Manufacturing and R&D Go Hand in Hand

If you’re making an electronic product with a motherboard than needs stuffing and a final assembly, it doesn’t matter much where you make the product from the company’s perspective. Manufacturing certainly matters when you are talking about national interest and public policy. Here, governments have a strong interest in where large employers put factories, but private interests are just concerned with economic optimization.

For companies, you’re looking for the lowest total cost at guaranteed quality levels and there are plenty of qualified companies around the world capable of performing the function. The long term competitive advantage for most companies is not in manufacturing, but in innovation, design, marketing and other points on the value chain. Manufacturing is a function that can be outsourced, like payroll accounting, communications, insurance and the like.

For most products, there is very little interaction between the factory and product development process so the value of manufacturing location is slight. The calculation is concerned exclusively with the Bill of Materials, assembly costs, shipping costs, quality metrics, and other pure economic considerations.

ICs and solar PV are different. It does matter. R&D and manufacturing are intimately linked and losing one will probably accelerate the loss of the other.

Mike Splinter made this point at the Aspen Ideas Festival when he explained that in our business, “manufacturing isn't just where ideas are put into practice, but a key part of the innovation ecosystem.”

In ICs, how fast you get to the next node, how fast you debug and tape out, how fast you ramp, and how fast to yield will determine your success. Each of these steps requires manufacturing expertise of the highest order. Sure, a lot of chips are made in foundries, but manufacturing remains an enormous chunk of the value chain. There’s not too many fabless companies doing better than TSMC or ASE.

And its not just scaling that is sustaining the value of manufacturing in semiconductors. Since 1975 scaling has delivered around 8000 times improvement in the cost of ICs as transistor feature sizes were reduced from 4 micron to 45 nanometers. Manufacturing efficiencies accounted for another 500 X in cost reduction over this period. Some experts have claimed that technology shrink delivers 30-50% of the yearly cost reduction in chips, productivity improvement brings 10-30%, yield 10-15% yearly (wafer size transition brings another 30-50% cost reduction every 10-15 years.

In this environment, manufacturing capability in inextricably linked to profitability and competitive advantage. You don’t do productivity, yield and cycle time well, you don’t survive. And, if you don’t have R&D deeply engaged in manufacturing, you won’t be competitive.

Same is true for solar. Thin and crystalline solar technologies are similar process technologies to chips. Manufacturing optimization is critical to sustaining long term competitive value. Just a glance at NREL’s tracking of best efficiencies in solar sees a long, steady continuous improvement process. While the NREL data points are from the lab, the process is replicated in the fab; the ability to commercialize incremental efficiency improvements through manufacturing is how, in large part, solar manufacturers’ compete. Having a fab onsite, where R&D engineers can prototype new recipes, troubleshoot new processes, and tweak yield and productivity improvements is an advantage and provides real value.
Large, multi-billion dollar fabs also bring a clustering of best-in-class suppliers to the neighborhood. Specialty gas producers, machine shops, labs, scientific specialties, process technology firms, etcetera, ecetera always spring up around fabs. They innovate too.

So, when Apple builds the iPad at a Foxconn plant in Shenzhen, or HP netbooks in Taipei, is the US at risk of further losing their share of the mobile computing market? Will those companies shift a large portion of their R&D and marketing teams to Asia? Probably not.

But when fabs go up in Asia, PV and IC R&D is probably not too far behind.

Mike Splinter is absolutely right when he says the micro and nano manufacturing is an essential part of the “innovation ecosystem.” The question is whether any of US’s national leaders that flock to the prestigious Aspen Festival really understood him. I know leaders in China, Korea, Taiwan and Japan do.