[Marxism] Theses on the Economic Crisis/Eample of factual data & process

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5. Semiconductors: Capital on a Wafer, or, The Transubstantiation of Value,  
or, Your Virtual Check is in the Email 
 
Semiconductor fabrication has always been a cyclical business, but a  
cyclical business with a difference. Over the past 40 years, the semiconductor  
industry has achieved a compounded annual growth of 17 percent per year. That’s  a 
big difference. The capital investment requirements of the industry are  
enormous as the production process can only circulate its capital and operating  
costs by introducing accelerating speeds, power, and quality to each successive  
product, thus devaluing its previous products, its previous capital 
investments.  Technical innovation in the production process through capital investment 
 reduces the unit costs of production in conjunction with the technical  
innovation of the finished product. The result of this juncture of technical  
innovation in both process, measured by cost per kb, and product, as measured in  
millions of instructions per second (MIPS) has been the dramatic decline in  
semiconductor prices. Private and government organizations have taken on the  
challenge of quantifying the adjusted price drop for semiconductors, expressed  
in dollars per kilobit for the individual products of the industry and for 
all  products. The US Bureau of Economic Analysis has that ratio for DRAM chips  
produced in 1975 at 1.8125. In 1995, the ratio was calculated at .0030 or  
1/600th of the 1975 ratio. For the total basket of products, the index of prices 
 in 1996 were less than half the index of prices in 1992. The rate of growth 
of  semiconductor prices for the period 1975-1985 is a negative 36.9 percent 
per  annum. For the 1985-1996 period, the annual rate of decline was 
approximately 20  percent. 
 
In the mid 1980s, Japan was the source of most of the world’s DRAM  
production. US companies, reluctant to invest in what had become essentially  contract 
bulk production, abandoned the field and retooled for the production of  
specialty chips, microprocessor systems, MOS logic chips, and flash memory  
products. Intel, which accounts for 80 percent of microprocessor sales,  developed 
its "copy exactly" fabrication plant system during this time, bringing  these 
plants online in the mid 1990s. Revenue per employee, measured at $114,000  in 
1985, climbed to $461,000 in 1995. Overall corporate revenues tripled while  
the work force had declined some 30 percent. The estimated capital investment in 
 each new fabrication plant was $1.2 billion. 
 
For the semiconductor industry as a whole, product sales increased 265  
percent between 1991 and 1995, leaping ahead 40 percent in 1995 alone, only to  
collapse in 1996 as the industry had produced too many fabrication plants  
extracting proportionately more surplus value from less labor and thus, could  not 
offset the reduced rate of profit. Sales declined 8 percent in 1996. Sales  did 
not exceed the 1995 mark until 1999 when revenues were reported at $149  
billion. At the same time as fabrication plants were being closed in 1996-1997,  
the industry began again its cycle of technical innovation in production 
process  and product. This process centered around developing the 300mm fabrication  
process, in which a larger wafer would be the basis for production, yielding 
a  greater number of processors, with each processor of greater quality than 
the  previous generations. The capital requirement for each 300mm fabrication 
plant  is estimated to be $2.5 billion. 
 
Capital intensity in the production process, the increased value of the  
instruments and products used in fabrication, had recorded a compound annual  
growth rate of 13 percent between 1987 and 1995. Between 1995 and 1999 that  
growth accelerated to reach 19 percent. 
 
The microprocessor fabrication process was re-engineered to produce an  
economically viable yield at a faster rate. Utilization of more advanced and  
reliable manufacturing equipment, faster and better methods for wafer inspection  
were employed to decrease the time from production to market. Through this  
acceleration, the fabrication process sought to offset the devaluation of its  
previous products and techniques. 
 
Sales again rocketed forward, this time to $204 billion in 2000. And once  
again, at their new historical peak, sales collapsed. In 2001, sales fell to  
$139 billion. By the end of 2001, 34 fabrication plants, 11.5 percent of the  
North American total, had been taken out of production. By the very demands of  
its own process to realize profit, semiconductor fabrication has replaced its  
cyclical nature with a structural predicament. The industry itself recognizes 
 that the 2001 contraction is more severe and different in kind than the 
previous  cyclical downturns. Capital spending in 2002 was 38 percent below the 
2001  level. 
 
The structural predicament is the result of the accumulation of capital  
depressing the margin of profitability. The implied margin (revenues minus  costs, 
divided by total revenues) in the fabrication process had declined by  17.5 
percent between 1993 and 1999, from 88.2 to 72.8. At a certain point the  
expansion of production, the increase in the mass of profits cannot offset this  
decline in margin, this fall in rate of profit. We call that  overproduction.
 
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