What Is a Semiconductor Industry? Essay Example

Hewlett Packard, Apple Computer, and other semiconductor companies were established in the US. Many of these companies are situated in Silicon Valley in San Jose, California - an area renowned for its high concentration of semiconductor manufacturers. This close proximity facilitated knowledge spillovers and fostered intense competition and innovation among US semiconductor companies. The presence of highly skilled labor attracted engineers and inventors to the region which further contributed to the development of an advanced technological hub benefiting industry growth.

The competition and rivalry among American semiconductor companies drove the growth of the US semiconductor industry, giving it a technological advantage over international competitors. Key early American innovations in this industry include Bell Labs inventing the first transistor in 1947, IBM introducing the first computer to store electronic plans in 1952, Texas Instruments developing the Transistor Radio in 1954, General Electric releasing the first solid-state silicon switches in 1956, Texas Instruments building the first integrated circuit computer in 1961, Texas Instruments creating the first handheld calculators in 1967, Intel producing DRAM (the memory component of computers and electronics) in 1971 and later inventing SRAM and EPROM in 1972. Additionally, Intel introduced microprocessors which allowed computer brains to be contained on a single chip for the first time. Notably, significant innovations occurred during the 1970s when Bell Labs and IBM began using electron beams in chip production starting from1974. By the late 1970s, innovation was accelerating with smaller, more compact, and cheaper semiconductor chips being produced approximately every 18 months as predicted by Moore's law.

In 1979, Motorola introduced a groundbreaking 16-bit microprocessor, while Bell Labs revealed a single-bit digital signal processor with superior capabilities in speech compaction,

filtering, error correction, and other functions compared to multiple chips. Notably, this era of technological advancement coincided with significant trade growth in the US industry. United Nations Standard International Trade Classification data on a specific subset of semiconductor devices (8541 - rectifying tubes, transistors, and similar devices) provides evidence for this. The introduction of further innovations such as the first cellular mobile device in 1983, Apple's Macintosh computer launch in 1984, and Bell Labs' creation of neural network chips that imitated brain cell information storage and problem-solving abilities propelled the US industry to surpass Japan in semiconductor chip manufacturing by 1993.

As demand for these chips continued to rise in new consumer electronics products, there was a notable expansion observed in semiconductor trade according to UN data. The market structure of the US semiconductor industry has played a vital role in fostering efficiency, innovation, high productivity, economies of scale and ultimately establishing the comparative advantage that currently exists for the US within the semiconductor industry.

The early development of the market was characterized by traits of oligopoly, with dominant firms like Texas Instruments, Intel, IBM, and Bell Labs. Monopolistic competition is also present due to strong product differentiation and a constant demand for innovative new products to gain market share. Additionally, there is imperfect competition with high barriers to entry in the semiconductor industry, along with laws regulating certain chips because of their military applications.

Since the 1970s, over 60 firms have entered the US semiconductor industry, resulting in intense competition and advancements that have improved productivity and expanded both the size of the industry and global sales led by US firms. Government programs initiated in the 1950s

related to arms, missiles, space exploration (such as the Apollo program), and other endeavors greatly contributed to its development and drove constant innovation.

By examining gross revenues per worker, worker incomes, employment and GDP share, as well as capital intensity within the US semiconductor industry, there is strong evidence of high productivity. This suggests that the industry holds a comparative advantage in semiconducting materials.

In 2004, global semiconductor sales amounted to $213 billion USD. The US semiconductor industry contributed about 47% or $100 billion USD.

At the time, there were approximately 255,000 workers employed in the US semiconductor industry (source [28]). These workers contributed to a gross revenue of $392,157 per worker for both the US semiconductor industry and the overall US economy. In 2004, employees across the global semiconductor industry generated sales revenue equivalent to $2,130,000 on a per capita basis. However, American semiconductor industry employees stood out with their higher efficiency as their sales revenue surpassed the global industry average by 84.1%.

The American semiconductor industry experienced a decrease in employee numbers to 216,400 in 2008. However, the industry's gross revenue grew significantly to $USD120 billion. This resulted in a rise of the gross per employee to $USD554,529, marking a substantial increase of 41.4% over four years. The decline in employment can be attributed to advancements in capital strength and automation within the chip industry. These advancements led to higher sales returns per worker. Additionally, the average income of workers in the US semiconductor industry further highlights the country's comparative advantage in the global market for semiconductors.

In 2008, the average pay in the industry was $ USD96 000, which was more than twice the average pay

in the American economy, which was $ USD40934[ 33 ]. This higher pay indicates high productivity and low opportunity costs. The US semiconductor industry employed only a small percentage of US workers (216 400 out of 150 931 700[ 34 ], or 0.14% of all employees) but made a significant contribution to the US GDP (0.84% of $ USD14.369 trillion in 2008). The industry's employment and GDP share also suggest that it is capital abundant and capital intensive. The trade statistics, particularly exports, in 2008 support the presence of comparative advantage in the American semiconductor industry within the global industry.

In 2008, semiconducting materials valued at $52 billion were exported by the United States, making it the second largest export. Despite having only 0.14% of American employees, this industry contributed to 2.8% of the total US export gross in that year, which amounted to $1.84 trillion.

Countries typically export goods or services in which they have a comparative advantage and engage in trade with other nations specializing in different goods and services for mutual improvement of living standards.

The fact that the US semiconducting materials industry accounted for such a high percentage (2.8%) is unusual for its small size, indicating a comparative advantage due to factors like high productivity, low opportunity cost, and historical economies of scale.

In comparison, Japan's semiconducting material industry represented around $52.2 billion or 21% of global semiconductor sales totaling $249 billion during the same period.

The Japanese industry is the second largest in global semiconductor sales, historically driving innovation and progress in this field. However, it has decreased in size and dominance compared to its American counterpart over the last 20 years. In

1988, Japanese "chip" makers held a remarkable 51.2% market share of the global semiconductor market.

In 1996, the market share of the Japanese semiconductor industry declined to 28.1% and further dropped to 21% in 2008. Despite this decline, Japan's semiconductor industry remains dominant compared to other foreign industries (excluding the US). Major players in this industry include Toshiba, Renesas Technology (formed through a merger with Mitsubishi and Hitachi), Sony, Elpida Memory, Panasonic, Sharp, Rohm, Fujitsu, NEC, and Matsushita Electric among others. Among these companies are the six largest players in the Japanese semiconductor industry: Toshiba (19.7%), Renesas Technology (9.9%), Sony (8.5%), NEC (8.4%), Elpida Memory (7.6%), and Panasonic (6.2%).

Toshiba and Renesas Technology were the leading Japanese semiconductor companies in terms of global sales, accounting for 6.7% of total worldwide semiconductor sales in 2009. After World War II, the Japanese government aimed to enhance their manufacturing and technological capabilities, particularly in the semiconductor industry. They believed that supporting research in this sector would contribute to domestic technological development. By implementing coordinated policies and providing support, Japan entered the semiconductor market during the late 1970s. Over time, Japan's global market share in semiconductors continued to increase. Critics from the US argued that there was an unofficial agreement among Japanese companies to purchase domestically made chips – even if they were more expensive than those produced in the US – as a means to foster a large domestic market and build production capabilities for a strong export industry.

Japan was the dominant leader in the semiconductor industry during the 1980s, with a strong hold on market share and global sales. They particularly excelled in developing innovative Random Access Memories (RAMs)

that greatly contributed to the industry's success. However, Japan's position in RAM production began to decline in the 1990s due to tough competition from emerging countries such as South Korea and Taiwan.

The semiconductor industry in Japan has a market structure similar to that of the United States, with larger companies like Toshiba, Panasonic, Sony, and Renesas Technology having more control since its inception. However, competition in Japan is not as intense as in the US. Instead, a few major Japanese semiconductor companies dominate most of the market share: Toshiba, Renesas Technology, Sony, NEC, Elpida Memory, Panasonic, Sharp Rohm,and Fujitsu collectively hold 75.8% of the Japanese semiconductor industry's market share. In contrast to Japan's focus on microprocessors and new chip technologies resulting in RAMs becoming an industry standard along with other countries like the United States.

Compared to American companies in the semiconductor industry, Japanese companies exhibit increased collaboration in terms of joint research and development costs. The industry's dominance in the 1980s was aided by activist government trade policy. However, Japan experienced a decline in its share of the global semiconductor market during the 1990s, leading to decreased industries and sales. To combat this decline, the Japanese government and various semiconductor companies and associations (such as JEITA) have engaged in new chip research initiatives like the Mirai and Asuka Projects. Throughout its history, the Japanese semiconductor industry has been acknowledged for its superior quality control and significantly lower defect rates, granting it a "natural" competitive advantage. By analyzing United Nations Standard International Trade Classification data specifically for semiconductors classified as rectifying tubes, transistors, and similar devices (8541), exceptional growth in trade can be observed during

this period of innovation within Japan's industry.

The Nipponese semiconducting material industry is a leading exporter of semiconducting material industries to the rest of the world, just like the US. This can be seen in the historic trade forms depicted in figure 1.8. To comprehend why Japan has a comparative advantage in this industry, we need to first examine the relative rewards, which indicate how productive the industry is compared to the overall Japanese economy. In 2003, employees in this industry earned an average of $USD60 000, while the average pay across all sectors of the Japanese economy was $USD28 259. Thus, workers in Japan's semiconducting material industry received double the average pay. Industries with higher productivity and lower opportunity costs are able to offer higher pay to their employees.

According to this text, the Japanese semiconductor industry possesses a competitive advantage over most other countries in terms of productivity, resource utilization, and efficiency.