Welcome to our annual State of the Industry issue, where we look at some of the markets and technologies that are driving electronics today. Leading research firms IHS and Gartner also keep a close watch on the market, and their recent reports on semiconductor foundries indicate good things for the health of the industry.
Foundries Growing By Double Digits
According to the IHS iSuppli report “Semiconductor Manufacturing and Supply Market Tracker,” increasing electronics content in popular tablet and smart-phone devices like Apple’s iPad and iPhone and in ultrabook PCs will drive accelerated growth for the global semiconductor foundry business this year.
Revenue in 2012 for pure-play foundry suppliers is forecast to grow to $29.6 billion, up 12% from $26.5 billion in 2011. 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 the first quarter, with revenue expected to peak in the third quarter.
This is not a one-shot deal. IHS says foundry revenue will remain strong next year and for the foreseeable future. The company expects revenue to rise another 14% next year to an estimated $33.6 billion, with solid double-digit growth continuing in 2014 and 2015. Why is this the case?
The usual semiconductor beneficiaries of the increased sales expected this year in tablets and smart phones will spur revenue expansion for NAND flash memory and ASICs. Meanwhile, don’t forget ultrabooks. These lightweight gazelles are expected to revitalize the notebook market, which will power revenue growth in the microprocessor semiconductor space.
These winners represent a stark contrast to one dwindling semiconductor market in the foundry segment. DRAM, a former revenue and technology leader within the broader memory segment now facing dwindling sales, is forecast to underperform this year, especially in light of the recent bankruptcy filed by key DRAM player Elpida Memory Inc. of Japan.
What, if anything, might affect these forecasts? IHS says the most critical issue in 2012 continues to be the global economy. Also, inventory remains a key concern throughout the supply chain. A third challenge for foundries relates to finances. The companies are projected to be cautious on capital spending in 2012. Expenditures already are forecast to plunge 19% this year. Foundries also have to contend with a continuing decline in average selling prices in light of increased overall competition.
Two Tiers
The pure-play foundry landscape continues to be fragmented into two groups: the top tier of four suppliers and the less influential second tier consisting of the remaining 16 companies. The top four pure-play foundries last year included Taiwan Semiconductor Manufacturing Corp. (TSMC) at number one with revenue of $14.0 billion, followed by UMC at a distant second with $3.6 billion.
GlobalFoundries saw $3.5 billion at number three, and fourth-placed Semiconductor Manufacturing International Corp. (SMIC) tallied $1.3 billion. TSMC remains in the unique position of having more capacity than all of its competitors combined, as well as the financial strength to outspend every one of its rivals.
Ranked at the top of the second tier and standing at number five last year was TowerJazz Semiconductor with $613.0 million. TowerJazz also enjoys another distinction, IHS says. The model the company used 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 says this 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.
The Gartner Top 10
Research and advisory company Gartner produced a top 10 list of semiconductor foundries for 2011 with further comments on two second-tier companies (see the table). Gartner says that Samsung’s foundry, with $470 million in revenue and ranked number nine, could have been ranked higher since Samsung Electronics was very aggressively expanding its large-scale integration (LSI) business in 2011. And had the estimated $1 billion Apple wafer business been included in its foundry revenue, Samsung would have ranked as high as number four. Powerchip, another player at the tenth spot, had a nearly threefold increase in foundry revenue in one year due to the strategic decision to shift out of the commodity DRAM business in early 2011.
Communications, consumer, and data processing continue to be the three key applications driving the foundry business, Gartner says. These industries accounted for 42.7%, 20.9%, and 20.3% of the foundry revenue, respectively, in 2011. Fabless customers contributed 77.8%, integrated device manufacturers contributed 20.2%, and the remaining came from system companies. America’s customers generated 62.8% of the foundry revenue, Asia/Pacific 22.2%, Europe 10%, and Japan 4.9%.
Additional details are available in the Gartner report “Market Share: Semiconductor Foundry Market in 2011,” which is available at www.gartner.com.