SAN FRANCISCO—It's a great time to be a fabless company with leading-edge designs, according to Dean Freeman, a research vice president at Gartner Inc. That's because, as Freeman sees it, the top foundry players are moving to ratchet up capacity at 40- and 28-nm, setting the stage for a market share battle and a corresponding drop in wafer pricing.
According to Freeman, the semiconductor industry has never before had more than one foundry that could offer process technology near the leading edge. But today, there are three—Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), Globalfoundries Inc. and Samsung Electronics Co. Ltd.—Freeman said.
"I think you are going to see leading edge prices drop off very quickly as the competition moves into that area," Freeman said Monday (July 12) at the annual SEMI/Gartner Market Symposium here. "There is a huge amount of capacity coming on line at the 40- and 28-nanometer nodes."
By the fourth quarter of next year, TSMC, Globalfoundries and Samsung combined will have the capacity for nearly 280,000 300-mm wafer starts per month at 45-nm and below, up from about 70,000 in the fourth quarter of 2009, according to Gartner estimates. TSMC and Globalfoundries plan to spend a combined $7.9 billion on capital expenditures this year, according to Gartner.
"Foundries are spending now to add capacity at 40-nm and spending to meet the 28-nm ramp," Freeman said. "You have a significant number of companies all introducing technology at the same time, which is going to lead to a significant market share battle."
Bill McClean, an analyst with market research firm IC Insights Inc., said in 2008 that foundries were pulling capital spending back to more realistic levels and focusing on increasing revenue per wafer. Reached Monday for comment on Freeman's prediction, McClean said the dynamic had changed with the emergence of Globalfoundries over the past 18 months.
But McClean expressed doubt that Globalfoundries has the muscle to start an all out price war with TSMC, noting that many of Globalfoundries' planned capacity additions won't come online for many months.
"I'm not sure how much Globalfoundries can exert in terms of pricing pressure," McClean said.
Despite losing a small amount of market share last year, TSMC still held nearly 45 percent of the foundry market in 2009, according to Gartner. Freeman said both Globalfoundries and Samsung are pushing hard to cut into that lead.
Asked what is the best case scenario for Globalfoundries, Freeman said the fledgling foundry could steal significant market share from TSMC if and when parent company Advanced Micro Devices Inc. pulls the manufacturing of its ATI graphics processors from TSMC and gives the business to Globalfoundries.
Freeman also expressed concern about the rapid increase in capacity by foundries, calling the 300,000 wafer starts per month that the industry has added in recent times "way too much." He likened it to the situation in the 1990s, when DRAM companies and foundries added a great deal of capacity, creating a glut, in order to increase market share.
"What it looks like today is that they [foundries] are trying to buy market share again," Freeman said. "I think we many have some excess capacity out there. As you get into that excess capacity, that will be a huge advantage for the fabless companies."