LONDON -- Silicon foundry companies could eventually capture up to 40% of revenues from processed wafers at integrated device manufacturers, but the top 10 IDMs will outsource no more than 10-to-15% of their ICs to third-party wafer fabs, according to a new report from Future Horizons this week.
IDMs--chip suppliers, which own and operate wafer-processing fabs--have become a prime target for silicon foundry expansion since the late 1990s. Pure-play foundries have set their sights on serving more IDMs after helping smaller fabless chip companies grow into major IC suppliers in the past decade, noted Future Horizons, based in Sevenoaks, England.
Third-party silicon foundries produced 6.2% of the processed wafers used by IDMs in 2000, up sharply from just 1.8% in 1998 and 3.8% in 1999, but the 2001 recession will drive that share down to 4.6%, or about $5 billion, said Future Horizons (see table below).
Overall, silicon foundry sales are expected to drop 41.6% to $16 billion from a record high $27.4 billion in 2000, said the U.K. research firm. Foundry revenues surged 67.1% in 2000, after growing 49% in 1999, said Future Horizons.
Prior to the 2001 downturn, "predictions that over half the integrated circuit market would shortly be served by foundries ran rife, as did the investment capability to enable this to happen," said Future Horizons in December newsletter. The research firm said it continues to be a "long-time believer" in the pure-play wafer foundry business model, but it also doubts that large integrated device manufacturers--in particular the top 10 suppliers in the world--will ever outsource more than 15% of their devices to third-party wafer fabs.
Smaller and mid-sized IDMs, however, are likely to significantly increase their use of outside chip-processing foundries, concluded Future Horizons, which cited the growing cost of new wafer fabs. Chip makers falling outside of the top 10 IDM group will eventually outsource 50-to-75% of their wafers, based on revenues, up from 9% in 2000, said Future Horizons.
However, the larger IDMs will find it more difficult to justify increased use of third-party fabs, asserted Future Horizons. In 2000, the top 10 IDMs outsourced 5% of their processed wafers, representing $5.5 billion in IC revenues, said the research firm. Looking ahead, the research firm predicts that the top 10 IDMs will outsource between 10-to-15% of their ICs to silicon foundries.
Future Horizons maintained that the cost of multi-billion fabs is still "affordable," based on a percentage of larger chip revenues, assuming historical growth rates in the IC industry. Large IC suppliers also risk the loss of control over the most important technology in chip making--frontend wafer processing--and they would have to share profits with a "middleman" when using third-party fabs, said Future Horizons.
These conclusions are drawn despite Motorola Inc.'s decision to outsource 50% of its CMOS wafer production as part of a restructuring of its chip business (see Dec. 19 story). Motorola's plan appears to be similar to an outsourcing effort launched in 1998, but it apparently hit some of the hurdles described by Future Horizons.
"Whilst we accept that the current industry restructuring will force a larger number of smaller players from the 'fabbed' to a 'fabless business model,' it is incomprehensible to believe that the larger semiconductor firms will ever use foundries in a meaningful way, other than tactically," concluded Future Horizons. --J. Robert Lineback reporting from the U.S.
Where Foundry Wafers Go
|Source: Future Horizons