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October 7, 2008
Asset-light manufacturing
In other news, chip maker AMD announced it would spin off its manufacturing facilities to a new company called Foundry Co. As the Wall Street Journal reports:
The strategy -- variously called "asset light" or "asset smart" by AMD officials -- mirrors strategy changes that many companies have gone through to cope with rising costs and fierce price competition in the industry. Texas Instruments Inc., for example, has given up developing new processes for creating digital chips, though it still runs factories based on older, analog technology.
Instead of owning their own plants, most companies that design chips now rely on companies known as foundries that operate chip manufacturing services. The new AMD venture is expected to join the ranks of such foundries.
While this has been the trend in the semiconductor industry for years, I worry about this "asset light" strategy. Yes, intangible assets, such as the design capability, are at the heart of the value-added process. But the linkage between the product development and production processes is often important in the innovation ecosystem. By not keeping a tight linkage, a company runs the risk of getting locked into simply making the same old thing -- and not taking advantage of new opportunities and information coming out either product or process developments.
Now, granted, ownership is not the only way to maintain that coupling. In the new collaborative business models, the information flow and working relationship is much more important. And common ownership/management does not prevent the old silo effect where design and production never talk to one another. But the arms-length distance between spun-off companies may make the silo issue even worse -- if management has not put in place systems to overcome that problem.
Time will tell whether AMD's strategy will work. In the short run, it looks like a mechanism to infuse capital into the very capital intensive portion of the process (the chip foundry) without having to sell off part of the company as a whole. The outside investors get a stake in Foundry Co., not in AMD. In the long run, we will have to see how it affects AMD's ability to move into new markets -- or survive as solely a chip designer.
Posted by Ken Jarboe at October 7, 2008 10:05 AM
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