In a tough year for most foundry service providers, IBM Corp. stood out in 2002, with its revenues surging by $180 million, according to the latest foundry market-share research from iSuppli Corp.
IBM solidified its No. 3 foundry ranking in 2002, gaining some ground on No. 2 player United Microelectronics Corp. (UMC) and widening the gap with fourth-placed Chartered Semiconductor Manufacturing Ltd. Big Blue's foundry revenue rose to $730 million in 2002, up 32.7 percent from $550 million in 2001.
IBM's success reflects the company's aggressive drive to boost its foundry services business. After years of performing foundry work primarily to fill underutilized fab capacity, IBM in 2002 changed its corporate strategy and formed a division to provide leading-edge foundry services.
Looking back, IBM's first year was very successful.
Unlike the other major foundry service providers, IBM is not a provider of mature technology. Rather, IBM's foundry services leverage leading-edge technology that was developed internally at the company. IBM's strategy is to offer foundry service support exclusively to key customers whose designs require high-volume advanced technology.
Meanwhile, the top 10 ranking of the foundry service providers in 2002 did not change significantly from 2001. In fact, the ranking can best be summed up as "The Big Two" -- i.e. Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and UMC -- and all the rest. TSMC and UMC combined to capture 57 percent of all foundry revenues in 2002.
No. 1 ranked TSMC continued to dominate the foundry services market in 2002. With its ongoing technology conversion to the 0.13-micron geometry using 200mm wafers, and the completion of its 300mm facilities, Fab 12 and Fab 14, TSMC has positioned itself to retain leadership, iSuppli believes.
UMC spent 2002 developing a strategy intended to maintain its No. 2 foundry position, while minimizing fluctuations in factory loading and profits. Like its major rival, TSMC, UMC also has focused on expanding its leading-edge technology capability through conversions of existing capacity.
Both TSMC and UMC recognize that by transitioning customers to next-generation technology and by minimizing capital expenditures, both their revenue and profits will increase.
One interesting player among the top 10 foundry service providers in 2002 was Hynix Semiconductor Inc., coming in at No. 9 . Long considered only a memory supplier, Hynix has transformed its older fabs to support foundry services. By leveraging these existing fabs, Hynix has been able to improve its bottom line somewhat, although its foundry revenues decreased in 2002.
The most interesting companies in the 2002 foundry revenue ranking weren't among the top 10 players. Two Chinese foundries -- Advanced Semiconductor Manufacturing Corp. (ASMC) of Shanghai, ranked No. 16, and Semiconductor Manufacturing International Corporation (SMIC), ranked No. 19 -- made significant progress in the global ranking.
In just its first full year of providing foundry services, SMIC jumped all the way to the No, 19 spot. iSuppli anticipates that with the partnerships announced in the second half of 2002 and in the first quarter of 2003, SMIC will continue to ascend in the revenue rankings.
This is significant since SMIC is pursuing a foundry model that positions memory as its key product offering. To date, no other pure-play foundry company has been successful using this model.
ASMC, established as a foundry services provider in 1995, continues to expand profitably. In 2002, ASMC increased its foundry revenue by 15 percent by focusing on mature process technologies, and on products like discretes, high-voltage analog devices and memories. ASMC has continued to expand capacity and now is in the process of starting up its initial 200mm fab in Shanghai.
Foundry services remain the preferred means for integrated device manufacturers (IDMs) and fabless companies to expand their capacity and to gain access to leading-edge technology. The cost of capacity expansions and technology migrations simply exceeds the capabilities of many IDMs and fabless companies, compelling them to work with the foundries.
iSuppli predicts the foundry market in 2003 will grow by 22 percent and achieve total sales in excess of $14 billion.
Len Jelinek is a principal analyst with iSuppli Corp. Further information on semiconductor manufacturing is available in Jelinek's report, "Overcapacity Remains Even Though Explosive Unit Growth Continues," from iSuppli's Semiconductor Manufacturing service. Contact him at email@example.com.