Semiconductor Manufacturing Business Model to Evolve

While both the independent IC foundry and the integrated device manufacturer (IDM) will continue to dominate the wafer fabrication market, it will be the independent foundry that will receive the most funding, along with the higher growth rate. In large part, this will be due to three main reasons. The first will be the wide variety of process technologies that will be available from the independent foundry, which will also create a higher level of pricing competition. Secondly will be the varying amount of capacity available from the IDMs, and third will be the fact that some of the IDMs' potential business may also be from potential competitors.

The foundry business model represents the future of the semiconductor industry, with particular respect to manufacturing products at a low cost, and with a rapid turnaround time. While semiconductor companies such as Agere, IBM, LSI Logic, NEC, Texas Instruments and others will still be at the leading edge of technical innovation, in the vast majority of instances it will be up to the foundry to migrate these innovations to a cost- and time-effective manufacturing process.

Although the IDMs will do well in the future, particularly after the current economic situation reverses itself, it will be the independent semiconductor foundry that will provide the impetus and volumes to meet future generations of products for next-generation systems. In-Stat/MDR has also found that:

• The top three independent semiconductor foundry service providers, in order, are Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), United Microelectronics Corp. (UMC) and Chartered Semiconductor Manufacturing, which in total accounted for ~90% of worldwide revenues, in this segment, despite the fact there are about two dozen companies offering independent foundry services.
• Total independent semiconductor foundry revenue growth continues to outpace that of the IDMs, even in down years such as this one, by a percentage ratio of ~2:1. From an investment side, this year, the difference between these two approaches is even more dramatic, with the independent foundry segment garnering nearly three-quarters of total investment revenue — quite a feat in a depressed economy.
• Leading-edge technology is currently defined as 130 nm, scalable down to 90 nm, and probably down to 65 nm. Current estimates place the cost of this type of fabrication facility anywhere from $2.5B and up, with the average being between $3.5B and $4.2B, with single-wafer processing flow, excluding test and assembly.

This Market Alert is drawn from the In-Stat/MDR report, "The Semiconductor Foundry — The New Manufacturing Model — A User Perspective," which takes a different look at the independent semiconductor foundry provider market, from the user side, based on the results of a survey conducted by In-Stat/MDR.