“All the college freshmen are asking, ‘Why should I join the industry? I’d rather work for Facebook, Apple or Google,’ ” Mr. Wu said in an interview.

Taiwan, an island of 23 million people, is the world’s biggest chip maker. The industry generated about $63 billion in sales here last year — more than one-fifth of the global total, according to the Taiwan Semiconductor Industry Association. Made-in-Taiwan chips are major components in many of the world’s PCs, smartphones, cameras and other gadgets.

Why, then, has chip making lost its allure? Many semiconductor companies in Taiwan struggle with low profit margins or even lose money. At the same time, Silicon Valley giants like Google and Apple, whose wizardry would be impossible without the continuing innovations of the semiconductor industry, are sitting on so much cash they do not know what to do with it.

“We’re the guys in the hot room, forging the iron and taking the heat, and someone else is reaping the benefit,” Mr. Wu said.

His lament was echoed by executives of other companies during a semiconductor trade show in Taiwan last week. So even as engineers toil at the latest technological breakthroughs in chip design and manufacturing, industry leaders are also wrestling with a bigger question: how can the semiconductor business grab a bigger portion of the profits it enables?

The issue is gaining urgency because one of the axioms of semiconductors may be about to break down, putting new financial pressure on the industry. According to Moore’s Law, named after Gordon E. Moore, co-founder of Intel, the number of transistors on a chip doubles every two years. But transistors are now packed so densely on chips that it may be technically impossible to go further without corrupting data, specialists say.

“Everybody is coming up against this,” said Pascal Viaud, chief strategy officer of Yole Développement, a consulting firm in Lyon, France. “The industry is going to need to find new ways of creating value.”

One approach is to stack transistors, creating so-called three-dimensional chips, rather than line them up side by side. Samsung Electronics of South Korea announced this summer what it described as the first mass-produced 3-D chips for flash memory, a major component in smartphones.

Although 3-D technology and other advances promise to lower the cost and increase the performance of consumer electronics, they make chip design and manufacturing more complicated and expensive. This has prompted semiconductor companies to rethink how the industry is structured.

Several business models are competing for primacy.

The giants of the industry, including Samsung and Intel, offer one-stop shopping — designing, manufacturing and packaging chips into integrated circuits that are sold to the companies that design and assemble finished phones, cameras and other products. Advocates of this approach, featuring chip-making behemoths known as integrated device manufacturers, or I.D.M.’s, say it provides the financial scale and technological expertise to deal with the industry’s challenges.

Another approach is more specialized, with separate companies handling different stages in the creation of an integrated circuit. Advanced Semiconductor Engineering, for example, packages and tests chips that have been made by so-called chip foundries and designed by others. Supporters of this approach say clients of electronics companies prefer to deal with more focused semiconductor contractors.

“Today, I can say with certainty that the I.D.M. model is dead,” said Ajit Manocha, chief executive of Global Foundries, a chip maker in Milpitas, Calif., that was created from the manufacturing arm of Advanced Micro Devices four years ago.

Although semiconductor companies everywhere are wrestling with how they should be structured, it is particularly pertinent in Taiwan because of the industry’s size and its relative fragmentation. Taiwan has been less affected by the rounds of consolidation that have concentrated the industry in a handful of big players elsewhere.

Article source: http://www.nytimes.com/2013/09/16/technology/industry-powering-the-technology-world-struggles-for-status.html?partner=rss&emc=rss