A new model for the next era
The Value Chain Producer (VCP) segment of the semiconductor industry was recently formalized by the GSA. Needless to say eSilicon was delighted by the outcome as the first VCP. That said, the most gratifying recognition from my perspective is the acknowledgement that the fabless world could benefit from a business model designed to increase quality, efficiencies and access to technology.
Quality is addressed by a VCP through a variety of means but stems from the aggregation of skill sets and the opportunity to apply those same capabilities over again. Said differently, the small or medium sized FSC simply cannot afford to have the breadth and depth of expertise in-house on the assumption that something may go wrong in a certain area. To be sure, something will go wrong, but what; ESD, thermal packaging issue, a signal integrity problem…? No one knows in advance.
The well staffed VCP will have all the in-house disciplines required to spot and repair the unpredictable. The result is a better chip in a shorter time frame.
The efficiency issue is critical. Simply stated, there is too much waste in the fabless supply chain to continue to be successful from either the remaining IDMs or the largest FSCs. The competent VCP purges that waste.
Oh, margin stacking, you say. Nope. The VCP can’t sell you a chip for an above market price. It’s irrational. But it can buy the supply chain elements at a lower price. It comes from aggregating purchases and the inherent strategic value to the supply chain when the VCP is calling on the prospect that is not on the monster supplier radar.
More importantly, VCPs save money by doing every day what many firms are now doing once in a while; and less all the time. (There are fewer starts.) If a VCP is good it will lay out a smaller die; yield more die per wafer; enjoy a shorter test time (and/or lower DPPM); diagnose and fix problems faster and, otherwise, develop a better, lower cost chip. It is from these savings the VCP earns its margin….again; it cannot be earned by selling above market price. In that case everyone fails including the VCP.
Access to technology boils down to continually learning what really works and when; IP is an obvious piece of this puzzle; accessing the inherent technology built into a given (often advanced node) wafer and, generally, knowing what raw elements make for a world class part. Of course, this occurs by having the full team, continuous and repetitive opportunities to perfect methodologies and meaningful supplier relationships.
Scott McNealy from Sun once told me, “Strategic partnerships are built upon stacks of purchase orders.” He was right. This fantasy that a company buying a few thousand wafers a year can have a deep, rich relationship with a multi billion dollar supplier is hubris at best, delusion at worst.
I am proud eSilicon is bringing this value…quality, technology and at market pricing to the industry. It’s happening in FSCs and OEMs, of course, but even IDMs have their reasons to work with VCPs like us.
If you want to hear the rest of the discussion live with me, Aart de Geus, Rick Cassidy and others, please attend the Business Forum Panel at DesignCon 2010 titled “Outsourcing the Electronics Design Chain for Efficiency and Profitability” on Feb 2, 2010 from 9:00am-10:00am at the Santa Clara Convention Center.
I’m looking forward to making the electronics industry an efficient and profitable industry through my role as a VCP board member on the GSA.
really liked the overview. it’s hard for an ‘outsider’ sometimes to learn about the semicon world. the VCP concept, seems to resonate with Peter Druckers idea of a ‘gazelle’ company.
“Every morning in Africa a gazelle [VCP] wakes up. It know it must run faster than the fastest lion [IDM's] or it will be killed.”
Ultimately,… it seems like a VCP has the ability to evolve faster & react faster.. which seems like the only long term solution anyway.
by the way, I just checked … http://www.valuechainproducer.com is still available