White goods market movement: Chipmakers go for the win

The power semiconductor industry is going through serious consolidation, as evidenced by two key announcements from some of the most prominent Silicon Valley firms—one is the creation of a stronger global power giant with the $3 billion takeover of International Rectifier Inc. by Infineon Technologies AG, and the other, the cutback on Fairchild Semiconductor Inc.'s production capacity by shutting down all the five-inch and some of the six-inch manufacturing lines that were part of its reboot into the power business in 1999.

Why the dramatic moves? Perhaps IHS Technology's analysis of the consumer white goods market can throw some light on this. The white goods market has been seen as a key driver for power devices, creating a huge volume demand from air conditioning, washing machines and induction hobs (cooktops). As more of these devices become connected, so the power semiconductors are a more important element in the control loop.

Worldwide shipments of home appliances are projected to reach 611 million units by year-end, up 4.8 per cent from 2013 according to IHS Technology, up from 4.5 per cent last year. Revenue growth is forecast to be even higher, set to climb 7.1 per cent in 2014, up from 5.9 per cent last year.

As well as growing, the market is consolidating across the globe with deals in the US, Europe, and Asia. With consolidation in the end markets driving the purchasing power of the customer, the chipmakers are positioning themselves for the hit on average selling price.

Despite the mantra that making power devices makes use of cost effective amortized fab capacity, Fairchild is shutting its five-inch and all but one of its six-inch lines in Bucheon, Korea to focus on its eight-inch capability in Bucheon, South Portland, Maine, and Pennsylvania (see Fairchild to shut down Penang, Bucheon fab lines). This is all about driving volume.

Meanwhile, after 35 years of years of fierce independence, International Rectifier Inc. has agreed to a $3 billion takeover by Infineon Technologies AG, creating an even stronger global power giant (see Infineon buys IR to reposition itself in chip industry).

"Recent acquisitions within the home appliance market show that the world's leading and largest home appliance producers hope to become even bigger, enlarging their footprint by moving into new territories and market segments," said Dinesh Kithany, senior analyst for home appliances at IHS, in a statement. "Production is also relocating to increase efficiency and to cut down costs, while being closer to their addressable regional markets."

Infineon, with 11 per cent of the power market and a focus on higher power devices, doesn't see much overlap with IR's power lines such as the HEXFET, instead seeing two "exciting" product lines coming together. IR has been closing some sites and was expecting to be back in profit this quarter. The deal is expected to close by the end of the year, and the consolidation opportunities will become clearer. The deal gives Infineon power manufacturing in Villach, Austria as well as the IR fab in Newport in Wales, UK. These are older plants where the future is uncertain in a drive to larger volumes. Instead it is the 8-inch lines in Dresden that will potentially drive the future of power at Infineon to meet the market demand.

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