B. Ohuallachain, RESTRUCTURING THE AMERICAN SEMICONDUCTOR INDUSTRY - VERTICAL INTEGRATION OF DESIGN HOUSES AND WAFER FABRICATORS, Annals of the Association of American Geographers, 87(2), 1997, pp. 217-237
Recent restructuring of the fabless design segment of the U.S. semicon
ductor industry provides an opportunity to evaluate the role of transa
ction costs and international ownership in the reorganization of produ
ction systems. Beginning in 1993, a boom in global semiconductor deman
d strained the capacity of manufacturing facilities and squeezed desig
n firms' supplies of fabricated wafers. This study uses a transaction
cost framework to explore the vertical integration of semiconductor de
signers and wafer fabricators from 1994-1995. Integration into wafer f
abricating was necessary because Asian governments, particularly those
in Taiwan and Singapore, declined to subsidize a new round of semicon
ductor manufacturing investment. Fabless design firms had to shoulder
large portions of fabrication investment expense or face escalating tr
ansaction costs if they relied exclusively on other firms for wafers.
Some design firms bought fabrication facilities, and others entered ma
nufacturing-equity joint ventures. On the other hand, several companie
s cultivated relational contracts with manufacturers, and some continu
ed to rely on spot market contracts for wafers. A probit model associa
tes corporate attributes with those integration choices. The results s
how that firm size related positively with integration into wafer fabr
icating. Firms that committed large proportions of their revenues to r
esearch and development were less inclined to integrate. Location with
respect to Silicon Valley, the acknowledged premier center of the U.S
. semiconductor industry, did not influence integration selections. Th
e findings support the transaction cost theory of the firm and offer a
different interpretation of the organization of the semiconductor ind
ustry from that advanced by proponents of the flexible specialization
thesis.