March, 2014
www.us-tech.com Semicon Growth Faces Serious Cost Challenges Continued from page 8
panies today to avoid complacency.” Overhead Costs The study finds that while overhead costs
vary widely across industry segments, 36 compa- nies, or almost 20 percent of the industry, spent more than 100 percent of their gross profits on overhead in fiscal year 2012. It appears from the study, based on EBITDA vs. revenue perform- ance, that companies in the second tier of the in- dustry could be ripe for consolidation, especially smaller, less-profitable companies. “Even if there may not be more merger and
acquisition deals this year in terms of number, there could well be more big deals as the industry grapples with its growing cost problems,” said David Simon, a director in AlixPartners’ TMT Practice. “Consolidation is a tried and true method of paring expenses, but on the other hand, significant cost-cutting isn’t guaranteed just be- cause merger papers are signed; that takes relentless execution of the merger itself, including post-merger integration.” The study concludes with a list
of suggested actions for companies today in the semiconductor industry. They include:
l Taking an “unsentimental”
review of customer and product port- folios, to reveal which customers and product lines are unprofitable when viewed on a “fully-loaded” basis (al- locating fixed and non-direct, as well as variable, costs) — an approach that, according to the study, has gen- erated 20-35 percent EBITDA im- provements in other industries with significant fixed and non-direct costs
Outsourcing: What’s Next?
Continued from previous page
meal, which promotes the value of lo- cally grown produce, then the supply chain needs to be designed to reflect that. If the product is a high-end brand using rare materials delivered worldwide, customizable online and fulfilled within 48 hours, then I’m go- ing to need quite a different supply chain and a quite different outsourc- ing partner. Yes, I can leverage my manufac-
turing equipment, yes I can leverage technology and yes I can provide an offering that operates up and down the value chain, but unless I build a supply chain that truly reflects my clients’ needs, even if I have to help them discover those needs, I won’t be able to provide the best, most effi- cient solution. And if I don’t, I’m just waiting for someone else to. So, getting back to where I start-
ed, the outsourcing model for the fu- ture, needs to be more adaptable, more agile, more flexible and it needs to give the customer, in this case the OEM, exactly what he needs, not just sell them whatever the EMS has, wherever they have it. The customer is the most important single part of the equation, and it’s important to never lose sight of that fact. r
Philip Stoten is an international- ly recognized EMS industry ex- pert. Known for his skills as an inter viewer, reporter and panel moderator, Philip is a regular contributor to U.S. Tech.
See at APEX, Booth 987
such as medical equipment and telecommunica- tions.
l Vigorously reviewing overhead staffing and spending, even in high-revenue areas, as growth
can often mask needless inefficiency. l In the supply chain, continuously evaluat-
ing the key profitability and capital levers such as asset utilization, material costs and material con- sumption, an approach that, according to the study, has saved 10-20 percent in operating costs
and capital expenditures in other industries. l Getting on the leading edge of potential
consolidation by thinking strategically about where your company wants to be in what could be a very different-looking industry in the not-too- distant future. “Companies and other stakeholders in the semi conductor industry stand at a crossroads to-
day,” said Roberts. “While they are certainly still in an exciting, leading-edge industry — one of the most exciting on the planet —the dynamics of that industry are changing dramatically. At the end of the day, as in any industry, basis business princi- ples apply, and companies that apply those princi- ples most effectively today will be the winners of tomorrow.”
AlixPartners is currently working with Bel-
gium-based non-profit research center Imec (for- merly known as the Interuniversity Microelec- tronics Centre) to develop a cost-modeling solu- tion to assist the semiconductor industry in efforts to improve the operational intelligence around the costs of future technology nodes. Contact: AlixPartners, 40 West 57th Street,
New York, NY 10019 % 212-490-2500 fax: 212- 490-1344 Web:
www.alixpartners.com r
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