A strategic study of disruption, dis-integration, and modularity in the microprocessor industry

Thesis (S.M.M.O.T.)--Massachusetts Institute of Technology, Sloan School of Management, Management of Technology Program, 2000.Includes bibliographical references (leaves 96-99).History has shown, and much management research has pointed out, that the structure of industries is not static. In some cases, striking shifts in industry structure have led to value creation explosions, the entry of new firms, and dramatic shifts in the value capture capability of firms within the industry. Perhaps the most oft-cited example of this phenomenon is the dis-integration of the personal computer industry into a horizontally organized cluster of hundreds of firms, and the emergence of Intel and Microsoft as dominant value-capture powerhouses within that industry. A large and ever-growing body of research studies the structure of industries. That is, the composition and structure of products created by firms in the industry, the structure of the design processes that generate these products, and the markets in which components and design services are offered to the industry. Of great concern to research in this area are the concepts of modularity and value chain structure. Some argue that the degree of modularity inherent in both an industry's products and the design processes that produce them have a profound effect on industry structure. They argue that modularity affects the structure of design and production value chains within the industry, the markets in which components and design services are made available, on the firms that participate in those markets, and the ability of those firms to create and capture value. Motivated by the striking example of the PC industry itself and this growing body of research, this thesis studies possible shifts in industry structure in the field of microprocessors, or, more generally, very-large-scale-integrated circuits (VLSICs) for computing. High-end microprocessor design, like PC design in the early 80's, is currently vertically integrated within a few dominant firms. But a fundamental trend is at work: the rate at which transistors are becoming available exceeds the rate at which the designers and design processes of incumbent firms are able to use them. This situation creates pressures on the boundaries of design and production that may lead to shifts in value chain boundaries that have previously not been considered by the industry. Will the microprocessor industry itself dis-integrate? If these shifts were to manifest, they may consequently impact the value-capture capability of new and incumbent firms, improving some firms' profitability at the expense of others. This thesis surveys and summarizes the existing body of research on the relationship between modularity and industry structure, and applies it to the field of computing VLSICs. It analyzes the microprocessor industry using those mechanisms proposed in the body of research, suggesting scenarios for how the industry structure may evolve in the near future. It studies and suggests how firms might influence this evolution. This leads to recommendations for firms currently in the industry, and for firms considering entry.by Michael J. Bass.S.M.M.O.T