LONDON – Something has changed in the psyche of semiconductor manufacturers according to Malcolm Penn, founder and principal analyst with Future Horizons. They are no longer building wafer fabs in anticipation of demand. "Forget fab-lite, welcome to the fab-tight era," said Penn speaking at a one-day seminar on his market forecast for 2011.
Penn presented a 6 percent growth figure for the chip market in 2011 but he feels that the fundamental situation has changed. That change will drive good news for the foundries - and not such good news for everyone further down the supply chain.
In the past chip makers and pure-play foundries have tended to build wafers fabs in an attempt to be one of the first with significant manufacturing capacity at new manufacturing nodes. This has led to the risk of oversupply to the market and boom-bust cyclicality. But in the latest cycle, overlaid with the general economic crisis of 2008-2009, capital spending on semiconductor equipment has been conservative, Penn said. Thismust lead to an undersupply situation, increasing average selling prices and problems for chip companies that do not have control of their own manufacturing, he said.
"We've been running [manufacturing capacity] maxed-out for three years. We are now running in a fab-tight mode," said Penn "The chip makers are building fabs after the demand, and this changes the rules. The industry just hasn't realized yet."
Penn also described the coming years as "pay-back time" as he expects leading foundries such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) to use their strong positions to raise the cost of wafers. Some observers believe previously pure-play foundries may even be tempted to enter the market place and sell direct to leading OEMs.
Penn has been a long-time opponent of the so-called 'fab-lite' policy whereby established chipmakers have saved on capital expenditure by outsourcing some part of their chip manufacturing to foundries. This has usually been the leading-edge digital manufacturing leaving the chip companies to fill their older wafer fabs with less aggressive digital designs or analog, mixed-signal circuits. Penn has consistently described fab-lite as unsustainable in the long term and as just a way of describing a transition to fabless status.