Issue link: https://maltatoday.uberflip.com/i/1510811
8 OPINION 2.11.2023 A vision of fabless manufacturing projected in 2024 budget. George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island FINANCE minister Clyde Caruana mentioned as a budget sweetener how Malta Enterprise will be developing a centre of excellence in the field of semiconductors, focusing on devel- oping workers' skills, and supporting startups and SMEs to invest in this sector. Many hope this vision will turn fabless manufacturing to weigh anchor in Malta as a country being on the forefront of microchip industry. Across all product segments, semi- conductor companies strive for inno- vation because faster, more powerful chips and leading-edge equipment help generate greater sales in all val- ue chain segments. The term 'fab' stands for fabrication, hence, 'fabless' indicating that the company does not take any part in the fabrication of the product, but instead only participates in the designing and marketing as- pects of the semiconductor chips. The companies with the most distinctive technologies and products are likely to become global champions. Semiconductor companies might be able to obtain some cost advantages by building fabs in areas (such as Malta) where there is already a champion of a similar type, since Malta Enterprise may help ensure sufficient talent avail- ability and resources (such as land, cheap energy, and water). In another cost-saving move, players could at- tempt to improve tool hookup and ramp-up to earn back the cost of their investment more quickly. Such efforts might involve forming partnerships with equipment manufacturers to ap- ply advanced analytics that increase yield. Last year saw an acute semicon- ductor shortage and this fact high- lighted the industry's dependency on a well-functioning semiconductor sup- ply chain. Some of the most exciting trends, including those related to au- tonomous driving, vehicle electrifica- tion, and A.I. All these rely on ongoing innovation in semiconductor technol- ogy and a stable chip supply. One may ask what is the meaning of developing such a centre. e answer is that it will aim to attract foreign investment, par- ticularly from companies in the fabless manufacturing sector. Readers may ask what are the ben- efits of fabless manufacturing for non-semiconductor industries? First- ly, the fabless model requires less working capital, as companies do not have to invest in manufacturing facil- ities or equipment. This allows com- panies attracted to Malta to focus their resources on product develop- ment, customer service, and market- ing. What are the benefits of fabless manufacturing for non-semiconduc- tor industries? This allows companies to focus their resources on product development, customer service, and marketing. A fabless company con- centrates on the research and devel- opment of an IC-product; by com- parison the foundry concentrates on manufacturing and testing the physi- cal product. The term "fabless" means that the company designs and sells the hardware and semiconductor chips, but does not manufacture the silicon wafers, or chips used in its products; instead, it outsources the fabrication to a manufacturing plant or foundry. More information relating to a fa- bless company is one that develops and holds IP while outsourcing the fabrication of its hardware. The term is commonly used in the computer hardware market to refer to advanced semiconductor manufacturing. This business model allows fabless compa- nies to benefit from reduced labour costs and economies of scale, while focusing on the ongoing turnover. How can Malta Enterprise redevelop its marketing focus to place Malta on the map of the fabless community? A lot of fine tuning is necessary (we do not want to fall foul of the interna- tional community as happened in the ambition of Blockchain Malta) and one hopes that private interlocutors are welcome to roam the microchip world to place Malta as a centre of ex- cellence. A multi-million R&D project funded by EU in STMicroelectronics is one of the key measures that will lead Malta to develop more sustaina- ble economic niches. A cash injection believed to be in excess of €20m, will see the company upgrade their capa- bilities in manufacturing semiconduc- tors and is intended to have several spillover effects within the research and development industry. This in- dustry over the years would bring about "high-quality jobs" that would grow Malta's economy "with the least possible impact on the environment and quality of life". We are proud of success in semiconductor manufac- turing in STMicroelectronics which is constantly retooling its skills assisted by EU funds. Few dispute the fact that semicon- ductor device fabrication requires strict control of sources of contamina- tion, as even trace-level contaminants can lead to reduced device yields or product failures. Monitoring and con- trolling dissolved trace elements and particle contamination in wafer, metal interconnects, display materials, pro- cess chemicals and electronic gases is critical. STMicroelectronics has been a champion exporter to the semicon- ductor and electronics industry for more than fifty years, and they are continuously innovating to meet the needs of this fast-moving industry. Back to the concept of fabless com- panies, this has emerged since compa- nies that develop the IP for new chip designs and other forms of advanced hardware are typically headquartered in developed countries. These mar- kets face a higher cost of labour. This is where our advantage remains. As stated in the budget, we continue to educate our youth towards STEM subjects. The trophy in the race for international excellence is NVIDIA corporation. This is a prominent ex- ample of a firm employing the fabless business model. NVIDIA is the com- pany which holds IP in areas such as mobile phone central processing units (CPUs), chipsets for motherboards, hardware and software for profession- al graphics visualization applications, and a variety of software products for both commercial and consumer-fac- ing applications. As with all fabless companies, NVIDIA's business model relies in large part on revenues from its IP portfolio and alliances with highly sophisticated manufacturing partners. At this level, one may com- ment that the production of integrat- ed circuit facilities is expensive to build and maintain. To remain feasi- ble, production must be kept at nearly full use, otherwise they will become a drain on working capital. The alterna- tive model is the foundry. This uses two methods to avoid such high capex costs since, as stated earlier, fabless companies avoid costs by not owning such facilities. Another unique exam- ple are Merchant foundries. The lat- ter, secure work from the worldwide pool of fabless companies, through careful pricing and precise scheduling to keep their plants in full use. To conclude, one augurs that budget 2024 succeeds in its new vision to attract fabless manufacturing. One wishes Malta Enterprise all the suc- cess we deserve in this new sector.