iSuppli raises 2010 semiconductor foundry forecast

EL SEGUNDO, USA: In light of renewed demand for consumer-oriented electronics products, iSuppli Corp. has raised its revenue forecast in 2010 for pure-play semiconductor foundry revenue.

“During the first three quarters of 2010, foundries were under intense pressure to meet customer demand,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli. “The pressure is leading to increased revenue, as consumer spending has come back with a vengeance following a dramatic downturn in the fourth quarter of 2008 and for all of 2009.”

As a result, iSuppli has raised its revenue forecast for all semiconductor foundry activity for 2010 to $29.8 billion, up 42.3 percent from 2009’s $22.1 billion. iSuppli previously predicted revenue would rise 39.5 percent this year.

By 2014, total pure-play foundry revenue will reach $45.9 billion, managing a CAGR of 9.4 percent from $26.8 billion in 2008. Pure-play foundries are contract manufacturers whose business consists of producing semiconductors on behalf of other chip companies.

The leading pure play semiconductor foundries in 2009 were Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC). Aside from pure-play foundries, semiconductor Independent Device Manufacturers (IDMs), which produce semiconductors for their own use, also engage in some foundry chip making.

The figure presents iSuppli’s global foundry revenue forecast, consisting of both pure-play and IDM production.Source: iSuppli, USA.

Spending unchanged
Notwithstanding the adjustments, iSuppli hasn’t changed its forecast for capital expenditures by the foundry segment in 2010. iSuppli still sees foundries spending 123 percent more on capital equipment in 2010 over 2009.

Much of this spending is going toward developing advanced semiconductor manufacturing processes. Because of this, older semiconductor manufacturing processes in 2010 will continue to suffer capacity constraints. This also implies that Integrated Device Manufacturers (IDMs) hoping to achieve increased run rates for legacy technologies won’t find available capacity this year.

China woes
China was unable to develop technology differentiation or expand during the downturn and, as a result, manufacturers in the country have found that competing on price alone does not provide sufficient profits to fund future growth for domestic foundries.

“The era may be coming to an end when fabless suppliers look to China for low-cost manufacturing that could be used as leverage to obtain lower pricing from other foundries,” Jelinek said. “With no significant manufacturing expansions in China during the past two years, and with no major capacity increases forecasted for this year, this prediction may come true quickly.

“Furthermore, state-funded expansion in China has slowed because of the downturn, so the chances of expansion in these semiconductor manufacturing facilities will be minimal, iSuppli believes. Any front-end expansion that occurs will be conducted through the municipal governments. By and large, the financial model used to justify previous expansion has not met investment expectations.”

Source: iSuppli, USA.