SAN FRANCISCO—Projected record capital spending by the largest pure-play and IDM foundries in 2011 could result in foundry overcapacity by the end of next year, according to a report by market research firm IC Insights Inc.
Projected foundry capital spending in 2010 and 2011 is projected to total only 5 percent less than foundry spending over the five-year period between 2005 and 2009, according to IC Insights' McClean Report.
"A big upswing in capital spending, and the overcapacity that typically follows, has been an all-too common theme of some other IC market segments—namely DRAM and flash memory. Now, that situation stands a good chance of spilling over to the IC foundry segment in the near future due to a big increase in 2011 capital spending among several leading foundry suppliers," IC Insights said in a report circulated Monday (Feb. 7).
Collectively, capital spending among both pure-play foundries and IDM foundries is expected to grow 43 percent in 2011 to $19.7 billion, IC Insights said. In 2010, foundry capex spending rose 146 percent to $13.8 billion, IC Insights said.
IC Insights said that in some respects an increase in capital spending among foundry suppliers is necessary to accommodate the growing wave of semiconductor companies that are migrating to the fab-lite/fabless business model. The firm also said the big surge in foundry spending in 2010 was justified given the extremely low levels of spending in 2008 and 2009.
But IC Insights warned that it sees a situation developing in which the extremely large amount of capital spending planned for 2011 and possibly 2012 would lead to excess capacity and lower per-wafer revenues for the foundries.
IC Insights noted that pure play foundries Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and Globalfoundries Inc. recently announced plans to dramatically ratchet up capital spending this year. TSMC recently boosed its capex budget for the year to $7.8 million, an increase of 32 percent compared with 2010. Globalfoundries recently said it would spend $5.4 billion on capex this year, up 96 percent compared with 2010.
United Microelectronics Corp. is projected to spend about $1.8 billion on on capital spending in 2011, roughly flat with 2010, when it increased spending 227 percent from 2009, IC Insights said. Samsung Electronics Co. Ltd's $9.2 billion total semiconductor capex budget for 2011 includes a major upgrade to an existing fab or a brand new fab specifically dedicated to its foundry business, according to IC Insights.
It seems not long ago we were hearing about automobile production lines being shut down because of parts shortages; now we're hearing warnings of forthcoming foundry over capacity. Surely it must be possible to predict demand well enough to have adequate but not excessive capacity to manage the normal fluctuations in demand.
I believe Morris Chang explained that capital intensity relative to technology is NOT linear.
I suggest IC Insights transforms the capex $ into installed capacity (by technology).
TSMC is just beginning to capture sales @28nm and as everybody knows that technology is critical for supermobile applications.