Chip fab obsolescence compounds foundry misery

EL SEGUNDO, USA: As if the massive downturn in global revenue weren’t enough, the global semiconductor pure-play foundry industry also is undergoing a period of wrenching changes, according to iSuppli Corp.

For 2009, the global pure-play foundry business is expected to underperform the total semiconductor industry. The current forecast is for the pure-play foundry industry to experience a 25.2 percent contraction in global revenue in 2009, while the total semiconductor industry will experience a 23 percent decline.

“Overall, 2009 will go down in the history books as one of the most difficult years ever experienced by the global semiconductor and foundry industries,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli.

“Unlike previous industry downturns, where supply and demand have driven upturns and downturns, the debacle in 2009 can be mainly attributed to external economic influences on the semiconductor industry that will take years from which to recover.”

Foundry reshuffle
Beyond the weak economic industry and economic conditions, the pure-play foundry industry is going through a fundamental reconfiguration that is affecting every aspect of the business.

This reshuffle has its origins in the trend of semiconductor manufacturing specialization and aggregation of demand. With the high cost of transitioning to more advanced semiconductor production technologies, more semiconductor suppliers have chosen to support technology development platforms through the use of third-party foundry manufacturing to develop differentiation through unique chip designs.

Chip suppliers also are reducing their product portfolios in order to become more responsive to changing market conditions. The economics of a company maintaining multiple manufacturing facilities to produce a broad base of products are clearly not practical when competing with highly focused manufacturers.

Gaining maturity
This change in business realities is forcing semiconductor manufacturers to retire older facilities at a faster rate.

“Historically, when semiconductor suppliers transitioned to new technologies, they maintained their mature factories for cost-effective manufacturing of older technology,” Jelinek said. “Today, as competitors transition mature technology to newer manufacturing platforms, cost pressures are making older manufacturing facilities uncompetitive to operate.”

In North America, the lifecycle for mature manufacturing facilities has reached its twilight. In Europe and Japan, companies are struggling with the social economic impact of shuttering facilities that are no longer competitive. All of this is being accelerated by favorable economic policies toward manufacturing in Asian countries.

As these policies continue to gain favor, companies will continue to transition manufacturing to these more cost-effective locations.

With capacity increases and outsourcing of semiconductor manufacturing concentrated on a smaller group of companies in low-cost production regions, the foundry industry is unlikely to mount a major recovery anytime soon.