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The Return of Vertical Integration
By Jeffrey C. Demmin, contributing editor
Many industries seem to oscillate between focusing on core competencies, and trying to grow businesses by expanding into new areas. (I still have in my collection a National Semiconductor brand watch from the 1970s, for example.) Some recent developments during the current relative lull in the semiconductor industry indicate that many leading firms are choosing the latter — looking for new growth opportunities by broadening their scope.
Perhaps the most significant such news came from TSMC, the leading semiconductor wafer fab. The Taiwan-based company announced its new Open Initiative Platform, which expands its scope more into packaging and test. The theory is that a more extensive and integrated offering will help provide customers with the most complete technical solution. Last year TSMC announced an investment in wafer-level packaging (WLP), which is a natural step for a wafer fab, but this new announcement extends that to other types of packaging. The conventional wisdom a few years ago, articulated well by market analyst firm Gartner, was that packaging companies could be at risk as semiconductor companies and wafer fabs expand into packaging, while EMS providers converge from the other direction with board- and module-level manufacturing. The news from TSMC appears to be part of that trend.
On the other hand …another piece of conventional wisdom, summarized in a recent report by DigiTimes, sees through-silicon vias (TSVs) as a growth opportunity for packaging companies. With established expertise in flip-chip technology, die- and package-stacking, and some image sensor TSV production now, some packaging companies are aggressively seizing the leading edge there. It's not clear yet where the bulk of TSV work will end up, but given the historical trend that most activities are eventually outsourced, it could serve these companies well to have a secure foothold in TSVs. Look for some packaging faces in the crowd at the next auction of wafer fab equipment!
On the equipment front, SUSS MicroTec has always been a technology leader in wafer processing equipment for advanced packaging and MEMS, but a new licensing agreement with Philips Research extends this even further into front-end wafer processing. Philips has developed a nano-imprint technology that allows for sub-50 nm patterning, and the agreement tasks SUSS with adding this capability to an existing equipment platform. Nano-imprinting – which is basically small scale stamping – has gathered support recently as a viable alternative to conventional lithography as challenges mount for that technology, so this move could help make SUSS a real player at the leading edge of wafer processing.
Finally, this vertical integration trend isn't limited to the packaging space. It was big news when Apple bought PA Semi, a designer of low-power processors for products like Apple's. This move is a little different from one designed to expand into new markets, though. Experts see this as a way to get the IC design expertise in-house at Apple, so that less information has to be shared outside the company to get exactly what they need. Perhaps this is a more pure example of vertical integration – putting everything you need within your own company.
The real question for this vertical integration trend is whether or not these maneuvers will be permanent, or just another wave in a sequence of ups and downs. Given the general worldwide trend toward more fully integrated products, my guess is that — even with some ups and downs — there will be a net shift over the years towards more integration of companies and capabilities. The companies that thrive will be the ones that pick the pieces that fit together best.
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