Five Forces for Semiconductor Industry - Admission/Application Essay Example

Industry Analysis: The U.S. Semiconductor Industry The U.S. semiconductor industry consists of manufacturers of semiconductors for different products and systems. Semiconductor components are “the electronic building blocks used in electronic systems and equipment” (Analog, 2011, p.2). The main players in the industry that are included for this research are Analog Devices, Inc. (ADI), Altera Corp. (ALTR), LSI Corp. (LSI), and NVIDIA Corp. (NVDA). Barriers to entry (Low-Medium) Barriers to entry are not significantly high in the industry, especially for firms that can access cheaper materials from other countries.

New market entrants may have products that have lower prices than existing companies, or may provide better performance or extra features not provided by these companies’ products (INVIDIA, 2011, p.12). Moreover, new competitors or alliances among competitors could come out and obtain important market share too (INVIDIA, 2011, p.12). Barriers to entry, nevertheless, also exist because of high startup costs, since companies already established their sales and marketing chains. Analog, for instance, designs, manufactures, and markets a wide line of high-performance ICs that incorporate analog, mixed signal, and digital signal processing technologies (Analog, 2011, p.3). It sells its products all over the globe through a direct sales staff, third-party distributors, independent sales representatives, and its website (Analog, 2011, p.7). It has direct sales offices, sales representatives, and distributors in more than 40 countries that are located outside of North America (Analog, 2011, p.7). NVIDIA also has extensive sales and marketing channels that work with “industry's OEMs, original design manufacturers, or ODMs, system builders, motherboard manufacturers, add-in board manufacturers, or AIBs and industry trendsetters” (INVIDIA, 2011, p.7). This means that intense competition affects the entry of new players into the semiconductor industry.

Bargaining power of suppliers (Low-Medium) Supplier power is somewhat low in the industry, because the number of suppliers is large. Companies can choose from a pool of suppliers for their raw materials and other knowledge/material needs (INVIDIA, 2011, p.16). However, some firms rely predominantly on one or several third-party firms, which can affect their production, in case they cannot provide needed supplies. For instance, both INVIDIA and Analog depend on leading foundries, such as Taiwan Semiconductor Manufacturing Company Limited, or TSMC, to produce their semiconductor wafers (INVIDIA, 2011, p.12). A large portion of their wafers in 2011 were supplied by TSMC (INVIDIA, 2011, p.12). The foundries, which have inadequate capacity, also manufacture products for other semiconductor companies, including several competitors.

Since semiconductor companies do not normally have long-term contracts with any of these suppliers, the latter do not have a responsibility to provide the former with any specific pricing or minimum quantity of product at any time (INVIDIA, 2011, p.12). Bargaining power of buyers (Medium) Buyers in the semiconductor industry are small to medium in size, which indicates that they have medium power. They consist of either companies or government agencies. Some buyers are large enough to significantly affect the revenues of several semiconductor companies.

INVIDIA, for instance, obtains a noteworthy amount of its revenue from a limited number of customers. Clients that accounted for 10% or more of total revenue, provided “around 11% of [INVIDIA’S] total revenue… for the fiscal year 2012 and around 12% of its total revenue [came] from another customer for fiscal years 2011 and 2010” (INVIDIA, 2011, p.16). Sales to the biggest largest customers have varied considerably from period to period, principally due to the timing and number of design attainment with each customer (INVIDIA, 2011, p.16). Threat of substitute products (low) At present, substitutes to semiconductors are not yet available.

Other materials may replace silicon chips in the future, however, such as graphene. Graphene is depicted as the world’s thinnest, strongest, and most conductive material. Still, there are challenges to maximizing this substance’s full potential, so it is not yet considered as a considerable threat to existing semiconductors. Intensity of rivalry (High) Intensity of rivalry is high in the U.S. semiconductor industry. Competition can come from different suppliers. First, competitors come from suppliers of GPUs, including those that produce chipsets that integrate 3D graphics functionality as an element of their solutions.

These competitors are: “Advanced Micro Devices, or AMD, Intel, Matrox Electronics Systems Ltd. and VIA Technologies, Inc.” (INVIDIA, 2011, p.9). The suppliers of system-on-chip products are also competitors (INVIDIA, 2011, p.16). They make parts for “tablets, smartphones, portable media players, internet television, automotive navigation and other similar devices” (INVIDIA, 2011, p.16). These players are: “AMD, ARM Holdings plc, Broadcom Corporation, Freescale Semiconductor Inc., Fujitsu Limited, Imagination Technologies Ltd.

, Intel, Marvell Technology Group Ltd…” and others (INVIDIA, 2011, p.16). Furthermore, competitors consist of suppliers of cellular basebands. They are: “Broadcom Corporation, Freescale Semiconductor Inc., HiSilicon Technologies Co., Ltd., Intel, Marvell Technology Group Ltd., Mediatek, Qualcomm Incorporated, Renesas Technology Corp., Samsung Electronics Co. Ltd…” and others (INVIDIA, 2011, p.16). References Analog Devices. (2011). Form 10-K. Retrieved from http://files.shareholder.com/downloads/ADI/1959214609x0x552959/A8C3D0BD-161F-4C79-AE39-66E3F98FD511/AnnualReport2011.

pdf NVIDIA. (2011). Form 10-K. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=116466&p=irol-sec