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September 27, 1999

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Web Puts A Charge Into Electronics

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Electronics and semiconductor companies are expanding their IT spending

By David Kleinbard

ompanies in the electronics and semiconductor industries face what are arguably the most difficult and complex IT challenges in the world because of the rapid rate at which their products become obsolete, the international nature of their business, and the number of partners within their supply chains. But as both sectors come out of slumps and complete their year 2000 remediation work, companies are expanding their IT spending, instead of just treading water.

These are clearly good times for companies in both industries. Factory shipments of electronic equipment made within the United States rose to $244 billion in the first six months of 1999, up 9% from $224 billion in the first half of 1998, according to the Electronic Industries Alliance. Sales of electronic components-including wire, cable, connectors, rectifiers, PC boards, diodes, transistors, capacitors, and other related parts-rose 12% in the first six months of the year, to $75.5 billion. Sales of telecommunications electronics, including routers and transmission equipment, soared 18%, to $41.6 billion.

Semiconductor makers are recovering from a three-year decline caused by overcapacity, tight inventory management by original equipment manufacturers, and the Asian economic crisis. Revenue for many semiconductor companies is growing at double-digit rates for the first time since 1995, propelled largely by the continued rapid growth of the Internet and E-commerce worldwide. The Semiconductor Industry Association forecasts that global chip sales will reach $140.8 billion in 1999 and soar to more than $215 billion in 2002.

Most companies in the electronics and semiconductor industries say they have completed most or all of their year 2000 work. Money and time that were consumed by Y2K work are now available for projects that are more strategic, particularly improving supply-chain management.

"Some of the most complex supply chains in the world today are in the semiconductor industry," says Ashwin Rangan, senior VP and CIO at Conexant Systems Inc., formerly Rockwell International Corp.'s semiconductor systems unit. "Rapid product change plus global supply chains make for very interesting dynamics. IT professionals in this industry have to be global thinkers, and they have to be able to change as a matter of routine."

Semiconductor manufacturing has always been technology-driven, according to Lawrence Loh, CIO at Analog Devices Inc., a semiconductor company that develops and manufactures integrated circuits. "It has some unique IT challenges in terms of speed, customer expectations, and cost pressures," he says.

Electronic and semiconductor companies at the forefront of technological innovation are pursuing four broad strategies:

Using the Internet and intranets to improve employee collaboration, improve customer relationships, and enhance project management;

Implementing systems that improve supply-chain management or perform more sophisticated supply and demand forecasting;

Using middleware to provide a uniform interface through which their programs can access other applications;

Expanding their enterprise resource planning systems.

Of those four trends, the use of the Internet and intranets is bringing about the most sweeping changes. "Internet, intranet, and extranet capabilities are providing people with new tools to collaborate," says Loh. "People will be able to collaborate much more closely, and they'll use the Web as the de facto facility. The Web browser is much more ubiquitous now, and people prefer open over proprietary systems."

Although most of the important collaboration will take place among engineers inside and outside Analog Devices, the company expects these interfaces to move across functional areas, including sales, marketing, manufacturing planning, and purchasing.

In addition to providing greater collaboration among employees and outside suppliers, the Web is also making it easier for electronics companies to provide better customer service. "The Internet has changed the way you look at marketing and customer service," says Bob Vance, CIO at color printing and imaging company Tektronix Inc. "You have to be an Internet-enabled enterprise; it's a powerful tool for one-to-one marketing."

Conexant has created Web-enabled tools for its new product- development process. The company's 2,000 engineering staff members can use a standard Web browser to access the entire portfolio of projects the company is working on, including the phase of development, the composition of the team, what the deliverables are, and the time frame for the deliverables. This system gets 5,000 to 7,000 hits per day, with between 12,000 and 15,000 pages called up daily. Senior executives can act as gatekeepers, terminating projects whose progress is inadequate.

Johnson Controls Inc., a worldwide leader in automotive systems and building controls, is rolling out intranet applications that lead to automation or process improvements, according to the company's CIO, Sam Valanju. In addition to disseminating "static information," such as accounting policies, the company's intranet can be used for the calculation of employee retirement benefits, merit planning by managers to set salary levels, performance appraisals, training, and travel planning. Johnson Controls is using the Internet for its catalogs, annual reports, and order entry within its control business. The Internet also is being used to centralize service centers, including links to various entities within the company.