The 12-inch Si wafer and associated process infrastructure have been touted as vehicles for cost reduction, but it seems that any cost reduction is becoming less effective as the infrastructure becomes more inherently expensive. For example, larger tool footprint, consumption of more materials, introduction of new materials, etc, and more of the above. Infrastructure continuity has always been a way of reducing cost increase, but never has been a guarantee of reducing COST.

There is a balance of changing/removing the infrastructure vs maintaining it.

Manufacturing is always a balance between cutting edge technology and
the "economics of scale". Bleeding edge technologies are expensive to
develop and engineer but once a technology becomes manifest or fully
established the cost per unit decreases over time because at that point
the technology becomes fully manufacturable with set costs and profit
expectations.

An example: If you have a demand for 20M units but you only have
one cookie cutter trying to fill the order demand, you basically have a
serial production output with limited profit potential to fill the excess demand,
therefore you have limited profit potential which is dictated by your
manufacturing limitations.

If you then expand to parallel operation with multiple cookie cutters all performing
the same job, your productivity and costs decrease to fill the demand so you can
sell more product at market prices with a corresponding decreasing manufacturing
cost per unit. Your initial investment costs for cookie cutters and sustaining
business development rises over the short term, but the economics of
manufacturing scale, improved manufacturing efficiencies, tax incentives,
equipment depreciation, and increasing product demand create higher
profits relative to the fixed assigned costs of manufacturing.

The real problem is to not create so much manufacturing prowess/efficiency
that you flood your target market with an over supply of product that exceeds
the market's ability to utilize/consume the product you are manufacturing.
Excess product inventory is a production and profit killer.

New product innovation is the lifeblood of high technology manufacturing, and
it has high costs associated with it, but it offers a much higher return profit
potential than what is incurred from the initial development investment.
A $200M development effort could yield many billion $ of long term profits.


LL

Laserlight, I agree with your explanation of the need for high volume for higher profit. The excess inventory problem seems like it needs an inventory-on-demand type of system. The current infrastructure is the current high volume manufacturing path, but what if replacing it completely would lead to even higher profits? Along the lines of your last paragraph, the initial conversion could be a high cost but it could offer a higher return.

Hi Guiding_light,

Personally, I like the DeBeer's and OPEC price fixing model by managing demand
by keeping demand higher than supply, it maximizes profits and limits oversupply.

Unfortunately, anti-trust legal issues and over regulation by government oversight
is a real hindrance for US and Western trading partners. It is hard to compete
with Asian producers who face no such constraints, are subsidized by their
governments, and regularly practice predatory pricing at the expense of US and
European vendors who are over-regulated. This is a major reason why numerous
US inventions and technologies are no longer manufactured here. US companies
just can't compete from an economic perspective.

It is hard to win when you are handcuffed, blindfolded, and wearing a ball and
chain when your competition doesn't have those constraints imposed by
their governments.

Enough of my "rant"!
LL