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Foundry startup CEO sketches bright future

Posted: 07 May 2009 ?? ?Print Version ?Bookmark and Share

Keywords:foundry? market semiconductor? manufacturing? wafers?

Lehnert: We see a slight upturn in order entry for the Q2 and in particular for Q3.

Born out of a management-buyout of a Renesas Technology production line, Landshut Silicon Foundry GmbH (LFoundry) has launched its operations amidst what is believed to be the worst crisis in semiconductor history. While some observers state the foundry market is already overcrowded and consolidation is in evitable, particularly in Europe, LFoundry co-founder and managing director Michael Lehnert, sketches out a bright future.

EE Times: Many chip companies, fabless and manufacturers, have been saying for a while that market visibility is poor. Could you help us to get a better perspective?
Lehnert: Everybody, including the chip buyers, is reluctant to deliver any prediction. Our customers in this sense are no exception. We don't have much reliable data as to how and when an uptrend will emerge. In addition, we depend to a great deal on Renesas, our former owner and still our main customer for 2009. In the following years we will add more customers to our list. Thus, customer input for the current year is very limited. What I can say in this environment is that the market has clearly hit the bottom. We see a slight upturn in order entry for the Q2 and in particular for Q3.

Well perhaps we should say that, for you, the visibility is good because you have this main customer that guarantees a certain level of utilization?
I would not overvalue that since this customer has the option to shift manufacturing orders between us, other foundries and internal production lines. We benefit from our high quality and delivery performance which is the reason why we have been able to pick up several additional orders. This does not necessarily mean that the market demand is already up.

The large Asian foundries have reported improvements in their manufacturing capacity utilization recently. Is this also true for smaller European foundry service vendors?
Many of our customers are still in the prototyping phase or in the ramp-up process. For this reason, relevant statements from our customers refer to the year 2010 in which they certainly expect a recovery. For the current year I cannot say much since the volumes are still very small and the products have not yet reached their full production status. We only started to offer foundry services last year.

Is the current slight upturn you have mentioned due to the fact that customers have to restock, but after having filled up their stocks the demand will continue to be at the same low level as before?
Yes, this is absolutely possible and we watch this process with a certain caution. We definitely do not believe that the industry in the next year will go back to normal as if nothing had happened. The growth ahead is lower than before and everybody is careful not to order more quantities than necessary to restock. Yes, the stocks at our customers are more or less empty and every order for them immediately triggers orders to the chip manufacturers. These orders currently are completed, but the industry is far from its earlier high levels. We tend to act very cautious at the moment.

Low utilization at the leading-edge foundries brings them under severe price pressure. Do you see similar price dynamics acting in the analog/mixed signal foundry business?
Not quite. In comparison to digital foundries, in our industry there are very specific and different customer requirements. In 6- and 8-inch foundrieswe are producing on 8-inch wafersthere is a lot of specific expertise and greatly varying process technology. Every foundry has different recipes [preventing easy movement of contracts]. In addition, business is designed for longer periods. We, for instance, have set prices in long-term contracts. For this reason, we do not observe such a price pressure. If there is price pressure in the analog/mixed signal foundry market, it is triggered by the transition from 6- to 8-inch wafers. This means that older technologies are more exposed to price pressure. For LFoundry with feature sizes of 0.35 through 0.15-micron the price pressure is limited.

There is another dynamic in the marketin favor of the large and advanced foundries as IDMs are going fab-lite and outsourcing production. Do companies like yours benefit from this drive?
Recent market studies predict that in geometries below 65nm there will be extreme growth over the next few years. LFoundry won't be able to benefit from this trend since our processes and equipment are laid out for 0.13?m and above. We do not serve the market segment for 65nm and lower, which for instance GlobalFoundries in Dresden is aiming at. There is a trend that analog will move to 200mm wafers with geometries of 180- and 130nm. This is what LFoundry will be able to benefit from.

Do IDMs who go fab-lite compete with you? They typically are sitting on manufacturing capacities they need to fill. Taking orders from third parties could be an option which in turn would lead to increasing competition pressure for companies such as LFoundry.
The question is if these production lines can be maintained profitably. The IDMs would have to in-source orders from foundries to reach that goal. LFoundry however earns its money not so much from outsourced IDM manufacturing assignments but from fabless companies. We here have no other customer who could turn to such a strategy besides Renesas. However, I tend to believe that those IDMs will be forced to consolidate these older production lines as soon as they are no longer able to fully utilize their capacities. As a consequence, this effect can generate additional demand for foundries.

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