The Changing Supply Chain

By Kalar Rajendiran

In efforts to improve product quality AND cut development and production costs while decreasing time to market, fabless semiconductor companies (FSCs) and OEMs have outsourced functions that didn’t add value to their products and to the company’s bottom line. Over the past 20+ years, they’ve outsourced EDA tools, test and packaging, IP core development and of course, foundry services. As we’ve moved from 200-gate simple ICs to highly complex SoCs that contain, on average, 50 or more IP cores, integration has created major challenges that begin with design issues and carry through to complete production services. These challenges have led FSCs and OEMs to find experts who could do solve integration problems but without adding additional cost.

But why has IP integration become so challenging? The answer to that question comes from a closer examination of the semiconductor ecosystem. Traditionally, a majority of semiconductor companies were vertically integrated, having dedicated internal resources for every step in the supply chain from design to manufacturing and distribution. They were staffed by highly-specialized engineers who understood all aspects of design, manufacturing, packaging, and test. And, they were both willing and able to make the significant investment required to be successful.

Throughout the years though, this vertically-integrated approach to design evolved thanks to the adoption of outsourcing of different aspects of the semiconductor development process as a temporary measure during economic downturns. As the economy recovered, companies soon realized that it was simply more efficient to outsource than to bring different aspects of the development process back in-house. Consequently, the outsourced functions were often left alone. It made good business sense for companies to go wherever the required skills were available and where there existed the potential of local markets for their products. Over time, the number of specialized suppliers increased to such a degree that it brought about a new challenge – how to manage the supply chain or value chain. Today, many companies are finding an answer to this challenge in the Value Chain Producer model (Figure 1).

A better model
Bringing products to market today is a multifaceted, global process often requiring involvement from a range of suppliers including design tool and services providers, IP developers, equipment vendors, and test and packaging service providers; just to name a few. This semiconductor value chain differs depending on a customer’s unique requirements and design. The semiconductor VCP is a new breed of company that simplifies and optimizes this value chain by consolidating a number of services and solutions traditionally offered by disparate suppliers, and delivering them to the customer along with lower cost, lower risk and increased flexibility. Through these services, FSCs and OEMs are successfully taking on the next level of outsourcing—the outsourcing of everything from design through production depending on their needs. Companies have gone from “fabless” to “productless.” Today many come with R&D and application expertise and leave the rest to trusted partners.

–Kalar Rajendiran is senior director of marketing at eSilicon.