In order to assess the ability to respond to the disruption of CNT technology, I have prepared a box score for vulnerability to potential disruptive threat assessment below. The resulting conclusion is that costs are the biggest factor affecting the semiconductor industries ability to react. As mentioned in question 1, the high costs associated with R&D and manufacturing in the semiconductor industry means that current facilities need to be planned well ahead of time. Uncertainty, risk, and complexity also make semiconductor road mapping tricky business.
Box Score for vulnerability to disruptive technology threat – Semiconductor Manufacturing Firms
Denial – 0
History – 0
Resistance to Change – 0
Mind Set – 0
Brand – 0
Sunk Costs – 10
Profitability – 10
Lack of Imagination – 0
The factors I will discuss therefore are: (1) costs and (2) uncertainty.
Sunk costs problem implies that firms will not want to migrate to new technologies because they have a significant amount of money invested in another technology – usually presumed to be an older one, but may also be being developed in parallel. Sunk costs can be perceived from a few contrasting perspectives with respect to semiconductor firms and CNT. On one hand, the large sums of money invested into silicon-based technology means that firms are heavily invested in using the silicon-based manufacturing facilities. Development of CNT technology may draw investment away from development of sub-20nm or sub-10nm components, capabilities, and facilities. Also, sinking costs into CNT at an early stage may be a point of contention with some investors who tend to expect immediate growth in sales of existing products.
Sunk costs are relative form another perspective: first-movers will unavoidably need to sink more capital investment into the emerging CNT paradigm than those who may enter later. The Korean Semiconductor Industry Association also (KSIA) also suggests that firms who need to licence ex post need to pay more than firms who licence ex ante (KSIA, 2013). This implies that late entrants to have to pay a price for their late entry. Ability to make the initial investment and lead the charge can therefore pay off in the end. Risk assessments and uncertainty, however, are major limiting factors that affect firms ability to convince boards to pour money into cutting edge R&D. Uncertainty about the development cycle timing for CNT-based semiconductors is a major problem to allocating investment. Choosing to try and be a leader or follower must be followed up with actualization of strategy
Policy makers and businesses quantify risk into magnitudes and probabilities (Adams, 1999). Uncertainty greatly limits firms ability to react. ‘Uncertainty shocks’ created by the recession in 2007-2009 caused decline in business outputs and employment (Bloom, 2012). Not only does uncertainty reduce the actionable projects a company or nation can undertake, but it also slows the process of achieving goals towards accepted projects (Oracle White Paper, 2012). Although inter-firm and international cooperation can help to reduce uncertainty, cultural factors can in-turn create more uncertainty (Oracle White Paper, 2012). In the semiconductor industry, market forecasting and capacity planning are key aspects of risk management (Roundy, 2012), particularly because of the large capital investment requirements of semiconductor production and development (Erhun, 2011). With respect to CNT, uncertainty also plagues radical innovations more so than incremental innovations ( ). ## (##) notes several types of uncertainty with respect to radical innovation that apply to semiconductors (a partial list): (1) technological uncertainty, (2) market uncertainty, (3) regulatory uncertainty, (4) social uncertainty, and (5) timing uncertainty. All of these above mentioned factors combine to create enormous uncertainty and risk in technology development. However, where there is great risk, there is also great rewards.
Adams, John. 1999. RISKY BUSINESS: The Management of Risk and Uncertainty. Adam Smith Institute, London.http://www.adamsmith.org/sites/default/files/images/uploads/publications/risky-business.pdf
Bloom et. al. 2012. REALLY UNCERTAIN BUSINESS CYCLES: NBER WORKING PAPER SERIES. NATIONAL BUREAU OF ECONOMIC RESEARCH. http://www.stanford.edu/~nbloom/RUBC_DRAFT.pdf
Erhun, Feryal. 2011. Capacity Planning in the Semiconductor Industry: Dual-Mode Procurement with Options. http://www.stanford.edu/~ferhun/paper/DMEP_Pengetal.pdf
Jalonen, Harri. 2011. Uncertainty in the innovation process. A paper to be presented at the European Conference on Innovation and Entrepreneurship. http://www.virtuproject.fi/wp-content/uploads/2011/02/ECIE2011_Jalonen_Lehtonen_VIRTU_April_2011.pdf
KSIA. 2013. “Comments of the Korea Semiconductor Industry Association On Patent Assertion Entity (PAE).
Oracle White Paper. 2012. Managing Risk and Uncertainty: An executive’s Guide to Enterprise Business Planning.http://www.oracle.com/us/solutions/business-intelligence/064039.pdf
Roundy, Robin O., 1999. Demand Forecasting and Capacity Planning in the Semiconductor Industry. Cornell University. http://www.utdallas.edu/~metin/Research/forecastcapacitysurvey.pdf