BUSINESS HISTORY
2023, VOL. 65, NO. 6, 959–982
https://doi.org/10.1080/00076791.2020.1844666
The origins of the tools suppliers in the semiconductor
industry
Unni Pillai
College of Nanoscale Science and Engineering, SUNY Polytechnic Institute, Albany, NY, USA
ABSTRACT
KEYWORDS
Technological progress in semiconductor chips plays a central role in
enabling the Information Technology revolution. Continual technological progress in semiconductor chips, which has become popular under
the name of Moore’s Law, reduces the cost of storing and processing
information. While the role of the semiconductor chip manufacturing
companies in driving Moore’s Law is well known, less attention has been
given to the equally important role played by upstream suppliers who
produce the tools that are necessary to make the chips. In the early
stages of the industry, the chip manufacturers made their own tools
in-house. Using data at the initial stages of the industry and a wealth
of publicly available information from interviews with industry pioneers
conducted as part of oral history projects, this article examines how (i)
market size (ii) heterogeneity in firm capabilities (iii) geographic proximity to manufacturing clusters, influenced the emergence of these
semiconductor tools suppliers.
Semiconductors; vertical
specialisation; tools
suppliers; firm capabilities;
market size
1. Introduction
An extensive literature spanning many decades has identified multiple factors that influence
why a firm might buy an input or component from an outside supplier rather than make it
in-house.1 Detailed historical studies at the industry level have been useful in improving our
understanding of the factors that influence such make-or-buy decisions, and the resulting
evolution of vertical market structure or vertical firm boundaries. One of the earliest of such
studies is Rosenberg (1963), who documents the emergence of specialised suppliers of
machine tools in the U.S in the 19th century. Macher and Mowery (2004) examine the emergence of specialised suppliers in the computer, semiconductor and chemical industries, and
the differences in the pattern of vertical specialisation across different stages of the industry
lifecycle.2 The current paper takes a similar approach as the above papers, and examines
some key questions raised in the literature on vertical market structure, using historical
information from the semiconductor industry.3
Two reasons make the semiconductor industry an ideal industry to study the factors
affecting the emergence of specialised suppliers. First, production in the semiconductor
CONTACT Unni Pillai
upillai@sunypoly.edu
© 2020 Informa UK Limited, trading as Taylor & Francis Group
[page 961]
Information from oral histories
To examine the role of the above factors in the context of the two theories, this article exploits a
wealth of anecdotal documentation on the origins of the various tools suppliers in the industry.
Since the semiconductor industry has become the poster child for rapid technological progress,
many institutions that were associated with the industry (including universities, trade
associations and professional scientific associations) have put in a great deal of effort to
document the industry’s history, and their roles in this history.
[page 962]
Semiconductors in the electronics industry
Although the invention of the transistor in 1947 at AT&T/Bell Labs is often regarded as the event
that led to the development of the semiconductor industry, the trends in the broader
electronics industry at the time set the stage for the transistor.11 The principal electronics
component before the invention of the transistor was the thermionic valve, also called the
vacuum tube.12 The physical phenomena behind the vacuum tube, the Edison effect, was
discovered by Thomas Edison in 1880, during his experiments with incandescent light bulbs. The
Edison Effect lamp was the first electronic device (predating the discovery of the electron itself
in 1897), and its improvements by John Fleming in 1904 and by Lee De Forest in 1906, led to the
development of electronics.
[page 976]
Conclusion
This article has put forward some observations on the emergence of a key component of the
semiconductor supply chain, firms who supply tools that enable companies to manufacture
semiconductor chips. The most salient observation is that this first level of vertical specialisation
in the industry was midwifed by the chip manufacturers themselves, who supported the
suppliers by providing them the technological know-how, and by working closely with them to
develop and improve the early versions of the externally manufactured tools.