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Mobile devices to push pure-play IC foundry growth

Posted: 16 Apr 2012 ?? ?Print Version ?Bookmark and Share

Keywords:tablet? smartphone? semiconductor foundry?

IHS Inc. has released its latest report that forecasts a healthy market for foundry semiconductor companies. According to the market research firm, the increasing electronics content in tablet and smartphone devices such as the iPad, iPhone and Ultrabook PCs will drive accelerated growth for the global semiconductor foundry business this year.

This year's revenue for pure-play foundry suppliers is seen to grow to $29.6 billion, up 12 percent from $26.5 billion last year. This is about triple the level expected for the overall semiconductor industry. Foundry suppliers started to see a steady increase in demand starting late in Q1, with revenue expected to peak in the traditionally strong Q3.

The rapid growth this year is a major improvement from the tepid three percent expansion last year, when industry growth slowed after a blistering 45 percent surge in 2010 following the recession. Unlike last year's sudden slowdown, however, foundry revenue will remain strong in the years ahead. Revenue will rise another 14 percent next year to an estimated $33.6 billion, with solid double-digit growth continuing in 2014 and 2015, IHS predicted.

"This year's notable performance is a result of the widespread growth of consumer-related products requiring advanced technology for low-power applications," stated Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. "For such applications, the overall number of semiconductors!or semiconductor content!must grow in order to support the more sophisticated functionalities."

Worldwide pure-play semiconductor foundry revenue

Among the products that will increase their semiconductor content this year are hot portable devices including tablets, smartphones and ultrabooks. In particular, the increased sales expected this year in tablets and smartphones will spur revenue expansion for the NAND flash memory and logic application-specific integrated circuit (ASIC) semiconductor markets.

Meanwhile, a revitalized notebook market!due to the Ultrabook's emergence!will power revenue growth in the microprocessor semiconductor space. The segments above will represent a stark contrast to one dwindling semiconductor market in the foundry segment. This year, the slowing sales of DRAM!a former revenue and technology leader within the broader memory segment!is forecast to underperform, especially in light of the recent bankruptcy filed by key DRAM player Elpida Memory Inc. of Japan.

Challenges remain
Even with the sense of widespread optimism now sweeping through the semiconductor industry, daunting challenges remain.

The most critical issue last year will continue to be the global economy, IHS said. Although conditions in the U.S. and some Eurozone countries are beginning to improve, growth could still stall for these and other economies dependent on oil, especially in the wake of already high energy prices that could spiral further out of control if tensions remain unresolved in the Middle East.

Inventory also remains a key concern throughout the supply chain at this time. Companies, for instance, are still waiting to place orders at the last possible minute, knowing that overall manufacturing capacity remains in excess of demand. How much additional inventory reduction will be necessary remains to be seen, dependent more on possible new innovations that could fuel semiconductor growth than on a simple adjustment being made to supply and demand for existing products.

A third challenge for foundries relates to finances. Firms are projected to be even more cautious on actual capital spending in 2012, although expenditures already are forecast to plunge 19 percent this year.

Foundries also will have to contend with a continuing decline in average selling prices (ASP) in light of increased overall competition.

TSMC leads foundries
The pure-play foundry landscape continues to be fragmented into a principal echelon comprising the top four suppliers, with the remaining 16 companies forming a less influential second tier.

The Top 4 pure-play foundries last year included No. 1 Taiwan Semiconductor Manufacturing Corp. (TSMC) with revenue of $14 billion, followed by UMC at a distant second with $3.6 billion. The remaining Tier 1 suppliers were No. 3 Globalfoundries with $3.5 billion and fourth-placed Semiconductor Manufacturing International Corp. (SMIC) with $1.3 billion.

At No. 5 last year and ranked at the top of the second tier was TowerJazz Semiconductor with $613 million. TowerJazz also enjoys another distinction: The model used by the company to increase capacity, through fab acquisition with a multiyear foundry manufacturing agreement, remains the most viable expansion method for companies looking to grow capacity, IHS believes.

Such a solution, which involves acquiring a fab and then building off of the expertise of an existing manufacturing facility, is the most effective way to serve demand when it is aggregated in the semiconductor market, especially as many second-tier foundries in China and Europe are finding it difficult to achieve differentiation.

TSMC remains in the unique position of having more capacity than all of its competitors combined, as well as possessing the financial strength to outspend every one of its rivals.

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