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STMicroelectronics: Friendly Competition

Dec. 16, 2005
STMicroelectronics teams with competitors to cut research and development costs.

In 2002, Geneva, Switzerland-based STMicroelectronics NV, one of the world's largest semiconductor manufacturers, formed the Crolles2 R&D alliance with two of its competitors. CFO Carlo Ferro says the alliance allows the company to share the high R&D costs of a capital-intensive business without losing a competitive advantage. The alliance currently is working to advance standard logic technology to enable the production of semiconductor chips that have higher functionality and can accept a higher number of transistors in a given area of silicon.

IW: What prompted ST to form this R&D alliance?

Ferro: In the technology arena and especially with respect to the process technology arena -- I am referring to the foundry of silicon and not to the design, which is the proprietary area of the company -- there is the possibility of leveraging on pooling of resources. ST has had for a long time a significant and positive experience with this form of cooperation on process technology together with Philips Semiconductor. And when the time came [to develop a 12-inch wafer manufacturing facility], ST and Philips have decided to continue this pooling of interest, eventually extending the alliance to an American partner . . . at the time, the semiconductor division of Motorola, which is today Freescale. We are all three developing the logic technology. If we combine our revenues, we have significant power in spending on R&D since the three companies together exceed $20 billion in revenues. So, basically, [by] joining forces we are among the world's two largest semiconductor companies, therefore with the largest power of spending in R&D. We all benefit on pooling our resources, which results in a) ensuring time to market, b) being excellent in technology and c) mitigating the cost of technology development to an extent compatible with the level of financial return that investors require and in the range of the lower margin and profitability situation, which has been the industry trend in the past few years.

IW: How has ST been able to keep proprietary information private while sharing information with competitors?

Carlo Ferro, STMicroelectronics CFOFerro: The alliance addresses the key ingredients in the area of basic process technology, which does not make a significant difference with respect to the competition. What makes the difference, the real distinguishing factor, is the time to the end product. The differentiation is in our ability to design products and solutions with the jointly developed technology that enable our customers to make products that they can sell to their customers or end users. This is the difference. And this explains why, thanks to our relationship with our customers and the feedback we have from them on their real needs, this kind of cooperation has never impaired our ability to differentiate ST's offering from the competitor's offering in terms of products and solutions in the marketplace.

IW: What impact has this alliance had on STMicroelectronics R&D expenditures?

Ferro: ST is spending about 17% to 18% of our revenues in R&D. Out of this . . . one third is for process technology. In turn, one portion of this addresses the advanced logic, and this is what the alliance is about. The other portion addresses the other key area, which is the memory technology. Another part is spent on this specific proprietary development of logic and technology. The advantage of this alliance is that we pay one-third of what would have been the amount to be afforded if we were to undertake it by ourselves. But this is not all. There is also the advantage of a lot of cross fertilization-a great experience gained by joining the resources coming from different cultures, different companies. ST is very effective in teamwork and, in general, working together with every kind of partner.

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