2. The Profitability Challenges for Semiconductor Companies
Semiconductor companies face two major challenges:
• Cost-effectively producing products
• Maintaining gross profit margins on products with a falling average selling price (ASP)
“The vendor with the best cost structure sets the rules,” declared Bob Johnson of Gartner, Inc., in his
Semiconductor Industry briefing 1 on June 11, 2009.
But the question is, how? How can you achieve the best cost structure for your company?
The traditional cost reduction tactics, such as negotiating prices with suppliers and reducing test costs,
only scratch the surface of the cost savings that can be realized. To be cost competitive, a company
needs to take a more global view.
The Solution: A Systematic Approach to Operations
This document introduces a unique cost-control and cost-reduction methodology that will help your
company reduce costs and increase gross profit margins. This methodology was developed by a
semiconductor operations specialist based on his 25+ years of experience in the industry.
The methodology uses a two-pronged strategy to extract all the hidden costs in any semiconductor
operation:
Strategy #1: Set up an organizational structure that will yield continuous cost savings for years to come.
Strategy #2: Extract all hidden costs from 10 different aspects of semiconductor operations.
This provides a system-based approach to continuous improvement in operational efficiency and cost
control. Taking a systematic approach is crucial to a company’s survival and success, especially during
the current downturn.
A well thought out methodology will help design gross margin improvement strategies at various stages
of the product life cycle, and at various stages of the company’s growth. How do we know this
approach works?
Millions of dollars of savings have been realized at various companies using these techniques. For
example, over $10M was saved at Micro Linear, a $66M analog and mixed-signal fabless company,
within two years by driving cost control, reduction, and quality programs. At Triad Semiconductor, an
analog/mixed-signal via configurable array manufacturer, the author negotiated a 50% reduction in
wafer price with a top-tier CMOS foundry for a pre-revenue start up, potentially saving thousands of
dollars annually.
1
Gartner Semiconductor Briefing: Strategies for Industry Recovery, San Jose, June 11, 2009
3. Unique Methodology Discussion
Figure 1 illustrates the major cost savings ingredients of the unique methodology discussed in this
document. There are individual strategies associated with each item. The important thing to remember
here is that each item leads to cost savings.
The strategy to set up an organizational structure that was mentioned above involves having an
effective Operations Leader and establishing Continuous Improvement and Right Design the First Time
processes. As shown in the center of Figure 1, these will lay a solid foundation for a company to realize
cost savings for as long as the company exists. Therefore, it is extremely important that the company
extend a great deal of effort on these steps to put strategies, systems/processes, and tools in place.
The second strategy focuses on extracting all hidden costs from ten aspects of semiconductor
operations as shown in the outermost circle of Figure 1.
Figure 1
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4. Using this methodology that involves over 50 cost control and
reduction strategies, the author has produced the following
results:
• Drove cost reduction and quality programs, saving over $10M within a couple of years
• Negotiated a 50% reduction in wafer price with a top tier foundry, potentially saving thousands
of dollars annually
• Achieved and maintained ISO 9001/9002 Certifications
• Played a key role in reducing inventory backlog, saving $2M
• Bolstered on-time delivery from 65% to 90%
• Reversed productivity trend and improved productivity 5% per quarter for ten quarters, saving
over $1M
• Spearheaded efforts to diagnose and correct a major wafer processing problem, saving over
$2.5M
• Designed and built an Automatic Test System at half the cost of a commercial system, slashing
cost of ownership by over $1M
How Your Company Can Benefit
This document can only provide an overview of the cost savings that can be realized with this unique
methodology. To find out more about how your organization can benefit from this approach, please
contact the author at 408-887-7994 or e-mail him at bharatmdesai8@gmail.com for a free, no-obligation
discussion.
About the Author
Bharat Desai is a senior semiconductor executive with over 25 years of operations management,
engineering, and quality experience. He has worked for start-ups as well as large semiconductor
companies such as National Semiconductor and LSI Logic. He has led cross-functional and cross-
cultural teams. In addition, he has been successful in the following roles: strategic/business planning,
partnership building, launching new products, volume ramp ups, cost reductions, quality management
systems, and turnarounds. He holds MBA and MSEE degrees from Santa Clara University and a
BSEE from India.
Bharat’s expertise is to employ his unique cost control and reduction methodology to achieve an
excellent cost structure and consequently increase gross profit margins of semiconductor products. He
develops strategic and business plans and executes those plans by establishing effective strategies,
systems, processes, and tools within a company.
Contact Information: Bharat Desai 408-887-7994 bharatmdesai8@aol.com
