Semiconductor industry also demonstrates capital intensity effects. Typically 25% of annual revenues goes in capital investment, and 20% of annual revenues goes in R&D. It demonstrates significant economy of scale efficiencies. Access to cheap capital has therefore become a decisive factor in locating production.It is generally observed that unit costs of production for semiconductors decrease by 30 percent if cumulative output doubles. There is also an important ‘first mover’ advantage in the semiconductor industry. Due to falling product prices and a short product cycle, companies can only recover their investments for a short period of time at the beginning of the product cycle. Being first on the market therefore gives significant competitive advantage both in terms of return on investment and learning effects.It is a proof of industries aligning in areas of core-competence: Only companies good in core-competence can become large, actually they become very large ie Fabless companies(Mediatek, Novotek, VIA, Realtek), Wafer Companies(EPISIL, Waferworks), Mask companies(DuPont Photomasks, PSMC, TCE, TMC), fabrication companies(TSMC & UMC), Packaging companies(ASE, SPIL, OSE), chip testing companies(ASE, KYEC, Powertech), Tooling(Cadence, Mentor Graphics, Synopsys, EverCAD, SpringSoft) etc. It proves that in a truly efficient industry, no one can do it all. Its the supply chain that counts.

Some 95% of all wafers are produced in 10 countries. Japan ranks number one with 28% of worldwide production capacity, followed by the US with 20%, Taiwan 14%, EU 12%, South Korea 9%, China 6%, Singapore 5%, and Malaysia 1%