But the rapid exit of established IDMs from leading-edge chipmaking means that capital spending on semiconductor equipment has collapsed. Even though it grew strongly in 2010 at 13 percent of sales revenue it is still well below the long-term trend of 20 percent of sales revenue, said Penn. "2011 capex at 6 to 8 percent means the companies are already throttling back. There will be no excess capacity in 2012, Penn said.
"The fourth quarter of 2010 will be the first capacity growth [for six quarters]," said Penn pointing out that 3Q10 global chip manufacturing capacity was still 11.2 percent less than the 3Q08 peak, despite IC unit sales being up 13.2 percent.
"You used to have myriad semiconductor companies building fabs. Now they are expecting a couple of foundries to do it all for them." And those chip manufacturers that are spending are mainly performing upgrades or squeezing a few extra tools into existing sites. "The number of new shells is near zero."
Penn pointed out that while TSMC's $6-billion annual capital may seem a lot but is not going to change the situation significantly, which has seen greater than 90 percent utilization across the board and 98 percent utilization at the leading edge. "Manufacturing capacity utilization will drop back in 2011, due to 2010's capital expenditure, but they will still remain high."
"TSMC have put their prices up. They are not being underhand or deceitful. They just think it is time they were paid full value for all the risk investment they have made. They are tired of being paid $4 per square centimeter of silicon when their customers get paid $9 per square centimeter.
Penn also suggested that foundries would likely expect customers to start funding future fabs up-front. "The chip industry model is broken. It is over dis-aggregated," said Penn arguing that this is why there are some companies making moves towards vertical integration.
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