Driving Packaging Innovation

Bob Warren, Director, Packaging Engineering and Assembly Manufacturing, Conexant Systems Inc.

The number of fabless semiconductor companies has grown at a 20 percent compounded annual growth rate (CAGR) over the last decade. At present, more than eight out of 10 semiconductor companies are outsourcing some or all of their semiconductor fabrication and assembly. While use of the outsourced business model has allowed companies to lower costs, specialize and focus on core competencies, and reduce time-to-market, it has also created challenges for achieving and maintaining technology and product alignment. Selection of the right IC assembly and packaging technology is important to meet product cost, size, thermal, electrical, reliability and time-to-market requirements. Often, companies are faced with the dilemma of not having the right technology or capability available from their existing offshore assembly and test (OSAT) provider.

The Changing Dynamics for Packaging R&D

Just over a decade ago, new package technology was driven largely by vertically integrated original equipment manufacturers (OEMs) and integrated device manufacturers (IDMs) with their own foundries, assembly manufacturing facilities, and internal research and development (R&D) teams. The trend of outsourcing manufacturing continues today, and many companies have eliminated or drastically reduced internal prototyping or manufacturing R&D staff, relying on existing off-the-shelf technology from assembly subcontractors.

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Semiconductor Cost Reduction Strategies

Bob Scarborough, Chief Executive Officer, Tensoft Inc.
Regis Bescond, Corporate Controller, Amlogic

A semiconductor operations executive recently shared that his company challenged him to reduce the company’s average product cost by a penny a week, a seemingly modest and attainable goal. For the typical semiconductor company, however, this goal is at the core of business success. Sustained achievement of this goal brings the better part of a dollar to the bottom line for each unit delivered, and over the millions of units typical to a semiconductor operation, it harvests measureable and significant profit. Additionally, reducing product cost directly improves gross margin, the primary indicator of semiconductor value creation and a core metric of management effectiveness for the entire executive team.

Operations executives, admittedly, have a full slate of objectives, from supply chain planning and execution to intense focus on improvements to product quality. This, however, does not allow the operations executive to leave the understanding and management of
product cost to another part of the organization. Working closely with the financial support teams, the responsibility for both product cost and cost of inventory remains squarely with the operations team.

This article focuses on product cost and cost reduction from an operations and finance perspective. It discusses semiconductor costing by breaking down the components of actual costs and provides a summary of the cost drivers for overall inventory value. Finally, the
article proposes a structural model to build sustained cost reduction strategies for the entire semiconductor organization.

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