Sub-Micron Devices Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION

In the mid of 1980’s, Sub-Micron Devices Inc. started operations in Phoenix, Arizona. Sub-Micron Devices manufactures application specific integrated circuits (ASIC). The ASIC is a division of Sub-Micron Devices that initially started as a captive supplier for the System Division. However, it grew its business to a point where it could handle its own external suppliers. In early 2001, the company had 4,000 employees. The ASIC would be able to take external business, moreover, by satisfying the needs of the System Division.

On the other hand, in order to expand its business, the company needs to transformitscost structure into a separate profit center. The company had to improve the substantial yield, resulted from anadditional external business that ASIC experienced in 2000 and early 2001. The company suffered some yield losses in semiconductormanufacturing, butviewed it as an important strategic variable to improve yield by manufacturing the ASIC.

However, the production facility at ASIC was well designed so that the plant could produce 7,000,000 functional chips annually needed by the Systems Division. The 7,000,000 functional chips required ASIC to produce at least 16,000,000 integrated circuits. The average yield was about 50 percent (i.e. more than half of the output had to be discarded as scrap). However, the average yield had become as high as 85 percent by the end of 2001. Moreover, the temporal fluctuation had been greatly reduced. As a result, ASIC has been considered as excess capacity by 2001.

The value chain of the ASIC Division consisted of two parts: Wafer Fab and Assembly. In Wafer Fab, the raw material of silicon wafers was processed in a sequence of processing steps. These activities required advanced equipment, well-trained employees, and high level of cleanliness. The last step of fabrication process consisted of cutting the processed wafers into individual die.

On the other hand, in assembly, the die was completed or turned into integrated chips (it can be IC’s or simply chips). This step was required in additionto electric connections, and a casing of the die, and final step to electronic testing the functionality of the chip. In semiconductor industry, most of the situation assembly was more labor intensive rather than Wafer Fab at the ASIC Division.

Sub-Micron Devices Harvard Case Solution & Analysis

PROBLEM STATEMENT

The ASIC Division of Sub-Micron Devices Inc. received an inquiry from Western Digital. The company would be able to supply 3,000,000 chips annually at a rate of $40 per chip over the period of three years.However, the IC’s demanded even higher complexity than those needed by the System Division. Moreover, the Western’s design required a greater number of mask layers in Wafer Fab. However, they would have to be inserted into ceramic casings in theassemblyin order to increase the heat tolerance of the IC’s. These features substantially raised the direct material requirements. The number of photolithographic moves hadalso increased.

ANALYSIS

The company faced anadditionalrequirement of direct material if they were to accept the Western Digital order. However, the structure cost of the ASIC would be revisedin order to accept the Western Digital order.

The Company ASIC’s Controller Gray Ravenport with his assistant Peter Parks proposed the following manufacturing cost in order toreview the ASIC profitability to accept Western Proposal...................

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