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Semiconductor industry feels ripple effect of Intel's troubles

Posted: 23 Jan 2014 ?? ?Print Version ?Bookmark and Share

Keywords:PC? server? semiconductor manufacturing?

Declining PC sales, soft mobile demand, and increasing competition in servers have led Intel to consider cutting costs. The company is looking into various areas where it can trim costs, including investment in future process technology. As the company is considered an industry leader in semiconductor manufacturing, these measures could affect the industry.

Semiconductor fabrication is a complex manufacturing process that relies on materials technology, lithography technology, and transistor design. Intel has been a leader in bringing advancements in all three areas to market, and it is continually increasing transistor density and performance. It typically leads other companies by one to two generations in the manufacturing of logic devices, and this leadership has afforded the company a competitive advantage in x86 processors and related products. It is looking to leverage this advantage for foundry services.

However, this competitive advantage is based on the ability to continue to invest in fab capacity and new process technologies, which it spends billions on every year. What happens if Intel's revenue and margins drop?

The typical remedy is to cut costs. Intel recently said it will delay equipping one of its newest fabs, Fab 42 in Arizona. Another typical remedy is downsizing. Intel said last week that it will reduce its headcount by 5,000. If that's not enough, other things will need to be cut.

Intel has excess fab capacity, which positions it well for the future, but each new process generation still requires an increased R&D investment. The industry is already struggling to bring EUV lithography technology to market. An investment cutback could further exacerbate problems with that technology.

Similarly, the transition to 450mm wafers has been pushed out past 2020 as some development partners struggle with the economics of the move to a new wafer size. Intel appears unwilling to pay for it all up front. This does not appear to be linked to Intel's current cost-cutting efforts, but similar moves could be in the future.

As a result, other semiconductor vendors and foundries might be required to pony up more to make up the difference, or semiconductor process advancements might slow down. Changes in financial and market position due to market dynamics are inevitable, but the entire industry must continue to invest if the industry's economics are to remain the same. So far, it is unclear if Intel will be forced to cut process R&D. If it does, who will make up the difference?

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