Foundry Revenues Rise Amid Intensifying Competition
IC Insights and iSuppli separately forecast increasing foundry revenues, but much tougher competition as GlobalFoundries and Samsung create pricing pressure. A wave of consolidation may winnow out the weaker players as it gets more expensive to stay at the leading edge. "The fast-follower strategy now serves only as a route to the fringes" of the foundry business, said iSuppli analyst Len Jelinek.
David Lammers, News Editor -- Semiconductor International, 10/13/2009
Bill McClean, president of IC Insights Inc. (Scottsdale, Ariz.), said he sees intense competition building in the foundry space, as Samsung Electronics Co. (Seoul, South Korea) and GlobalFoundries Inc. (Sunnyvale, Calif.) put pressure on foundry pricing over the next five years.
Len Jelinek, semiconductor manufacturing analyst at iSuppli Corp. (El Segundo, Calif.), took a similar view, predicting that intense competition at leading-edge design rules is likely to "thin the ranks of the top-tier pure-play suppliers down to just three major players in the future."
Pure-play foundries are likely to see >20% growth over the next three years, as foundry sales continue to outpace the overall IC industry, according to IC Insights. From 2008 through 2013, pure-play foundry sales are expected to display an 11% compound annual growth rate (CAGR), almost twice the 6% total IC industry CAGR expected during the same timeframe.
IC Insights said it expects the pure-play foundry market to fall 16% in 2009, to $17.3B from $20.6B in 2008. Similarly, IDM foundry sales are forecast to fall to $3.2B in 2009 from $3.8B in 2008 before rebounding strongly through 2012. The IDM foundry business is forecast to grow to $6B in 2013, representing a 2008-2013 CAGR of 10%. IDM foundries are companies that offer foundry services in addition to their own ICs; IC Insights includes GlobalFoundries, IBM, NEC, Samsung, Texas Instruments, Toshiba and others in the category.
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IC Insights predicts pure-play foundries will gain share against IDM foundries. |
Pure-play foundries are forecast to represent ~84% of total foundry sales in 2009, up from 81% in 2003. IC Insights predicts that the pure-play/IDM foundry business mix will continue to shift slowly toward the pure-play companies even as some IDMs — including Samsung, GlobalFoundries, Toshiba and others — increase their emphasis on the foundry market.
"The IDMs' most pressing problem with their foundry business is expected to continue to be the intense competition from the pure-play foundries," McClean said. "With Chinese foundries SMIC, Grace, Hua Hong NEC and HeJian attempting to grab shares of the foundry business, and the more established foundries of TSMC, UMC and Chartered all trying to protect and increase their existing market shares, the business environment, especially pricing, has proven to be very difficult for the IDM foundries."
iSuppli sees consolidation
iSuppli's Jelinek also predicted a sharp rebound in foundry revenues. Global pure-play foundry revenue is set to rise to $21.6B in 2010, up 21% from $17.8B in 2009.
However, Jelinek said intense competition at leading-edge design rules is likely to "thin the ranks of the top-tier pure-play suppliers down to just three major players in the future." Keeping up with the technology pace set by the foundry leaders is proving to be so expensive that "only companies with sufficient size can support these costs," he said.
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iSuppli sees three good years ahead of the foundry industry. |
Some foundries have profited by focusing on low-cost, trailing-edge manufacturing. However, this "fast follower" strategy "is no longer a route to success," Jelinek said, adding that "the fast-follower strategy now serves only as a route to the fringes of the semiconductor manufacturing business."
Jelinek said the foundry industry is being "permanently reshaped by a wave of acquisitions and mergers," including the pending merger between Hua Hong NEC and Grace Semiconductor that will "significantly reshape China's foundry industry." The proposed acquisition of HeJian Technologies by United Microelectronics Corp. (UMC, Hsinchu, Taiwan) will further consolidate the Chinese foundry market.
The HeJian acquisition is likely to put UMC back into the No. 2 position among global pure-plays, a position it lost to GlobalFoundries when GlobalFoundries took over Singapore's Chartered Semiconductor Manufacturing Ltd.
Jelinek said Semiconductor Manufacturing International Corp. (SMIC, Shanghai, China) "very well may acquire" Cension Semiconductor Manufacturing International and Wuhan Xinxin Semiconductor Manufacturing Corp., two Chinese companies it is managing.
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