And then there were three: Ranks of leading-edge chip foundries dwindle

EL SEGUNDO, USA: By the end of 2011, there may be only three remaining sources for high-volume, leading-edge semiconductor foundry manufacturing: Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), GlobalFoundries Inc. and Samsung Electronics Co. Ltd., according to new IHS iSuppli research.

The most advanced complementary metal–oxide–semiconductor (CMOS) semiconductor process technologies now are at the 22- to 20-nanometer (nm) level. Several other foundries, including United Microelectronics Corp. and Semiconductor Manufacturing International Corp., will be capable of providing near-leading-edge foundry manufacturing in high volume, at the 32nm and 28nm nodes. However, the big three foundries will be the only high-volume sources for the most advanced processes.

“The enormous cost of advanced semiconductor process technology is whittling down the ranks of leading-edge foundries, with just three firms likely to remain at the end of the year,” said Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. “Unless additional foundries join the party, semiconductor companies will face minimal competitive choices when it comes to advanced chip geometries.”

Intel Corp. in 2011 may decide to use some of its advanced manufacturing capacity and offer foundry services to design companies and fabless semiconductor suppliers that are incorporating the Atom microprocessor into their designs. Although such a move would represent a dramatic change of philosophy at Intel, it potentially could lead to significant revenue growth as well as more favorable asset utilization.

What’s next for Japan?
Although Japan long has been a leader in technology development, no Japanese supplier manufacturing at the 32nm and smaller geometries will remain at the end of 2011—a significant development that forebodes ill for the country.

Conceivably, Japanese equipment suppliers could leapfrog their competitors with the appropriate funding. If this were to happen, 2011 has to be the year that Japanese companies come out of their shells and become active in the foundry business. The alternative is far less pleasant, and the Japanese semiconductor industry could suffer greatly if it chooses to remain in the sidelines.

The figure presents a look at advanced CMOS logic manufacturing technology capability among companies in 2011.Source: IHS iSuppli, USA.

Competing with TSMC
So, which company will be the winner in the foundry market in 2011?

The obvious answer is TSMC, a company that owns 50 percent market share of the foundry space, possesses leading technology and enjoys the most available capacity. The company now has an empty shell waiting for equipment to be installed as demand materializes. Most likely, if TSMC were to begin selling directly to the merchant market, it would become the largest supplier of semiconductors, with revenue eclipsing that of current chip industry leader Intel.

The real question, however, is how much business Samsung, GlobalFoundries and Intel will take from TSMC.

Samsung has stated that its goal is to be the world’s leading supplier of semiconductors. This means Samsung must surpass Intel in terms of revenue. To accomplish that goal, Samsung must become more aggressive in both memory manufacturing and in the foundry business.

Meanwhile, Intel, Samsung, GlobalFoundries and TSMC are expected in 2011 to outperform the other foundries. All four companies have the technology, capacity and the money needed to maintain leadership within their segments.

One other company not in the foundry business but which could outperform in its sector is ON Semiconductor.

If ON is able to successfully merge Sanyo into its operation and improve the latter’s mature manufacturing operations—a real stretch for the management team—ON could see significant revenue increases, accompanied by a corresponding improvement in margin.
Source: IHS iSuppli, USA.