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Semiconductor Industry - The History and Trends

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During its short history, the electronics industry has gone through a development that was never seen before. The electronics industry developed in a number of steps. First the very basics of the industry started in 1901, with the introduction of the radio.  The next step was when in 1948 the Bell Telephone Laboratories invented the transistor. A transistor is “a semiconductor device, usually having three terminals and two junctions, in which the load current can be made to be proportional to a small input current, so that  it is functionally equivalent to a valve but is much smaller and more robust, operates at lower voltages, and consumes less power, and produces less heat.” (The Hutchinson Encyclopedic Dictionary, page: 1131) In other words transistors transfer certain kinds of electric impulses into other type or electric currents.


The first Bell transistors were bipolar. Bipolar means that a transistor creates information as combinations of only two numbers; 0 and 1. If the electric current does flow through the specific transistor then the information that the electric current carries will be stored in the memory on the same silicon plate as the number “1”. If the current does not flow through the transistor than the memory on the same silicon chip will be stored as the number “0”. These digits are also called “bits”. Transistors also make impulses of the electric currents that enter them stronger. The transistors replaced the thermionic valve, which was invented by John Fleming in 1904. These thermionic valves improved the quality of radios. Since transistors were much smaller than thermionic valves, which caused their fast spreading. Transistors caused a previously unbelievable decrease in the size of electric devices. Since transistors are so tiny, their introduction not only was a step in the development of the electronics industry, but it also created what is today known as the “microelectronics” industry. Later when certain chemicals started to be added to silicon, semiconductors, which slow the flow of the electric currents, were created. These semiconductors soon started to be manufactured for the public and were sold commercially. A about a decade after the introduction of semiconductors, towards the end of the 1950’s, something called the “integrated circuits” came into existence. The integrated circuits were also a very important invention in the history of the electronics industry, because they further improved the power of electric devices. On an integrated circuit there are a number of transistors located, which are all located on silicon chips. Over the years the number of transistors on these chips increased dramatically from Intel’s first commercial processor, which are “computers on a chip”, containing only 3500, until the current ability to jam as many as 5.5 million transistors. Texas Instruments claims that it has a technology available by which 125 million transistors can be packed on one chip. By the early 1970’s it was possible to incorporate very complicated solid-state circuits on one single chip the size of a finger-nail to create the microprocessor. These tiny microprocessors were so tiny that a single of them was able to perform, what previously were performed by valve computers that occupied very large rooms created solely for this purpose. Obviously miniaturization was one of the key concepts of the industry.

Although the industry nowadays is very large, with literarily billions of dollars invested in only its Research and Development (R&D), its importance today lies in the fact that it is so intensively present in everyone’s life. In our modern, digital life their absence, and it affects are almost unimaginable for us. In fact, as our book puts it, it is “the engine of the digital age” (Global Shift, page: 353) of ours. This great significance in the everyday life is the reason why more and more governments are inclined to be involved in it, because if they don’t than it will hurt the whole domestic economy. In it short history, the semiconductor industry has been the cause of many political debates, from tariffs on them to protectionism of the domestic microelectronics industry. Many governments give financial aids to these home-based processor and transistor manufacturers. As in many other industries, the trend of shifting every day, and routine type of jobs into countries with lesser wages can be observable especially by Asian, North American, and Western European corporations. Another reason for why firms start production in certain countries or regions, especially in the case of big markets, firms start to produce to be able to get around the imports quotas and barriers.


Within the electronics industry there are two major branches; the components industry, most notable the semiconductor industry, and the consumer electronics, most notably the television manufacturing industry. The semiconductor industry can further be divided into the still broad memory chips, and the microprocessors industry. Memory chips are chips which has the sole purpose of containing and the storing of its preprogrammed informations. Microprocessors interpret, control and carry out all the instructions that are inputted by the user. Semiconductor parts are used in a wide range of ways, which, for the sake of simplicity, can be divided into two major categories also; the electronic equipment and the consumer electronics sector. Within the electronics sector there is much overlap, mostly because of the computer. Computers can be used in many areas such as in the industry, where it was originally used. Later computers, when they were started to be sold to the public through retailers. From then on computers became a very common thing, until the current state, where virtually all households in the developed world own a computer. Since billions of computers are being sold all over the world today, and given the fact that all computers need a processor, billions of semiconductors are being sold today to the public only. Both the consumer and the semiconductor, but especially the semiconductor industry is very capital intensive industries, which mean that a lot of money is required just to start the company. Their R&D department are very labor and knowledge based industries. At the same time, mostly in the United States the more every day and routine type of activities is let to the smaller corporations to carry out. We will see that the global distribution, and also the degree to which the different developed countries are involved in the industry.


The development and the growth of production of semiconductors in its history of half of a century has been a real impressive one. Twenty years after its invention, it reached the state in which the volume of its production started to double every single year. Their production first started out in the country where they were invented, in the United States, which dominated the worldwide production up until the 1970’s. A decade later, however Japan overtook this very honorable title of being the number one producer of semiconductors. From then on a commercial war began between the US and Japan to be the world leader. During this war, Western Europe, mainly Germany, France, and the United Kingdom, lagged behind, just trying to stay on its feet, and to keep the pace that these two and some NIE countries dictated. The most notable of these NIEs, Newly Industrialized Economies, were South Korea, Taiwan, and Singapore. Which also started to invest large sums of money in  R&D. Because the Japanese, North American, and to a certain extent, Western European firms shifted the low skill needing productions in southeastern Asia, Malaysia, the Philippines, and Thailand also produced vast amounts of the semiconductors.

The most notable development in the world went trough in South Korea, which from being a modest producer in the 1980s, emerged to the notable place of being the third largest producer only after Japan, and the United States, thus the country became a key player in the world of the semiconductor industry. There are a number of newly emerged production centers today. Within the United States, in the beginning only the Santa Clara valley, or as many know it the “Silicon Valley”, was the only producer of the industry. Later a multiple of centers emerged, particularly in Colorado, Oregon, and Utah. In Western Europe, the first production centers developed in Ireland, Wales, and Scotland. In the case of Scotland, the semiconductor production was so dominant in the European market that it received the name of “the largest ‘chipshop’ in Europe”. The central valley of Scotland where the production is concentrated, has the other popular name of the “Silicon Glen”. In Southeast Asia new centers of production also emerged recently, most notably China, Malaysia, the Philippines, Thailand and Indonesia.

As we could see semiconductors are manufactured in a couple of centers of the world. However this is not what the consumer electronic industry is like. The production of consumer products are much more evenly spread out in the world and it is much more global, however there are still a couple of foci of it. This can easily be seen if we take into consideration the fact that whereas Japan, the United States, South Korea, and Western Europe produce four fifth of the total semiconductors, in the case of the consumer electronics industry this figure is only 60 per cent of the whole consumer products production. The leading region of east and southeast Asia, together with Japan also, produce only two-thirds of all the consumer electronics devices. Also the global shift of the production activities can be seen more clearly. In the case of the consumer products industry the emergence of the Southeast Asian countries are more significant, than in the case of the semiconductor industry. 


One example where this shifts between the major regions of the world can be easily and clearly observed is the worldwide manufacture of television sets which started its significant change in the late 1970s and in the late 1980s. Probably the most important reason why these products’ production became so globally widespread is the fact that television set originated in the developed world of North America and Europe. During the decades when the changes started the world production of television sets grew by as much as 68 per cent, whereas in Europe this figure was only 9 per cent, and in the States it was only 21 per cent. The major growth took place in Asia, with it impressive 168 per cent. But in Asia there were many significant changes; Japan, which in 1978 was the world leading television producer, managed to increase its production volume by only 13 per cent. China, on the other hand, who produced next to nothing in the year 1978, by 1987 it became the world’s highest production level owning country. The other big bangers of the continent were Malaysia with 725, South Korea with 204 and Singapore with 193 per cent. The trend of Asia increasing market share of the production of television set continued all through the last decade also. A glance at the trading figures will also strengthen our sense of east and southeast Asian dominance in the consumer electronics market. East  and southeast Asia had a trade surplus of  close to $17 billion, whereas Europe had a deficit of a little over $7 billion and the United States had  a deficit of $15.4 billion in the year 1994. In the States between 1948 and 1962 were totally self-sufficient in the market of television sets until the first Japanese imports appeared. In fact, the effect of Japanese and other Asian import were so great that currently there are no American television producers, although originally it had 16 of so television producing firms. Besides the fact that east and southeast Asia has such a great trade surplus, the fact that most of the European and North American firms have plants in the region, which means that the television sets of European and North American based firms are Asian imports. Obviously the manufacture of television sets is very volatile.


The growth of the semiconductor depends very much on the growth rate of the products in which they are incorporated in. In the beginning, in the US, unlike the semiconductor industries of the other three major focus regions, Japan, North Korea and Europe, most of the chip orders came from the defense sector, particularly from the Airforce. In Europe and even more so in Japan most of the stimulus for the industries development came from and were adapting to the needs of the industry and of the customers of the day. Although the governments of Western Europe, Japan, and the NIE countries were not among the direct consumer of semiconductors, they often got involved in the happenings of both the domestic and the foreign semiconductor industry. Many of the governments imposed tariffs and quotas on imports. They also supported the home based semiconductor industry with non-tariff methods, like giving financial aid to the microprocessor manufacturer of the country. At the same time there were governments that encouraged foreign producers to build a plant in the country. Besides supporting domestic firms and foreign producer to build production units in the country, there is a third way in which governments encouraged, and does so today, is to purchase semiconductors on the open market, and develop its end-uses.


There are problems with these solutions also. For some countries to set up a domestic producer is behind their means, but on the other hand relying on the foreign  producers to set up plants may  cause dependency on them.


The growth of the semiconductor industry were very intense; we only need to look at the decade between 1985 and 1995, during which the total sales of semiconductors tripled to exceeded $150 billion of sales. This trend is likely to speed up; some estimated that that the global market of the industry will triple every five years. As it was mentioned before, the biggest user of the chips is the computer industry, which is seen from the fact that about 60 per cent of the semiconductors sold are incorporated in computers. The relationship between personal computers, PCs, and semiconductors are symbiotic; more powerful computer require more powerful semiconductors to drive them, and as the leading semiconductor manufacturers, notably Intel and AMD, develop more powerful chips, it increases the demand for more powerful PCs also. This cycle is also reinforced by, the leading software developers, most noteably Microsoft, which introduce programs that need more and more powerful microprocessors. In fact, it is predicted that the life cycle of a new generation of semiconductors last up two years only and then an even newer generation comes out.


This fast development causes problems also. It often happens that not long after a new plant has been built, or an old semiconductor plan was modernized for billions of dollars the technology has to be renew again because it is not sufficient for the manufacture of the new generation of semiconductors. This is the reason why this industry is so much dependent on large amounts or capital.


Another major reason for the higher and higher demand for semiconductors stems in their constant and drastic fall in price, which besides developing less costly manufacturing technology and techniques, each time a new generation comes out the previous ones become outdated, driving their price down even more. This fact can be best illustrated with the fact that in November 1995 a memory chip costed $13, in March of 1996 its selling price was only $9.


There are six major types of semiconductors, each with different patterns of demand:

  1. Standard devices: they are standardized and can be used in a wide variety of ways.
  2. Exclusive devices: these are basically the same as standardized devices with the difference that these devices can only be produced by a couple of producers only, as they have technological monopoly on the particular semiconductors.
  3. Specific devices: these are also mass produced, but unlike the previous two, can only be used in a certain way.
  4. Custom devices: these are manufactured for a certain user and according to the user requirements.
  5. Microprocessors: they can be mass produced, but can be programmed for specific purposes.
  6. Semicustom devices: certain parts of these semiconductors can be mass produced, and later the final connections will be arranged according to the requirements of the user. These are a little like microprocessors. These devices are also known as “application-specific integrated circuits (ASICs), and the demand for these semiconductors are expanding exceptionally rapidly.


The demand geographically is concentrated where their productions are. The global demand is overwhelmingly concentrated in the United States, Western Europe, and in East Asia.

The pattern of demand for consumer electronics products such as television receivers differs in many ways from the demand of semiconductors. First of all they are final demand products. Also, unlike the demand of semiconductors, the demand for consumer electronics products are income-elastic, which means that if prices go up than demand goes down, and vice versa. In the 1960s and 1970s, for example the demand grew rapidly mainly in the developed world, where incomes were higher, until the end of the 1970s when a recession effects hit the consumers. Another reason for the decline of demand was the saturation of the market. Ever since that time the demand became a replacement demand, which was a bad news for the producers, because it is a much slower growing and volatile kind of demand. This is why television set producers now focuses on developing related products, like one of the major inventions of the 1980s, the video cassette recorder, or the VCR. Also they developed previous TVs and came up with newer types of television sets like the digital and the flat format TVs, of the 1990. It is predicted that these flat TVs will develop to be the main control center for other electronic consumer products as well, pointing to a future where the electronic consumer- and the semiconductor industry will be more integrated. After the saturation of the market in the developed world, producers moved towards the developing countries, where demand was increasing steadily, and pretty quickly.


In the semiconductor industry the technological has been so rapid that nowadays a generation of semiconductors has to be replaced every two or three years. The cost of building a plant has also escalated; in the 1960s a semiconductor plant could be set up for about $2 million, in the early 1970s somewhere between 15 and 20, in the 1980s for 50-75, and in the last decade it costed as much as $150 million. Currently they cost the company billions of dollars to set one up. Obviously less and less companies are able to enter the semiconductor industry, because not very companies have that much money just to get the production to go.

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During the manufacture of semiconductors, there are two things that has to be considered especially carefully:

  1. The “yield” of the manufacturing process: decreasing the number of faulty circuits, and
  2. To increase the number of circuits on a chip.

Mainly these two factors are due to the steep increases in the cost of setting up a semiconductor manufacturing plant. Besides the fact that as the number of circuits on a chip increases, it is also a trend to increase the spending on a larger and more and more modern plant, be more capital and research intensive.

Since the organization and structure of the production process has great influence on the geographical spread of the industry.

  • First the semiconductor is designed. During this stage the location of each element  in the circuit and their connections are set depending on the functions the semiconductor will have to carry out,
  • Then the pure silicon rods formed from silicon crystals are sliced into individual “raw wafers”. This process is usually carried out by specialist firms, although some of the largest one are able to do it themselves,
  • In this stage the integrate circuits are etched on the wafers. Each wafer contains large number of identical circuits,
  • Each chip is tested electrically,
  • Assembling; in this stage each wafer is broken down into separate chips, and assembled into the final integrated circuit or microprocessor;
  • Finally they are tested and then distributed.

There is a very important distinction between the designing, wafer fabrication and the assembly. They need to be located geographically close to each other. The design and fabrication require high skilled labor, and the fabrication stage requires pure manufacturing conditions. For the assembly low- skilled labor of usually women are used with some extent of pure environment, although in this case it is not as necessary as for wafer fabrication. Since semiconductors can easily be transported, they are usually assembled in countries with low wages, where large plants are built in order to make wafer fabrication profitable, as they need to be produced in large quantities. This first occurred in the case of the American firms in the 1962 Fairchild moving to Hong Kong.

Generally, the consumer electronics industry technologically is less developed than  the semiconductor industry, and so more of its activities are present in countries and regions where the wages are much less and a much less skilled labor is needed. If we take up our previous example of television sets, than we can see that they are in a mature life cycle stage, however there has been a technological revival of the product reflected in the new process technology and in the development of related products.

Cost efficiency of television sets have also improved considerably, due mainly to two factors. First the number of 1400 components in the 1970s in a television set has decreased to 400, decreasing the length of the assembly line. The second reason for the large decrease in costs of production stems in the vast increase of automation, which was pioneered by the Japanese, but by now are widespread all over the industry.


As the semiconductor industry became more and more global, more and more problems arose with many solutions trying to solve them. First in 1986 the US signed a treaty with Japan, which were stemming from the conflict that Japan were dumping chips on the US at excessively low prices, while imposed restrictions on entering its market. This pact expired in 1991, and a further five years were negotiated, with the emphasis of greater freedom to American semiconductor manufacturers entering the Japanese market. In 1996 they agreed to set up two new international bodies. In 1990 Japan signed a treaty with the European Commission that set the minimum price of Japanese semiconductors. These prices were reimposed in 1997.


Generally speaking the involvements of the national governments have been much less extensive in the consumer electronics industry than in the case of the semiconductors, and it was mainly defensive. Until the 1970’s of the industrialized nations, only the Japanese, and to a certain extent, the French governments have had actions taken to protect their domestic market. In Japan the industry was seen as an important complement of the semiconductor industry. In France the government treated the country’s largest consumer product producer, Thomson, as the national champion, and did everything the help it. In Western Europe, since the 1960s, protective measures were imposed against the Japanese, so that it could keep out it greatly competitive firms. Before 1970 no licences were given Japanese manufacturers and even after that year only a limited number was granted to them. The protection was mainly against larger set, although the demand grew very rapidly for the smaller sets. Finally Japan exported so much that trade restrictions were imposed on them in 1977 even by the United States, which later were extended to the South Korean and the Taiwanese producers also. In Europe, most notably the British were keen on attracting Japanese and other foreign consumer electronics productions, the French on the other hand wanted to keep them out, however they too softened their attitude, with continuing to support and treat Thomson as the national champion. Some of the newly industrialized countries, like Taiwan, and Singapore, has been very open to foreign producers. South Korea was open also to a certain extent, but its policies have been much more mixed.


Besides the governments, the firms operating in the electronics industry have and still are using a number of strategies. Some are offensive and some are defensive in nature, but the biggest ones all operate on a global basis, rather than national. The ways they operate depend on different factors, like the size, and the geographical origins of the company. One important and common factor among them is that they tend to specialize in certain markets; however some of the big players prefer to diversify the range of their products. An interesting trend can be observed, in the semiconductor industry also, not just the consumer electronic industry; now a relatively small number of firms dominate the globe, reflecting on the fact that these industries al very capital intensive.


The history of the semiconductor industry has gone through a couple of well distinguishable stages. First, after Bell Telephones invented the semiconductor, it was the one and only producer; they had a monopoly on the industry. Then, later, William Shockley quit Bell and set up his own company. From Shockley’s company eight young assistants quit and in 1957 founded Fairchild Semiconductor, which soon became the top producer and merchant in the industry. Two years after its foundation more and more of Fairchild’s employees left to set up their own company, forming a cluster of many small semiconductor and related products manufacturing firms in the Santa Clara Valley, of which some lasted only a short while, and some became big companies. Now the companies tend to be larger, and fewer in number, given the fact that the industry has become very much dependent on capital. However there are still many new firms today, but they now focus on certain operations and products, for example on application-specific products.


There are different types of semiconductor producing firms nowadays. The three broad categories are:

  • Vertically integrated captive producers: they manufacture the semiconductors entirely for their own use.
  • Merchant producers: these firms produce all their semiconductors to sell them to other companies.
  • Vertically integrated captive-merchant producers: they produce semiconductors partly for themselves and partly for other companies.

American firms tend to fall into one of the first to categories, whereas, Japanese and European producers are of the third categories. These Japanese and European producers are firms that are large electronic consumer products producing firms that operate in a wide range of spectrum.  Generally the trend was that semiconductor producing firms started to produce consumer goods, and the consumer electronic producers started to produce semiconductors, both , for their own use and also for sale. Finally there were semiconductor researching firms, called “fabless” companies that did not have a manufacturing capability, rather what they researched out, they sold to actual producer of semiconductors. In the 1990s, because of shortages in the production capacity, they were forced to actually start producing either by partnering up by an already producing firm or to build a plant on their own. Usually the previous was the case.

In the beginning of the history of the semiconductor industry, most of the producers were small companies. As the industry developed in its remarkedly fast paste, and more and more complex manufacturing plants, the cost of setting up these plants also grew very rapidly. Many of the companies, and even some of the ones that were considered to be bigger, merged or set up strategic alliances, so they together could increase their market shares and to be able to build modern plants. Most of these companies were Japanese, North American, and European. These actions also rationalized and decreased the per company manufacturing cost, as they were shared.


Although the history of the electronics industry, and especially of the semiconductor indusrtry’s is the shortest of all industries that are present today, its impact on the business world and on our everyday life has been among the greatests. It went trough extremely fast development, and there are many unique characteristics of it. Its research and production process is among the most expensive ones. These two industries will probably be the two main industries of the future.


blah on February 08, 2012:

@ greg hugnes, you write something then

greg hugnes on June 23, 2011:

You missed Jack Kilby, the inventor or the integrated circuit. Texas Instruments 1957. You missed Austin McCormack Jr who put TI online with Ultra Pure Water in 1962. You don't have a time line on the price per semiconductor decrease through the early years.

Today's chips can have over 20,000,000 transistors. The first integrated circutit had less than 12 transistors.

Csanad (author) from Budapest, Hungary on December 20, 2010:

Abdussamad: Thanks for pointing out my error. Corrected it.

abdussamad on December 20, 2010:

North Korea produces semiconductors?

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