plants are almost always running at essentially full capacity, minus that small fraction of plant equipment that must always be down for upgrade and service purposes. MODELING THE SEMICONDUCTOR INDUSTRY An I/O Model for SEMATECH He then reviewed a project undertaken for SEMATECH to create an economic I/O-style model.
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But he thought that the model might be applied to the business cycle as follows: Suppose a demand function, and suppose that the amount of product demanded will depend on the price per function. That price, coupled with the amount of capacity investment that determines output, would be essentially fixed in the short run, given the output of all firms.
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This boom was quickly followed by a steep sales slump, then another recovery. Industry sales typically lag the economy, partly because orders must be placed in advance of delivery and partly because labor productivity is low at the beginning of a new product cycle while workers learn their tasks and managers refine production techniques.
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CYCLICALITY EFFECTS OF INDUSTRY FEATURES Productivity Losses Late in the Cycle One consequence of this labor-based learning cycle in the aircraft industry is that productivity drops late in the cycle. Lockheed, for example, went from a productive level of about 220,000 man-hours per unit to about 450,000 manhours per unit -- a 50 percent drop in productivity.
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COUNTERCYCLICAL STRATEGIES Dr. Benkard closed by describing how the industry tries to manage these extreme fluctuations by the simple strategy of diversifying into the defense industry.
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A Learning Challenge Philip Auerswald asked about the primitives in the model from the standpoint of modeling the innovation process -- especially the issue of sequential innovation leading to a technological crisis that needs to be resolved. The aircraft industry had a sequence of related products that were tracing out an industrywide performance curve.
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Fly-by-wire technology has already been spun off to commercial aircraft, which allows the use of airframes with advanced wing designs that would not otherwise fly commercially. Future Tasks for the Model He also responded to Dr.
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Today the deep-trench DRAM holds 40 percent of the world DRAM market. He said that neither IBM nor Infineon would have continued in the DRAM business past 1993 if they had not formed that alliance.
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It also receives state support in the form of investment underwriting, which might be relevant to the semiconductor experience with the first years of SEMATECH, which was partly funded by government. Finally, he said that the independent firms of the aircraft industry had responded to their inability to manage cycles by choosing strategies of merger, acquisition, or exit.
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From page 72... ...
Diverse Product Lifetimes Dr. Isaac seconded that point, and he reminded the group not to think of the semiconductor industry in monolithic terms, but to separate process technology, as seen in the foundry, from more integrated activities that bring products to market.
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