Semiconductor R&D outsourcing model in times of Covid-19 and the Sino-US trade war (Part 2)

September 15, 2020, anysilicon

In the first part, I took a look at seven developments in 2020 that impact the semiconductor engineering services industry in outsourcing engagements with IDMs and fabless companies. In this article I answer the question: How to setup and evolve your semiconductor R&D outsourcing model for 2020?


The following paragraphs outline a proven concept for developing a semiconductor R&D outsourcing model in your organization consisting of three modules (figure 1). The final result will be a clear portfolio of capabilities and projects eligible for outsourcing, an assessment of suitable engineering services providers and finally a plan which outsourcing model – onsite engagement, off-/nearshoring or a mixed model – will be chosen. Let’s directly jump into it.


R&D outsourcing model development concept

Figure 1: Semiconductor R&D outsourcing model development concept


Module 1: Define internal core capabilities and competitive differentiation as a baseline for outsourcing


Firstly, identify the most important R&D capabilities in your organization by major organizational units in your company (e.g. business units and product lines). Semiconductor companies can differentiate between capability clusters like digital design, analog & mixed-signal design, verification & test engineering, software engineering and application engineering and cross-functional processes like project management.


Continue with distinguishing between core IP-critical and non-core competencies in each of the aforementioned capability clusters. For example, as part of this analysis the digital design cluster could be broken down into sub capabilities like chip architecture, IP development, physical implementation, verification, layout synthesis, transistor based layout and verification, processor subsystems and packaging. Alternatively you can do the core capability analysis on an R&D project level differentiating between IP-critical projects and non-core projects.


The end result should be a rating of the entire portfolio of capabilities and/or projects regarding IP criticality and power of competitive differentiation. Capabilities and projects with very high levels of IP criticality and competitive differentiation should be safeguarded and thus kept in-house. For others eligibility for outsourcing should be considered. When doing the analysis also consider the future strategic focus of your organization and factors like internal resource availability, internal engineering locations and time-to-market requirements when doing the above analysis.


Module 2: Match engineering services providers with core capability portfolio


As a next step analyze and define for each of the clusters current/future potential engineering suppliers that could become strategic R&D outsourcing partners for any new engagements. The following three step methodology can be used for that purpose. Initially assess all available and potential new suppliers by aspects like their competency level, rate-cards, experience with outcome-based contracts, engineering center location and the IT-security environment. After that, match each capability sub-clusters from module 1 with potential target suppliers. Finally, optimize the engineering provider portfolio by identifying bundling possibilities across capability clusters with the following goals (see figure 2):


  • Demand consolidation across business lines and suppliers
  • Move volume to strategic suppliers to focus your management efforts
  • Identify commercial cost reduction measures by bundling larger contract volumes
  • Drive innovations with key R&D engineering suppliers
Core capabilities and supplier optimization

Figure 2: Core capabilities and strategic supplier optimization


Module 3: Identify right-fit outsourcing models


After you identified the portfolio of engineering services providers for each of the capability clusters or projects, the final step is to define the right-fit delivery models. To select the right model between an onsite engagement, off-/nearshoring or a mixed model, three areas should be analyzed:


  • Readiness to offshore: What are required response times versus clarity of defined task/project requirements?
  • Coordination requirements: What is the probability of requirement changes versus how often coordination and alignment meetings need to take place?
  • Know-how transition: What is the complexity of tasks/projects versus available documentation and specifications?


As a rule of thumb activities with short response times, high levels of coordination, constant changes in customer requirements and increased complexity are prone to onsite models or mixed onsite/offsite models (see figure 3).


Offshore vs Onsite semiconductor outsourcing model selection

Figure 3: Offshore VS Onsite model for semiconductor engineering outsourcing


Besides deciding on the right-fit outsourcing model, the concept can give you hints for selecting the appropriate commercial model between time and material, fixed price and outcome based contracts. Engagements with low levels of scope clarity and frequent changes are prone towards the time and material model. Fixed price models and outcome-based models favor projects with high levels of scope and outcome clarity, as well as measurability.




This top level outsourcing concept can be the starting point for selecting the right R&D outsourcing model for your organization in combination with a consideration of the seven Covid-19 and trade war related industry developments outlined in part one of the article.


The above concept is only one element of your overall R&D outsourcing strategy and execution. Your R&D outsourcing strategy should move beyond the assessment outlined in this article and incorporate aspects like access to engineering talents, innovation partnerships, joint IP-developments, contracting requirements, time-to-market acceleration and potential state funding.


The part of execution tactics includes supplier management (quality, delivery, capability etc.), RFQ processes with competitive tenders, negotiations and most importantly long-term relationship building with your key partners.



This is a guest post by Dr. Karl Breidenbach

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