NXP, TI, STMicro and the end of process development
With NXP and STMicro pulling out of basic chip process development at Crolles, and with Texas Instruments deciding to abandon basic process development, the semiconductor industry is taking a dangerous route.
Essentially the semiconductor indsutry is putting itself into the hands of the foundries. That’s OK for the time being. The foundries do a good job. But what happens when the foundries know the big suppliers are totally dependent on them? Will prices go up? Will terms get harsher? You bet they will. What looks like a saving in overhead today for the big companies could come back and hit them between the eyes in higher prices tomorrow. And how much is this saving? TI’s CFO Kevin March estimates that it will save TI between $140m and $150m a year by not doing its own basic process development. That’s peanuts to a $10bn a year revenue company. And for this mess of pottage TI is sacrificing its long-term independence. For ST and NXP, the bargain looks even more Faustian. They were sharing the cost of basic chip process development three ways. Even without taking into account the EU and national governments’ subsidy of Crolles, that works out at only $50m a year each. And ST is a $9bn+ revenue company, and NXP is a $6bn+ revenue company. For a small contribution to the bottom line in 2008, they are prepared to sacrifice their long-term independence. The end of Crolles as a centre for advanced basic chip process development marks the end of a 20 year-long strategy to give Europe independence in microelectronics technology. The strategy started with the Philips-Siemens Megaproject, continued with JESSI, and was carried on by MEDEA and MEDEA+. The argument was always that Europe needs controlled access to advanced microelectronics technology if its industries are to remain competitive. Now, apparently it doesn’t. The demise of Crolles won’t have an effect on competitiveness next year, or even in 2009 or 2010, but further out the effects may be severe. “If every company goes to foundries, using the same processes and cell libraries as everyone else, what differentiation can a company offer customers?”, asks Malcolm Penn, CEO of analysts Future Horizons, “five years down the road, when ST asks: ‘Why haven’t we got any customers’, the reply will be: ‘We can get this from loads of other people cheaper, now that they’re making them in the CongoTags: crolles, foundries, semiconductor industry, stmicro