System-on-a-chip integration in the semiconductor industry: Industry structure and firm strategies

Miniaturization has spurred ever-increasing on-chip integration in the semiconductor industry so that large-scale electronic systems can now be put on a single chip. The proliferation of such 'systems-on-a-chip' has important repercussions for the structure of the electronics industry, and the strategies of electronics firms. In a detailed case study, we apply a theoretical framework developed in Somaya and Teece ['Combining inventions in multi-invention contexts: organizational choices, intellectual property rights, and public policy,' SSRN Working Paper (available at: www.ssrn.com) 2001] to understand how system-on-a-chip integration is altering the balance between integrated approaches, components trading, and the licensing of 'design modules' (DM) in the semiconductor industry. Consistent with the framework, we observe a burgeoning market for licensed DMs in the industry, along with the primarily in-house design approach being pursued by large integrated firms. Important technical and institutional factors that are shaping industry structure, and the strategies being pursued by different types of firms are documented. Based on the framework, implications are drawn for firm strategy in response to technological shifts of the kind engendered by system-on-a-chip in the semiconductor industry. We extend the Somaya-Teece framework to include firm strategies that seek to influence the institutional environment in which they operate, and thus alter the balance between competing organizational modes.