Driven by continuously increasing competitive pressures from increasing globalization, the semiconductor industry has undergone major structural changes over the past few years. As recently as the early 1980s, most of the process and fabrication research and development was performed primarily in large vertically integrated companies in the industry. Mission-driven research in the central research labs and the R&D pilot lines of these companies yielded most of the technology required to keep the industry's productivity growing exponentially at a rate of 25-30% per year. Today, the semiconductor industry in the U.S. has largely stratified into systems companies, device manufacturing companies, and equipment, subsystem, component, and materials suppliers. In addition, competitive pressures and changing business conditions have shifted the focus of much of the research in the central research labs of the device companies away from fabrication equipment and processing technology. As a result, an increasing amount of the new processing equipment, process technology, and materials development comes from the supply chain today. Tomorrow, the suppliers will be expected to provide virtually all of the new processing equipment and technology required by the device manufacturing sector of the industry. With the increasing stratification of the supply chain, increased vertical communication and coordination is necessary. The efficiency of the supply chain, and the industry, can be greatly increased by close customer-supplier alliances at all levels in the supply chain. Such "value chain integration" can provide a common language for simultaneous communication of requirements to all levels of suppliers. Further, joint development of the technology permits optimization of the research and development efforts throughout the supply chain. It permits competitors to cooperatively perform the research for generic, pre-competitive technologies required for the continued advancement the technology. Additional optimization comes from relying on the expertise of suppliers at all levels in the supply chain; if the requirements are developed jointly, the expertise of suppliers of a given component or subsystem frequently permits redesign and implementation in a more cost-effective and reliable manner. We will examine value chain integration in general with examples of the benefits realized through true customer-supplier alliances, then examine application of value chain integration to the semiconductor industry.