While the computer industry remains the largest segment underlying semiconductor demand, the emergence of new digital solutions that shape the individual lifestyles of end consumers drives more technology innovation. "Smaller, faster and cheaper" remains an important mantra, but technology advances alone are no longer a guarantee of growth and profitability. Manufacturers will follow Moore's Law to remain competitive, but technical innovation for compelling new products must go hand in hand with collaboration along value chains to meet customers' needs. Today, the most successful collaborations are much more often the work of multidisciplinary groups, with partners and even competitors combining diversified expertise and ideas.

One example is the development of specialized memory components for wireless terminals. CellularRAM is a pseudo-SRAM device that utilizes commodity DRAM memory cell structures, combined with device-specific interfaces and power-consumption innovations. But technical differentiation is not enough to succeed in the wireless market. So several competitors are collaborating to define a common specification, creating a competitive model of innovative co-development. At the same time, each co-developer can leverage its competitive advantages in manufacturing excellence, time-to-market and customer-oriented services.

Extension of the value chain beyond traditional partners will play a big role in the next stage of industry growth. For example, Infineon worked with O'Neill Sports to produce a "wired-for-sound" snowboard jacket for this fall season. The project leverages basic innovation in chip and wire encapsulation. Borrowing a concept from the PC industry, we partnered with students in fashion design to produce demonstration products, and then engaged with an industry partner. The new business model required big steps in cooperation between two very different industries.

By reaching far down the value chain, engineers and technologists gain exposure to new thinking. But managing the relationship among component suppliers, OEMs and end consumers becomes an increasingly vital and complex part of the development process. This is particularly true when the product delivered to the end market combines a broad variety of technologies, customized software and added value delivered in services.

Better understanding of customers and end consumers also contributes to better business forecasts. The breakdown of supply chain visibility in 2000 and 2001 was a strong impetus to develop new predictive models. By learning to watch and understand end-consumer behaviors and buying patterns, semiconductor producers gain more reliable predictive tools and can adjust faster to changing market requirements. These are prerequisites to better managing the risk inherent in innovation, thus allowing a supplier on the component end of the value equation to drive integration and gain competitive advantage through customer-oriented innovation.

Robert LeFort, President Infineon Technologies North America Corp., San Jose, Calif.