Memory Lane
martin, peter
"MEMORY LANE" ATTACK OF THE CHIP MONSTERS BY PETER MARTIN The world now has only a handful of giant companies making memory chips-the computer industry's most basic building block. Just before...
...MEMORY LANE ATTACK OF THE CHIP MONSTERS BY PETER MARTIN The world now has only a handful of giant companies making memory chips-the computer industry's most basic building block...
...What a deal...
...e.n y.r re w• aa,e+~ r. ip Joe t Order by toll-free phone: (NW) tillO-2777 or (fastest...
...A chip plant, like an integrated steel mill, is an incarnation of national pride...
...In chips, no technological change is in sight that could produce a future of lower capital intensity and diminished returns to scale...
...change your life...
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...Harnessing it as an effective competitor to the integrated plants was a business revolution, not a technological one...
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...Sid Tuchman of Indianapolis, IN says: "What an astonishing hook' One can almost hear those brain cells crackle...
...The losers in each downturn cannot afford to build the next generation of plant and thus become uncompetitive...
...And Moore's Law-the rule of thumb that predicts steadily increasing power per chip-brings Peter Martin is a columnist at the Financial Times...
...Perhaps an analogous business transformation lies in store for the semiconductor industry...
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...ISit in front of the tube, preferably with a six-pack and a bag of potato chips and it will turn flabby and quite useless...
...A chip plant's profitability depends on its yield, the proportion of viable chips produced from every wafer...
...Global competition is even fiercer in the semiconductor industry than in steel because the cost of transporting chips is so low...
...There, the industry's spiral of bigger plants and fewer competitors was ended by a shift in the business's fundamental technology...
...constant pressure to upgrade to the next generation of manufacturing processes...
...But yield is directly determined by experience: the more chips you run through the plant, the higher the yield and the lower the cost...
...The giant integrated steel mills, though still efficient, faced new rivals: minimills such as Nucor, which is now the US industry's second biggest producer...
...In each cycle, one or more of the remaining competitors drops out...
...The scale economies of Big Steel are offset by the minimills' lower capital costs and greater flexibility At first glance, the semiconductor industry has little to learn from this...
...If the logic of the semiconductor industry's game of musical chairs is the same as at a children's party, there will in the end be only one survivor, only one global producer of the "commodity" memory chips on which an electronics-based economy relies...
...The best comparison is with the steel business...
...Both chips and steel are extremely capital-intensive, with increasing returns to scale...
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...The forces that have brought about this shrinking pool of competitors have parallels elsewhere in economic history...
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...The semiconductor industry has a further incentive to run flat out...
...So both industries see devastating price wars when demand slips...
...As in the traditional steel industry, the cost of a state-of-the-art new plant is huge...
...Both industries are battlegrounds for trade conflict...
...Chipmakers therefore have every incentive to keep their plants fully loaded during downturns...
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...Minimills are much less capital-intensive than the giant integrated plants of the past...
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...But the electric-arc technology used in minimills was not itself revolutionary...
...Both are important symbols of developed economy status...
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...Exercise it vigorously and you will indeed be able to develop a razor-sharp mind and a steel-trap memory...
...Since the huge capital investment in a steel mill or a chip plant is a sunk cost, the temptation is always to run the businesses flat out in a recession, charging only a rock-bottom marginal price...
...Just before Christmas, Micron Technology beat out Germany's Infineon to acquire Toshiba's pricebattered DRAM assets...
...Micron's negotiating team next set its sights on South Korea's embattled Hynix-a deal that would give Micron nearly half the world's DRAM manufacturing capacity...
...But that is not what happened in steel...
Vol. 35 • January 2002 • No. 1
