In 2007, NXP, the re-named Philips Semiconductors which had recently been spun out of Philips, was run by Frans van Houten, now CEO of Philips.
Most consumer electronics companies are de-verticalising their supply chains”, said van Houten back in 2007, “selectively de-verticalising the supply chain means Philips Semiconductors works with de-verticalised customers to make the chips.”
This contrasted with the position of the Japanese “How you make the product attractive to consumers in terms of features and quality decides the competitiveness of the product,” said Satoru Ito, at that time president and CEO of Renesas, “that is more suited to the integrated vertical business model of the Japanese companies.”
Ito, and other Japanese chip industry leaders, saw their vertical business model as being inherently superior when it came to consumer electronics than the horizontal business model of the US companies, which bought components from a host of suppliers and assembled them anywhere in the world.
Ten years ago, van Houten was inclining to the American view.
“I strongly believe that you need to work with suppliers that are best in class. De-verticalising is a strategy to work with the best partners in the supply chain,” says van Houten.
He dismissed the Japanese predilection for the vertical model, saying simply: “There are some companies in Japan that are behind in terms of out-sourcing.”
He insisted: “De-verticalisation doesn’t stop our customers from working interactively on what is defining the silicon.”
Another surprising attitude, for an IDM, is that van Houten didn’t believe that having its own fabs necessarily gave Philips Semiconductors an edge in the market.
“Pure CMOS technology is more and more of a commodity which does not necessarily give competitive advantage,” he said, “we invest in process technology, and it’s important to have access to process technology, but it’s not important that we manufacture the products ourselves.”
And that is the way the world went, while much of the Japanese semiconductor industry disappeared.