Vertical integration vs. specialization: a nonparametric conditional efficiency estimate for the global semiconductor industry

Guangshun Qiao,Zhan-ao Wang

doi:10.1007/s11123-021-00616-x

Abstract

This paper applies a two-stage nonparametric approach to compare companies operating in different business models in the global semiconductor industry. Using panel data over 1999–2018 on 470 companies in the global semiconductor industry, we explore the operating performance of the semiconductor companies conditional on capital investment and between the integrated device manufacturers and the fabless-foundry business model. We find that vertically integrated device manufacturers are constrained heavily by capital investment. Disentangling the effects of capital investment and business model by a second-stage nonparametric regression, this paper identifies that the vertically specialized fabless-foundry business model helps to improve pure efficiency and mitigate the impact of business-cycle in the global semiconductor industry.

Highlights

Semiconductors, known as integrated circuits or chips, are the brains of almost all modern electronics
Before the 1980s, most of the companies in the semiconductor industry operated in the integrated device manufacturer (IDM) business model, in that one company carries out all stages of production in-house, including research and design (R&D), front-end fabrication, and back-end assembly and test (A&T)
Vertical disintegration notably reduces the burden of capital expenditure (CAPEX) and ensures the domination of new markets by fabless firms in the semiconductor industry

Summary

Introduction

Semiconductors, known as integrated circuits or chips, are the brains of almost all modern electronics. Since the release of the first commercial chips in the 1960s, the semiconductor industry has been a driving force in the electronics market. Before the 1980s, most of the companies in the semiconductor industry operated in the integrated device manufacturer (IDM) business model, in that one company carries out all stages of production in-house, including research and design (R&D), front-end fabrication, and back-end assembly and test (A&T). The rising pressures of developing more advanced technologies, accompanied by Whether specialization by the fabless-foundry business model increases productivity is a topic of broad interest in the semiconductor industry (e.g., see Macher 2006; Dibiaggio 2007). Vertical disintegration notably reduces the burden of capital expenditure (CAPEX) and ensures the domination of new markets by fabless firms in the semiconductor industry (e.g., see Balconi and Fontana 2011). Few studies focus on the impact of CAPEX or discuss the effect of the business

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