IC industry consolidation is here!

SCOTTSDALE, USA: IC Insights keeps a close watch on IC capacity trends as an indicator of future IC ASPs and overall IC industry strength. Since 2Q07, IC suppliers have been paring down their older capacity (i.e., ≤200mm wafers).

The decline in ≤200mm capacity picked up speed in 2009 and is expected to continue throughout 2010 as memory manufacturers steadily close or upgrade their 200mm fabs to produce 300mm wafers. Moreover, more companies are expected to shutter their older fabs as they transition to the fab-lite business model or go completely fabless.

The V-shaped quarterly rebound in IC unit shipments in 2009, coupled with the closure of numerous ≤200mm fabs, caused total IC capacity utilization to surge starting in 2Q09.

While the total IC industry capacity utilization was only 57 percent in 1Q09, it reached 93 percent in 1Q10, a level that was higher than before the global economic crisis! As a result, in 1Q10 there were a number of device types that were reported to be very difficult to secure or that saw leadtimes dramatically increase.

As tight as overall IC capacity has been in the IC industry since the first half of 2009, 300mm capacity has been even tighter! In 1Q10, 300mm capacity utilization was 97 percent. It should be noted that IC industry capacity utilization figures of ≥96 percent essentially indicate a "sold out" situation.

IC Insights believes that one limiting factor to 30 percent or greater IC market growth in 2010 might be the lack of IC fabrication capacity needed to support such growth. With most capital spending in 2010 going toward developing and moving to finer feature sizes (with little going toward adding wafer starts), the availability, or lack of availability, of IC devices will become a major factor in the second half of this year.

Given that almost all DRAM, NAND flash memory, and microprocessors are produced using 300mm wafers, it follows that each of these segments registered increasing average selling prices throughout 2009 and into 2010. IC Insights believes that buyers of these IC devices should be prepared for similar ASP trends for these products in the second half of this year.

In the past, IC Insights has pointed out how semiconductor industry capital spending is becoming more concentrated, with a greater percentage of spending coming from a shrinking number of companies. Because of this trend, IC industry capacity is also becoming more "concentrated."

Included in IC Insights' Strategic Reviews database is a very detailed company fabrication facility listing. This listing includes wafer fab capacity levels, feature sizes, wafer sizes, types of devices produced, etc. This database of fabrication facilities was used to determine how much IC capacity is held by the major IC producers.

After examining the data in the Strategic Reviews database, it was determined the top 10 capacity leaders held about 60 percent of the total 2009 worldwide IC capacity, and the top 15% percent held a 71 percent share.

However, when looking at only 300mm capacity, the top 10 leaders held an imposing 84 percent share with the top 15 companies holding all but 8 percent of the world's 300mm IC fabrication capacity (Fig. 1)!

Fig: 1Source: IC Insights, USA.

With so few companies representing such a large share of the leading-edge IC production, IC Insights' long-held belief that the companies left standing after the "shakeout" will reap the rewards of increased profitability, is now coming true.

However, for the IC user, this also means that IC average selling prices are unlikely to decline as they have in the past. The pricing pendulum is now swinging in favor of the IC producers and it may not be swinging back for a long time.