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Selection criteria for equipment vendors by waferfoundry in TaiwanChyan Yang a , Chao-Jung Chang a b & Ying-Chyi Chou ca Department of Management Science , National Chiao Tung University , 1001, Ta-HsuchRd, Hsinchu , Taiwan R.O.C.b Marketech International Company , Taiwan R.O.C.c Department of Business Administration , Tunghai University , Taiwan R.O.C.Published online: 18 Jun 2013.
To cite this article: Chyan Yang , Chao-Jung Chang & Ying-Chyi Chou (2008) Selection criteria for equipmentvendors by wafer foundry in Taiwan, Journal of Information and Optimization Sciences, 29:1, 115-128, DOI:10.1080/02522667.2008.10699794
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Selection criteria for equipment vendors by wafer foundry in Taiwan
Chyan Yang 1,∗
Chao-Jung Chang 1,2
Ying-Chyi Chou 3
1Department of Management ScienceNational Chiao Tung University1001, Ta-Hsuch Rd., HsinchuTaiwanR.O.C
2Marketech International CompanyTaiwanR.O.C
3Department of Business AdministrationTunghai UniversityTaiwanR.O.C
Abstract
Currently, most semiconductor manufacturers adopt a passive approach in the selec-tion process of equipment technology and often lack careful consideration. However, withthe emergence of technology bottleneck in semiconductor IC processes one after the other,semiconductor manufacturers no longer wait for equipment vendors to propose solutionsin an effort to achieve leading edge in technology. Instead, they have taken initiatives aswell as an active approach to participate in the establishment of equipment specificationsand its development. Thus, the relationship between equipment vendors and semiconductormanufacturers no longer borders on ordinary buy and sell relationship, where mutualrelationship is terminated once transaction has been completed. In reality, they now maintaina long-term cooperative relationship.
The purpose of this paper is to understand the key factors considered by the topten semiconductor manufacturers in Taiwan when selecting equipment vendors. A separate
∗E-mail: chyan [email protected]
——————————–Journal of Information & Optimization SciencesVol. 29 (2008), No. 1, pp. 115–128c© Taru Publications
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review of the key factors considered by each type of manufacturers relative to their selectionof equipment vendors is also conducted. Objective is to allow newly established semicon-ductor manufacturers to clearly understand its position in the industry as well as understandevaluation methods adopted by semiconductor manufacturers under which category theybelong. Established manufacturers may use these results to evaluate their current equipmentvendors. With respect to newly established, domestic or foreign equipment vendors whowish to enter the Taiwan’s market, these results may provide useful information on thedemands of Taiwan’s customers to ensure smooth further contact. After compiling results ofthe survey, evaluation factors can be divided into four dimensions: production management,business management, potential competence, and current status.
Keywords : Semiconductor, evaluate, IC foundry, equipment vendors.
1. Introduction
Development of semiconductor industries in Taiwan is mostly basedon a horizontal division of labor mode industrial system. It has a relativelylarge flexibility, quick reaction ability and relatively low investment risk.This demonstrated that integrated circuits (IC) industries played a verydecisive role. Also, the government’s investment in the Tainan ScienceBased Industrial Park in recent years as well as huge investments madeby various large manufacturers in 12-inch IC fab showed that there is nodoubt that IC industries will be the star of tomorrow.
With the advent of the 21st century, semiconductor industries are con-fronted with the challenge of size reduction of devices, speed accelerationand use of new materials (such as copper wire, low κ value materials,high κ value gate dielectric materials, high κ value capacitor, etc.). Thesechallenges would serve as the driving force behind the development ofsemiconductors in the future. These new production processes and newmaterials need the support of new generation equipments. Thus, thequestion on whether semiconductor equipment vendors would be ableto achieve new technology breakthroughs in production equipment orwhether there would be a smooth success in the development of advancedtechnologies for new generation equipments is essentially important.For those engaged in the IC production, the high quality manpowerresources with superb technical skills is important. Equally importantare equipments for semiconductor production. From a capital investment
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EQUIPMENT VENDORS 117
perspective, investment in a 12-inch IC fab would cost approximatelyNTD 100 Billion, of which 60% of the total investment would be spent onpurchase of equipments. Thus, generally speaking, semiconductor equip-ment vendors occupy a very significant and decisive role in the entireIC industries. Foreign vendors mostly supply a majority of equipmentsused by semiconductor manufacturers in Taiwan. Applied Materials isthe world’s largest semiconductor equipment manufacturer. Taiwan ac-counted for 23% of such revenues, making it Applied Material’s largestmarket other than North America. Other important equipment vendorsinclude microfilm equipment supplier ASML, Nikon and Canon. Japan’slargest equipment vendor TEL is also gradually expanding its operation inTaiwan in recent year. Other large reputable vendors also retrieve agencyrights from their agents (such as: EATON, SEZ) in the hope that they canunderstand the demands of Taiwan’s customers better.
2. Motives and objectives
Establishing an IC fab is extremely expensive as it often involves aninvestment over NTD 10 billions. More than 60% of the investment is spenton purchase of equipment. Thus, the relationship between equipmentvendors and semiconductor manufacturers are closely intertwined. Withthe advent of the 12-inch wafer generation and the increasingly strictrestrictions in semiconductor production processes, equipment vendorsare no longer confronted with issues relating to equipment productionand manufacturing, but also uncertainties in equipment developmenttrends. In other words, equipment vendors would no longer be able topredict demands and specifications of next generation advanced semi-conductor production processes. Faced with these challenges, equipmentvendors urgently need to know how to effectively and rapidly obtainkey technologies. However, this is not an easy feat, as it would involveenormous research expenditures and resources. At the same time, there isa need to integrate the whole production processes, such an enormous andextremely difficult development process and cost is not an undertakingthat can be completed by one single equipment vendor alone. Theywould need to adopt a common development strategy with semicon-ductor manufacturers, to share development cost and risk. In the future,mode of cooperation between equipment vendors and semiconductormanufacturers should be: semiconductor manufacturers may acquaint the
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118 C. YANG, C. J. CHANG AND Y. C. CHOU
equipment vendors of production process technology it has developedand specifications of required equipment to commonly develop key tech-nologies. The equipment vendors shall be responsible for manufacturingthe equipment and deliver this to the semiconductor manufacturers forfinal testing, confirm its reliability and wafer yield rate before decidingwhether such equipment should be mass produced or not. This sort ofco-existing relationship shall continue to emerge in the future.
Currently, most of the semiconductor manufacturers adopt a pas-sive approach in the selection of equipment vendors. In other words,equipment vendors offer mature products to customers for selection. Thecustomer then decides a brand of its preference from among the productsoffered. This process lacks careful considerations. Where demands ofsemiconductor manufacturers are far below the capabilities provided bythe equipment, this kind of selection process would not induce a bigproblem. However, along with the changing technologies in semicon-ductor devices, bottlenecks in IC processes have continued to emergeone after the other. In an effort to obtain a leading edge in technology,semiconductor manufacturers no longer wait for equipment vendors topropose solutions. Instead, they have taken initiatives and active approachto participate in establishing equipment specifications and its develop-ment. Equipment vendors no longer establish equipment specifications.Faced with the continuous development of advanced technologies in semi-conductor manufacture processes, equipment vendors are faced with thedifficulties of having inadequate time, manpower, resources and capital,even to the extend of not being able to predict the demands and equipmentspecifications of next generation production processes. These implied thatequipment vendors might not be able to take the lead in control in marketcontrol and technologies. This no doubt imposed a considerably largeimpact and crisis to the equipment vendors. In 1st Taiwan SemiconductorEquipment Conference, TSMC R&D Vice President Dr. Chiang Sang-Ipointed out that: Currently, development of advanced technologies insemiconductor manufacture processes is hampered by the development ofadvanced equipment. The development of advanced equipment is estab-lished based on the foundation of understanding advanced technologiesof manufacture processes”. This indicated that the role semiconductormanufacturers played in selection of equipment have shifted from passiveacceptance to a more active role of establishing equipment specification,
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even to the point of participating in the early development stage of theequipment.
In light of the above, this paper hopes to understand the key factorsconsidered by Taiwan’s top ten semiconductor manufacturers in the selec-tion of equipment vendors. It also attempts to categorize semiconductormanufacturers based on their characteristics. Thereafter, a separate reviewof the key factors considered by each type of manufacturers relative totheir selection of equipment vendor is also conducted.
3. Literature review
As mentioned by Schonberger [11], in the process of selecting equip-ment vendors, semiconductor manufacturers do not have knowledgeexchange with equipment vendors. Their concern is primarily focused onprices. Thus, there has been a constant replacement of vendors. However,the relationship now is more on cooperation. Billesbach et al. [1] mentionedthat manufacturers are willing to spend higher cost in exchange of betterproduction quality and prompt delivery date. From a competitive relation-ship, both parties have now shifted to a communal relationship.
For a long period time, issues on vendor evaluation have emerged invarious industries. There are some articles, which attempts to provide acomprehensive description on this subject matter. Thus, Weber et al. [14]compiled evaluation factors obtained from 74 articles related to “vendorevaluation” written prior to the 1990s. These evaluation factors includequality, delivery, past performance, complaints handling, productionequipment, output, price, technical ability, economic conditions, proce-dure compliance, communication system, industrial reputation, corporategoals, organization management, operation control, maintenance system,service attitude, corporate image, packaging ability, labor-management re-lationship record, geographical location, past business volume, assistancetraining, and appropriate arrangement.
US Texas Instruments Procurement Department Manager Gregorypresented an article relating to scoring table for “vendor evaluation “ in1986 [6]. It was divided into 5 major items: response, technology, quality,cost, and ordinary items. Each has a different weight. Not only it can beused as a comparison to search for the most appropriate vendor but canalso be used to regularly evaluate performance of suppliers.
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120 C. YANG, C. J. CHANG AND Y. C. CHOU
With respect to issues relating to selection of vendors, Wills et al. [15]mentioned the potential benefits of JIT (just-in-time) environment tomanufacturers and vendors. He also mentioned the three major criteria forvendor evaluation: financial, service and technical level. Similar perspec-tive was proposed in Ellram’s [4], and Mahdi et al. [9] article, which recom-mended the following criteria: the first is financial aspect. The second is theaspect of corporate culture and strategy which include attitude towardsmanagement, corporate structure, human resources, and coordinationbetween internal communication channel and upper management. Thethird is technical level which refers to current manufacturing conditions,future manufacturing capabilities, speed of R&D, and design abilities. Theforth is some other miscellaneous considerations which include vendorrecords, data on partnership, and their collaborators. Watts et al. [13]simple divided evaluation factors into vendor capabilities and vendor de-velopment potential. Donaldson [3], Lockamy [8], and Swift [12] believedthat a competitive vendor should possess the following qualifications: lowcost, high quality, short lead time, prompt delivery, product development,production flexibility, and fast service. Similarly, Billesbach [1], and Das etal. [2] also proposed similar perspectives, explaining that when evaluatingvendor performance under JIT conditions, emphasis should be placed ondelivery, quality, price, technical support, quick response and ability toresponse as well as JIT capability.
Based on the above, 15 evaluation factors can be obtained asfollows: basic intrinsic conditions, basic external conditions, operatingmanagement, human resource management, service attitude, financialability, past overall performance as well as manufacturing standard, man-ufacturing management capability, material management, procurementmanagement, factory management, quality management, R&D capability,and future competitive conditions. Objective is to obtain an understandingon actual demands based on these factors.
4. Research methodologies
4.1 Questionnaire design, sample design and data collection
Questionnaire surveys are designed based on the above-mentionedstructure, which includes 15 factors. Two to ten questions have beenposted to each factor to understand the level of importance semiconductor
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manufacturers placed on each factor. Purpose is to understand whetherthere is a significant difference in evaluation of vendor equipment betweensemiconductors with a great number of research personnel and semicon-ductor manufacturers engaged in subcontracting works.
The top 10 semiconductor manufacturers for Year 2003 in terms ofsales turnover as announced in the Taiwan Semiconductor IndustriesAnnual for Year 2004 [5] were chosen as subjects of survey. Questionnaireswere distributed to these companies based on the ratio of its turnover.A total of 100 questionnaires were distributed with 97 returned and 3invalidated, which yielded 94 validated questionnaires. (see Table 1) Allthe person who fill out the questionnaires participated in the vendorsselection related jobs directly or indirectly. (see Table 2)
Table 1Ranking of Taiwan IC manufacturers in terms of turnover rate
Rank in 2003 Company Income for Year 2003 Quantity(NTD 100 Million) (Total = 94)
1 TSMC 2,019 332 UMC 849 203 Winbond 295 94 NanYa 284 45 Mosel-Vitelic 263 66 ProMos 251 57 Powerchip 230 48 MXIC 175 79 SiS 163 210 Vanguard 109 4
RESOURCE: ITRI economic and trade center ITIS project (2004/4)
Table 2The job position distribution of the person who fill out the ques-
tionnaires
Deputy Department Manager Section Senior Totaldirector manager manager engineer
Number 5 10 22 16 41 94Ratio(%) 5.32 10.64 23.40 17.02 43.62 100
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122 C. YANG, C. J. CHANG AND Y. C. CHOU
4.2 Reliability
Reliability is dependability. It refers to the consistency or stability ofthe test results. Consistency refers to the consistency of the questionnairecontents, while stability means that when the same topics are repeatedlytested by one same test instrument, the same results are obtained; or inother words, the test-retest reliability. This paper used content consistencyto overcome the reliability problem; that is, we use the Cronbach coeffi-cient to measure the correlation between the common factors of differentvariables. Wortzel [16] believed that when Cronbach coefficient is between0.70 and 0.98 reliability is high. Nunally [10] also believed that coefficientshould be 0.7 and higher for a high reliability, and if coefficient is under0.35, it should be rejected. The reliability Cronbach coefficient of the factorsin this paper is between 0.74 and 0.95; and it is apparently that they possessa high reliability. (see Table 3)
4.3 Validity
Validity means the data accuracy. It refers to how test or measurementtools can accurately measure desired level of qualities of measurement orfunctions. Questionnaire of this study is designed based on theories andby referring to relevant documents and results of personal surveys con-ducted. Executives filled in the questionnaires before being sent out. Thus,it possesses a content validity. Structure validity refers to the test beingable to measure level of theoretical concepts or qualities. Through verifi-cation, one would be able to make an accurate explanation or deduction ontest results. Factor analysis can be used on measure structure validity. Scaledown and inspect the various problems of each aspect. If the resultingstructure corresponds with the original structure, then it possesses goodstructure validity. Decide using various items under the questionnaireand its relevant coefficient (factor loading). Kerlinger believed that a factorloading of above 0.5 means that it possess a high structure validity. Thefactor loading of 15 factors in this study are over 0.5. Thus, this indicatesit possess structure effectiveness.
5. Research results
After scaling down results obtained in factor analysis and underthe principle that percentage of cumulative interpretation reached 70%
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EQUIPMENT VENDORS 123
and value of special qualities is greater than 1, four dimensions hasbeen selected (see Table 4). From factor loading, it was obtained thatthe first dimension includes service attitude, process technology, processmanagement, material management, purchasing management, factorymanagement and quality management. As most of these are related toproduction management problems, it has been referred to as productionmanagement dimension. The second dimension includes inherent basicconditions, external basic conditions, business management, human re-source management. These are mostly related to internal and externaloperating conditions in enterprises, thus it has been referred to as businessmanagement dimension. The third dimension includes R&D capability,future competitive conditions, and is referred to as potential competencedimension. The 4th dimension includes financial capability, past overallperformance and has been referred to as current status dimension (seeTable 3).
Table 3The result of factor analysis
Factor Factor loading Cronbach alpha
(1) Production management dimensionService attitude 0.6091 0.9488Process technology 0.9107 0.9051Process management 0.8736 0.8654Material management 0.7461 0.9176Purchasing management 0.6776 0.8404Factory management 0.8225 0.8519Quality management 0.7792 0.9609
(2) Business management dimensionInherent basic conditions 0.5000 0.7784External basic conditions 0.7500 0.9112Business management 0.8109 0.8874Human resource management 0.6478 0.7388
(3) Potential competence dimensionR&D capability 0.8654 0.9171Future competitive conditions 0.7714 0.7714
(4) Current status dimensionFinancial capability 0.6401 0.9367Past overall performance 0.8492 0.8666
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124 C. YANG, C. J. CHANG AND Y. C. CHOU
Table 4Eigenvalues and commutative
Factor 1 2 3 4
Eigenvalue 5.9192 2.6089 1.5044 1.0440Cumulative 0.3946 0.5685 0.6688 0.7384
5.1 Classified in accordance with number of R&D personnel
We use 100 R&D personnel as a line of demarcation for the 63collected questionnaires. It was found in the four dimensions, only the3rd dimension (potential competence dimension) showed a significantdifference between the two groups (see Table 5). This means semicon-ductor manufacturers who placed importance on R&D hope that theycould obtain a leading edge in technology. It hopes that their cooperatingequipment vendors have the ability not only to provide equipment andservices, but also have the ability to cooperate with them in develop-ing next generation equipment for new IC manufacture technologies.Since they placed more importance on development ability and futurecompetitiveness of equipment vendors, they hope to find partner whopossess great potentials. Table 4 showed results based on number of R&Dpersonnel.
Table 5The result of test with number of R&D personnel (dimension 3)
Dimension t-testt value Pr > |t|
production management dimension – 0.02 0.9865business management dimension 1.90 0.0599potential competence dimension – 7.33 0.0000∗
current status dimension 1.65 0.0816
NOTE: significant standard α = 5%
5.2 In accordance on whether it is a professional IC foundry or not
Based on the 63 collected questionnaires, manufacturers were di-vided into two groups, whether they are professional IC foundries ornot. Results showed that there is a significant difference between the twogroups on the 4th dimension (current status dimension) (see Table 6).
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EQUIPMENT VENDORS 125
This implied that since non-professional IC foundries have their ownproduct, their emphasis is not only placed on semiconductor subcontract-ing technologies. In searching for equipment vendors, they hope to usecurrent resources and purchase tested and proven successful, highly stableequipment to minimize their risk and cost. Thus, emphasis is focused onpast performance of equipment vendors and their financial status.
Table 6The result of test for the company whether it is a professional IC
foundry or not (dimension 4)
Dimension t-testt value Pr > |t|
Production management dimension – 0.59 0.5577Business management dimension 0.32 0.7484Potential competence dimension – 0.75 0.3145Current status dimension 5.87 0.0000∗
NOTE: significant standard α = 5%
5.3 In accordance on autonomy rate of process technology
The autonomy rate of process technology means the proportion oftechnology that can be utilized by IC manufacturers in developing newprocess technologies. The modes of developing new process technologymay be in the form of co-operation with major overseas manufacturersto acquire the technology in part, or technology transfer from overseasmanufacturers in order to acquire the technology in whole. This factorwill determine the strategies through which semiconductor manufacturerschoose their suppliers. This research deems over 50% autonomous rateas high process rate. The t-test shows that semiconductor manufacturerswith high autonomous rate put more emphasis on dimension 3 (potentialcompetence dimension) and dimension 4 (current status dimension). (seeTable 7)
The reason is that these manufacturers have already been the marketleaders in process technology. In response to threats posed by followers,these leaders have to develop their own process technology backed upby intellectual property rights. At the developing stage, the developmentpotential of potential partners is of importance. However, in order tomaintain their leading roles, the current dimension, which has direct
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126 C. YANG, C. J. CHANG AND Y. C. CHOU
impact, cannot be overlooked. In other words, potential partners need topossess better ability in future development.
Table 7The result of test the company with autonomy rate of process
technology. (dimension 3, 4)
Dimension t-testt value Pr > |t|
Production management dimension – 0.02 0.9865Business management dimension 1.90 0.0599Potential competence dimension – 7.33 0.0000∗
Current status dimension 5.09 0.0000∗
NOTE: significant standard α = 5%
6. Conclusion
Results of analysis conducted on the questionnaires divide evalu-ation factors into four dimensions: production management, businessmanagement, potential competence, and current status. Semiconductormanufacturers having a great number of R&D personnel placed more im-portance on the potential competence dimension, while non-professionalIC foundries placed more importance on current status dimension. Manu-facturers with high autonomous rate emphasize on potential competenceand current status. Results revealed that: the competitive advantage ofhigh tech industries lies on whether it would be successful in developingadvanced technologies. Thus, enterprises, which have already obtaineda leading edge in this area, would relatively put more importance onthis dimension. This explains why these enterprises would be willingto invest huge capital and resources in technology development andplace importance on future potential of equipment vendors. On the otherhand, since production technologies used by ordinary non-professional ICfoundries are mostly not the most advanced technologies available or tech-nologies directly introduced by foreign manufacturers, they placed moreimportance on the current status of equipment vendors when selectingequipment technologies. In reality, selection of equipment technologiesamong semiconductor industries vary from ordinary traditional indus-tries: semiconductor equipment itself is the stepping stone to developmentof technologies for IC manufacture processes and accounted for more than
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EQUIPMENT VENDORS 127
half of the cost of semiconductor industries. Thus, the question of whetherappropriate equipment has been selected or not would directly impactsthe survival of the enterprise. Manufacturers with high autonomous ratewhich demand from equipment suppliers both machines and ability to ad-just to new process technology machines. This is reflected in the potentialcompetence dimension of R&D capability, which is very different fromlow autonomous rate manufacturers. Thus, this paper hopes to providea reference to scholars in the academic community who are interested inthis discipline. Also, this paper hopes to allow semiconductor manufac-turers to gain an understanding on what factors are considered by theirown groups when selecting equipment vendors. Also, this paper hopedthat the results could serve as a basis for evaluating current equipmentvendors. With respect to domestic and foreign equipment vendors whowish to enter the market in Taiwan, this study could serve as a tool forthem to better understand the demands of Taiwan’s customers.
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