Working Papers

The Semiconductor Industry’s Role in the Net World Order

Since its beginnings in the 1960s, the semiconductor industry has been characterized by a series of transformations driven by technology advances and changing markets (Tilton, 1971; Braun and Macdonald, 1982; Borrus, 1988). This chapter examines the most recent transformation, which is driven by the emergence of distributive networks as the leading application for the electronics industry. New forms of network communication and information flows are giving rise to what we call the “Net World Order.” Our analysis of the industry focuses on how chip makers are creating and capturing value within the emerging Net World Order compared to the 1990s when the personal computer (PC) was the most important destination for semiconductor devices.

Spurred by breakthroughs in the United States, including the development of the integrated circuit (or “chip”) and the creation of the microprocessor, the 1960s and 1970s saw the rise of semiconductor producers in the United States, Europe, and Japan. Despite its history of technology leadership, the United States semiconductor industry’s market leadership had diminished by the mid-1980s when Japanese firms displaced their U.S. counterparts largely on the strength of their manufacturing prowess applied to memory chips (primarily DRAM), which became commodities. The 1990s saw a “reversal of fortune” as U.S. firms responded with both improved manufacturing capabilities and more sophisticated designs (Macher, Mowery, and Hodges, 1998). The key application for semiconductors during the 1990s was the PC. Intel, who had been selected in 1980 as the supplier of the microprocessor for the initial IBM PC, became the world’s largest chip supplier beginning in 1992.

This chapter discusses the implications of a new set of changes that are looming in the semiconductor industry. First and foremost, the PC sector is declining in relative importance as communications applications become a bigger market for chips. This shift in the electronics industry has been widely heralded as the dawn of the “Post-PC era” in which the central application is the Internet, along with the home, office, and wireless networks connected to it, which are collectively known as “distributive networks.”