Tradeoffs between economies of scale and specialization in efficiency for the global semiconductor industry

ABSTRACT

This paper combines the semiparametric modified ordinary least-squares approach by Simar et al. (2017) with the nonparametric shape constraint regression approach by Du et al. (2013) to evaluate the performance in the semiconductor industry. Using panel data on 470 companies in the global semiconductor industry over 1999–2018, we compare technical eficiencies between the integrated device manufacturer business model and the fabless-foundry business model. The performance differences between the vertically integrated device manufacturers and the vertically specialized fabless and foundry firms are disentangled by the intensity of labour and capital in a very flexible form. The estimation results indicate that the capital-intensive integrated device manufacturers taking advantage of the economies of scale are operating more efficiently than the niche fabless companies in the global semiconductor industry.

KEYWORDS:

• Semiconductor industry
• business model
• economies of scale
• semiparametric modified ordinary least squares
• technical efficiency

JEL CLASSIFICATION:

• C13
• C14
• L00
• D20

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Research Fund from Dongbei University of Finance and Economics.