Foundries play semiconductor survivor in 2010

EL SEGUNDO, USA: Although the global semiconductor foundry market is set to make a welcome return to growth in 2010 after a terrible 2009, the recent downturn is likely to thin the ranks of the top-tier pure-play suppliers down to just three major players in the future, according to iSuppli Corp.Source: iSuppli, Oct. 2009

Global pure-play foundry revenue is set to rise to $21.6 billion in 2010, up an impressive 21 percent from $17.8 billion in 2009. This follows a disastrous 10.9 percent plunge in 2009. The foundry market in 2010 will outperform the overall semiconductor industry, which will expand by 13.8 percent.

“The year 2009 is likely to be one that pure-play foundries would love to forget and will make them long for 2010,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli. “However, next year is likely to bring a new set of challenges, as the rising cost of competition winnows down the number of players in the market.

The expense of developing and implementing next-generation processes for a variety of technologies is rising rapidly. The only way to be a leader and outperform the market is to stay at the cutting edge of semiconductor process development. Only companies with sufficient size can support these costs.”

In the past, some foundries have found success by focusing on low-cost manufacturing, trailing behind the process migrations of the most advanced players, Jelinek noted. However, this so-called “fast-follower” strategy no longer is a route to success amid slowing market success. In fact, the fast-follower strategy now serves only as a route to the fringes of the semiconductor manufacturing business.

Acquired taste
The landscape of the foundry industry is being permanently reshaped by a wave of acquisitions and mergers.

Among these acquisitions is the pending merger between Hua Hong NEC and Grace Semiconductor. This will significantly reshape China’s foundry industry. In another example, Tower Semiconductor Ltd. in 2008 purchased Jazz Semiconductor Inc. However, these moves only presage what is expected to be a spate of mergers and acquisitions in 2009.

The proposed acquisition of HeJian Technologies by Taiwan’s United Microelectronics Corp. (UMC) will further consolidate the Chinese foundry market. It likely also will put UMC back into the No.-2 position among global pure-plays, a position it lost to GlobalFoundries Inc. this year.

GlobalFoundries made a deal for Chartered Semiconductor just a few weeks ago to gain that company’s core competencies along with its five 200mm fabs and one 300mm facility. The move also catapulted the pure-play into the No.-2 position among foundries. Looking ahead, Semiconductor Manufacturing International Corp. (SMIC) very well may acquire Cension Semiconductor Manufacturing International and Wuhan Xinxin Semiconductor Manufacturing Corp., two companies it is managing.

Small foundries Silterra, Altis and Landshunt all are struggling, and thus have become the subject of speculation regarding a merger with another manufacturer. When this consolidation process concludes, it’s likely that only three top-tier players will be left.

Silver linings
Indeed, the year 2009 is one that the foundry market won’t look back upon at fondly. However, that isn’t to say that some positives are not emerging during the course of the year.

Specifically, technology continues to develop and to gain more clients for the pure-play foundry suppliers as Integrated Design Manufacturers (IDMs) expand their proven asset-light programs.

Innovation continues to advance in both end-product design and manufacturing technology. As consumers return to stores, this innovation likely will result in new and different products on the shelves, helping to sustain some semblance of recovery, even if it is delayed into 2010.