CompoundSemi Online - The Original Compound Semiconductor Industry Newspaper

August 15, 2007...At our Compound Semi Vision 2007 meet in June, our "emeritus" co-chair Bill Kroll, Chairman and CEO of Matheson Tri-Gas, treated Vision attendees to an excellent talk on the importance of forging stronger partnerships with suppliers. The topic is of such critical importance to our compound semi community that the essence of Bill's talk should be shared with everyone. And given that CompoundSemi News now enjoys the largest online readership/viewership in the field, that's precisely what we'll attempt to deliver in this issue of The McDonald Report.

Bill Kroll began his presentation with a look at the literature as to just what the terms "collaboration" and "partnership" actually mean, citing authors Jassawalla and Sashittal. "Collaboration is the next step beyond integration and cross functional product development. Collaboration succeeds when there is an equal stake in outcomes and when there is an absence of hidden agendas. Participants are willing to accept the difference, when the collaboration exceeds the sum of the capabilities of the individual participants.”

He then cited an IBM and EIU survey of CEOs that revealed that product, service and market innovation have become table stakes in the competitive game. As it turns out, the second most common business growth model amongst innovators is "Major Strategic Partnerships." Interestingly, according to the second definition in Webster Dictionary, collaboration means “work with others” as well as “work with the enemy.” It all comes down to technology's Grand Challenge: Financing R&D. The industry trend, as of today, is that R&D expenses far outpace revenues, a fact that is NOT sustainable. Fiscal reality is driving the semiconductor industry towards consolidation around innovation networks. As to how collaboration with suppliers relates to the overall growth of the semiconductor industry, several industry monitors report that only the independent device makers (IDM’s) have been able to increase R&D spending substantially. The equipment and materials segment (S&P, SIA & SEMI) forecasts that demand for R&D based on CMOS scaling and the need for new materials is expected to grow 20% to 30% per technology node and that there is a $7.8B “gap” between projected R&D spending and historical trends. Thus Bill posed the question: Is the III-V market too segmented?

Successful models show that equipment (OEM’s) companies have successfully contributed to the formation of consortia (Sematech, IMEC, Albany, Selete), where new concepts can be tested and proven. And as to the development of pre-competitive IP and grant rights to OEM’s, industry collaborative groups that share resources and cost work well, especially when augmented with government support, examples being CASMAT, SilkNet, and DARPA. Turning to more industry data, SEMI's CGMG (Critical Gas and Materials Group) survey, as completed in December 2005, with 31 respondents from 25 companies replying (the 25 companies represent approximately two thirds of $8 billion wafer fab materials market) showed that tool producers are leading current partnerships and that materials producers are the leading candidates for future partnerships.

Bill included some very interesting graphs charting materials candidates for partnerships, trends and strategies of USA suppliers (you'd have had to attend to get those details) underscoring that the overall successful strategy is to enhance relationships with customers and research groups. He also pointed out that as to geographic trends, that it should come as no surprise that greater China is a major target for future investment. A parallel (and unsurprising) trend is toward consolidation, which is something we're seeing in our news pages on almost a daily basis. Bill's stated challenge to materials suppliers is to deal with the fact that many of our materials suppliers are are based in the USA, Europe, and Japan whereas the developing markets are in China.

He called the this the "Decade of Materials" pointing out that CMOS scaling is reaching a fundamental physical barrier and that processes are essentially "set" and therefore it is especially difficult to integrate new materials into existing processes. Whereas players might be very willing to form partnerships, competitive issues have to be avoided. Then there's the essential dilemma. To achieve growth we need to innovate, yet we also need to keep pace with the roadmap and shorten the proverbial "time-to-market." But we also need to support growth with solid financial returns and shorten "time-to-cash." The way to be successful is to balance risk earlier with economic return by sharing risk, and the resulting rewards, early on with your partner(s).

Bill Kroll's key points for collaboration started with the most essential: integrity, trust and honesty, adding that you must have clear objectives and/or expectations that have measurable metrics. His formula for that reads: Equal Contributions = Equal Rewards. He also reminded us that any collaboration must have an agreement evolution to keep pace with the changes in the market requirements, and that the whole collaboration must be a “win-win” proposition wherein the partner choice is critical, based on symbiotic advantages.

Then there's timing and opportunity. Bill Kroll's experience (something he's had a great deal of) has proved that a partnership can happen at any stage of a product life cycle. In the early stage, a good partnership allows for the most creative approach, whereas a bad partnership results in high risk, high investment, and long time-to-cash. In middle to late stage partnerships, a good partnership is one that results in a lower investment and shorter time-to-cash, whereas a bad partnership is one where the product is already set, thus there's less chance for “true” innovation. As to opportunities, significant ones are becoming rarer, so joining forces simply makes sense and so does expanding to parallel markets to find innovative uses for existing materials.

Bill ended his presentation by pointing out that the need for enabling materials is now more profound than ever and that the III-V world rides ahead of the Semicon pack and can “show the way.” And the way to do that is to explore new partnership and business models in order to innovate and succeed. And in a shameless promo for the company he so skillfully guides, he reminded the audience of his peers that "thinkers, innovators, dreamers and doers all have one thing in common... Matheson Tri-Gas."

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