Managerial Economy : Semiconductor Evolution

Introduction

The current semiconductor market is driven by the need to provide new end-use applications and products in the three following domains: Entertainment and communications, energy and health. Due to the global latest financial crisis, the microchip companies are making a huge effort to reduce their development costs trying in the same time to meet the growing needs of these emerging markets.

History

Texas Instruments - TI - has been a pioneer at the end of the last century in the domain of the System On Chip products for the wireless mobile phone market. At this time, Texas Instruments as chip maker and Nokia as mobile maker were dominant in this new emerging technology market gaining more than 50% of their respective market shares. Both companies created a strong partnership to support innovation to create values for its customers.

Fifteen years after, TI has decided end of 2012 to cut all its Wireless mobile research and developments operations engendering around 2000 layoffs in several countries and the Nokia mobile phone business unit has been sold recently to Microsoft in 2013.

The following analysis will demonstrate the impact of the different financial crisis on the global market and economy on the high-tech industry and how both companies have missed opportunities to maintain financial sustainability during the last decade.

From success to layoff

Between economy and job market, there is a positive correlation. If there is a strong global economy, there is a good job market offering new jobs. Prosperity breeds prosperity! Same thing with stock market, if it is doing well then companies are doing well and capitals are available for hiring more resources, more jobs available, people get jobs and keep jobs as long as economy remains strong. Opposite to this tendency, bad economy will generate less money, less investment, unemployment, and layoff... Create poverty and poverty breeds poverty also!

In 2001, the global economic has been impacted by the crash of the dot-com bubble and many high-tech companies decided to revisit their strategy in term of investments, also the cost control took more importance in the financial performance. Many companies decided to outsource their development to many low-cost countries (India, Eastern European countries...) to reduce their R&D costs, generating few layoffs in US, UK or western European countries. Texas Instruments and Nokia took similar decisions by outsourcing in India and Eastern countries replacing some of their staff members to reduce labor rates.

During the first years after 2000, we have seen new players entering in the wireless mobile phone market like Apple, Qualcomm for example. These new entrances changed the market structure from Monopolistic competition market to Oligopoly market, generated increased competition in term of innovations in technology, reducing the