Operating Efficiency in the Capital-Intensive Semiconductor Industry: A Nonparametric Frontier Approach

This article uses a nonparametric production frontier approach to investigate the operating efficiency differences by the impacts of capital expenditure and business model in the global semiconductor industry. Handling the impact of capital expenditure as a fixed input by the directional distance estimator, this study compares the operating efficiencies in the global semiconductor industry between the integrated device manufacturers and the fabless and foundry firms over 1999-2018. The estimation results indicate that the operating efficiencies do vary in the semiconductor by the business model. The vertically integrated manufacturers dominate the semiconductor industry, and the capital-intensive manufacturers operate more efficiently than the asset-light fabless firms on average.