Nokia and SEMATECH Consortium Case Study

February 19, 2012

At Nokia we have been long priding ourselves in our ability to adapt to the changing markets, as well as in engineering excellence. Through this combination of market adaptability and engineering prowess Nokia has been able to grow from its modest beginnings in the paper mill industry to rubber manufacturing, to computer design and manufacturing, to becoming the world leader in mobile telephony and networking.

In order to fulfill our mission of Connecting People we have established renewed vision where we re-enforce our commitment to investing in the next generation disruptive technologies. This commitment means we need not only be always monitoring the global technological innovative landscape, but also be actively involved in formulating and articulating the technologies of tomorrow. This involvement could be facilitated through participation in collaborative environments with our customers, suppliers, university research partners, government-established programs, and other significant players within the mobile communications industry as well as in supportive and other related industries.

The results of this collaboration may or may not take us to exploring new frontiers beyond our current areas of expertise, but it will definitely help us in building up and expending our core products and services in line with the latest technological developments and breakthroughs.

Even though our current core competencies have been established in the mobile phone design and manufacturing, this market niche is getting extensively commoditized and we are likely to experience growing pressure from other emerging manufacturers or new entrants to the market in the nearest future. That is why in our renewed vision we emphasize the need for “developing assets (platform, software, apps), which will bring a modern mobile experience to the mobile phone consumers…”  (http://www.nokia.com/about-nokia/company/vision-and-strategy ). Overall we want to deliver not just technologically advanced mobile devices, but a complete customer package, total customer experience.

Development of the services and applications aimed at delivering this superior total customer experience is heavily dependent on the capabilities and constraints of the underlying hardware technologies. One of such technologies that is crucial for the whole computing industry is the semiconductors technology. It is arguably even more critical for the mobile communications industry in particular because of the growing customer demands to pack more productivity, more features, more versatility into the form factor that has essentially reached its practically viable miniaturization limits.

Semiconductors technology is one of the foundational technologies that identifies the strategic competitive advantage of the countries involved in its development. It is also often closely connected to the issues of national security. Therefore most of the research programs developed and maintained by nations are essentially rather closed to foreign participants, especially if they are established and/or co-funded by the governments of those countries.

However, there are some consortia in the countries with advanced research capabilities that are open to the foreign companies and other entities. One of such organizations is SEMATECH (SEmiconductor MAnufacturing TECHnology) – a US-based consortium with global reach dedicated to “fostering … cooperation across the nanoelectronics industry and accelerating the commercialization of technology innovations into manufacturing solutions.” (SEMATECH Annual Report 2010, page 4).

SEMATEACH is a long-established and well-recognized consortium with proven track record and reputation for being “the world’s catalyst for accelerating the commercialization of technology innovations into manufacturing solutions. By setting global direction, creating opportunities for flexible collaboration, and conducting strategic R&D, SEMATECH delivers significant return on investment to our semiconductor and emerging technology partners” (http://www.sematech.org/corporate/index.htm)

The semiconductor technology research is very high cost, high risk and has very long horizon for commercialization. Therefore it is a critical mandate for the players in the semiconductor industry to collaborate in order to share the risk and costs through resource and knowledge sharing. As SEMATECH’s president and CEO put it in the 2010 Annual Report, “it is clear that no one can go it alone in the semiconductor business these days. It might have been possible once, in a vertically integrated company that did everything in-house—systems, design, chip technology, assembly and packaging, and maybe even building tools—but no longer.”

SEMATECH was formed in 1987 as a partnership between 14 US-based based semiconductor manufacturers and the U.S. government. By 1997 the consortium was able to put an end to matching federal funding, and in 1998 five international companies joined SEMATECH. By year 2000 SEMATECH operated as unified global consortium with members from Asia, Europe and the US. Today SEMATECH consortium members and partners make up 50% of the worldwide chip market with such dominant players as IBM, Intel, Micron, National Semiconductor. It also includes international partners, including Renesas, Toshiba, Samsung. (SEMATECH website http://www.sematech.org/corporate/history.htm ). Additionally, SEMATECH has established a strategic partnership with the University at Albany’s College of Nanoscale Science and Engineering (CNSE), which is a cornerstone of their research in the next generation technology, development, and commercialization programs.

Even though most of SEMATECH’s efforts are focused on challenges and research coordination for technologies native to semiconductor industry, in such areas as lithography, 3D interconnects, front end processes, metrology, new materials and manufacturing, one of their stated goals is to “extend our global reach and influence through worldwide program partnerships in emerging semiconductor- and nanotechnology-driven applications.” And this is where we believe the goals of the consortium align with our strategic goals and provide the basis for our cooperation – in development of nanotechnology-driven applications.

SWOT Analysis of Nokia’s joining SEMATECH

Strengths.

As has been mentioned before, SEMATECH is a recognized leader in the semiconductor industry and has a well-established reputation for being a coordination and communication hub for the industry and a clearing house of ideas. One of the premises of the consortium is to coordinate pre-competitive collaborative efforts within the semiconductor industry. And this is a very critical phase in the technological development. Due to its reputation and role in the industry SEMATECH has built a comprehensive knowledge base and established a network of contributors from a broad spectrum of the industry, as well as research universities. Their emphasis on the pre-competitive collaboration attracts many participants and opens doors to productive cooperation with other major players in the industry across the globe.

One of the examples of such global cooperation is SEMATECH’s participation in the International  Technology Roadmap for Semiconductors. This organization is sponsored by chipmakers associations from five leading chip manufacturing regions in the world, including European Semiconductor Industry Association and Semiconductor Industry Association among others. SEMATECH is the designated global communication center for this activity, as well as coordinator of the USA events sponsored by ITRS. For Nokia it means that we will have direct access to the cutting edge research conducted in the industry which will determine the direction of mobile phone industry not only for the next few years, but for the next ten years and beyond. The fact that SEMATECH is based in the US is also a significant benefit because the US has been and remains the leader of the semiconductor industry.

Weaknesses.

As we mentioned before, SEMATECH is a consortium within the semiconductor industry, and as such, its focus is on the challenges and problems facing the industry. Also it focuses on very specific technological problems in semiconductor development research which may seem very remotely related to the immediate or even mid-term interests of our company. The long development horizon of the researched technologies of ten years or more means that whatever incremental advances they make today, they will not trickle down to benefit Nokia until 2020 or even later.

Opportunities.

Opportunities available to Nokia through our cooperation with SEMATECH are directly built up on the strengths of this organization that were listed above. Even though Nokia as manufacturer of mobile phones and applications is apparently much further down the technology chain of the semiconductor industry and is essentially the consumer of their products, it is very critical for us to stay closely connected to the industry.

Through participation in the consortium we will be able to more accurately evaluate the capabilities of tomorrow’s chips, which will be powering our devices,  and strategically direct our own research towards those capabilities. Essentially it will allow us to focus on competitive strategy and remain one of the leaders in the mobile industry. We will be able to formulate our research based on the future technologies and develop our own competencies. We will have a better chance to gauge what technology and what applications will be shaping the mobile industry landscape beyond the mid-term horizon and fund our research in the areas which will give us the highest productivity and the most competitive advantage.

Due to our leading position as a mobile manufacturer in emerging markets we will be able to serve as a conduit of advanced technologies to those markets and we will have a better chance over our competitors to capitalize on this market leadership.

In the past Nokia has made some miscalculations of the strategic direction of the mobile industry. This brought us to the place when we, though remaining the leader in low- mid-level devices, lost a significant market share in developed markets, such as US and Europe, due to underestimation of the demand in the smart phone segment. We are forced to play a catch up game now. However, keeping our hand on the pulse of the semiconductor industry through joining SEMATECH will allow us to regain the leading position in the smart phone segment because this niche is specifically and very heavily influenced by the advanced semiconductor technology.

Also, to specifically regain our lost share in the US market it seems to be beneficial for us to get engaged into that market and better understand its customers demands and expectations. Being in close cooperation with the researchers and engineers through the programs facilitated by SEMATECH will give us an invaluable insight into the technologies that are deemed  to be at the front edge. Additionally, tapping in the collective knowledge may help us avoid the road traps and dead end technologies that otherwise could drain our own financial and intellectual resources.

Threats.

Despite all the strengths and opportunities potentially available to us through participation in SEMATECH programs, there are certain threats that are inherently present in the GUI arrangements, including the one under consideration.

First, is the availability of funds. As the programs progress more from fundamental pre-competitive research and become more mature, some of the participants may become more protective of the intellectual property developed by them through cooperative effort and subsequently withdraw from the cooperation and take their resources with them.

Second, the withdrawal of funds may in turn lead not only to smaller financial resources available for the programs, but also to reduced overall quality and value of the knowledge generated through consortium.

Third, the knowledge spillover effect that was indirectly referenced in the Strengths and Opportunities sections may also turn detrimental to Nokia if we divulge, unintentionally or otherwise, our proprietary internal information.

Forth, to protect the interest in national competitiveness and security the US government may impose stricter regulations regarding the participation of the foreign entities, even though no federal funds are being used by the consortium presently.

Fifth, the research programs conducted under SEMATECH auspices are inherently high risk and high cost as was mentioned in the beginning of our review. Therefore the time horizons for research breakthroughs could be longer than currently expected and their commercialization, in which we are specifically interested, may require more financial resources than we expect.

Sixth, in worst case scenario the research may produce significantly less valuable results than currently estimated by the consortium members or the new disruptive technology developed outside the consortium many render their research obsolete and irrelevant.

Conclusion.

Overall, based on the analysis of the information currently available to us we believe that participation in SEMATECH has a great potential to benefit Nokia in the long run. We cannot eliminate all the risks associated with the ever-changing business environment, but joining the cutting edge research that will shape the future of all computing industry, including mobile telephony, seems like a reasonable hedging against the uncertainties of tomorrow’s competition.