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Baolt
Many chip company has gone to fab lite because of economic downturn and ...
Silicon_Smith
Agree. I think the few companies who are still holding onto and expanding their ...
Welcome to the 'fab-tight' era, says Penn
Peter Clarke
12/15/2010 3:24 AM EST
Where are the all the new shells?
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.
Related links and articles:
www.futurehorizons.com
News articles:
Penn predicts 6 percent chip market growth in 2011
Is IBM moving to fab-lite, research heavy?
Foundries, memory firms shine in IC ranking
Renesas moves to fab-lite strategy
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.
Related links and articles:
www.futurehorizons.com
News articles:
Penn predicts 6 percent chip market growth in 2011
Is IBM moving to fab-lite, research heavy?
Foundries, memory firms shine in IC ranking
Renesas moves to fab-lite strategy
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daleste
12/15/2010 4:20 PM EST
This is not surprising at all to me. The cost of a new fab is more than most companies can bear and it does not make sense for the few that can afford it. Moving your wafer production to foundaries just makes sense. The problem is going to be, who gets priority when the fabs are full? The biggest customers will. The small startups and fabless companies will be at the mercy of the foundaries. But then, they always were.
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wilber_xbox
12/19/2010 7:07 AM EST
I agree with dakeste that the cost of the fab is going to be so much that single company will not be able to afford the cost. But i think that this is just one scenario. Another scenario can be a monopoly (single or consortium) so that to be able to control the market prices better.
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Silicon_Smith
12/22/2010 11:55 AM EST
Agree. I think the few companies who are still holding onto and expanding their fabs while working on innovative products will win over the new and up coming players due to this scenario in the long run. It is neccessary for a more ambitious semiconductor company to retain considerable independance on the manufacturing front.
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Frank Eory
12/15/2010 5:14 PM EST
I disagree with the hypothesis that fab-lite is just a transition to fabless. Companies that make a variety of products that use different technologies have diverse fab needs. The analog mixed-signal group, for example, is always going to be using larger geometries than the group that makes processors & SoCs.
As a business trying to maximize your return on capital, which fabs do you invest in? The ones that build your mixed-signal products? The ones that require the latest process node? The ones that build the products with the most sales? Maybe instead you invest in those that build products that cannot be easily moved to a foundry, and leverage the foundries to handle upsides in demand for those products that the foundry is able to build for you.
Just because you have a diverse supply chain and use a mix of internal and external fabs does not mean you are in a transition to fabless.
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saratogawu
12/15/2010 7:10 PM EST
It is all about economy. Each company will have to honestly calculate their cost of wafer price from internal fab vs. external foundries. Product lines that can get cheaper from self-operated in-house fab line should continue to do so. All others should seek a more economical wafer source which is foundry.
Key word here is "honest cost calculation" which needs to include good and bad times when the internal fab is under utilized.
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gnipho
12/16/2010 4:23 AM EST
If Penn is right, such a fab-tight era would be a boon for new foundries eager for market share...
Judging from their capex plans, i bet Samsung and GlobalFoundries are doing their best to supply customers who can't get their sweets from TSMC...
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peter.clarke
12/16/2010 6:10 AM EST
@gnipho
But not many companies have the process R&D to get into the foundry market at the leading edge. As you highlight besides TSMC there is Samsung, GlobalFoundries, then there is Intel.
The only other companies i see able to put down a shell are Toshiba, Hynix and maybe Micron who are working on the memory front.
And that's it. Seven 'active' large-scale chip companies. The rest are milking the fabs and processes they have already developed.
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gnipho
12/18/2010 2:12 PM EST
@Peter
with 'new foundries eager for market share' i actually meant only Samsung and GF.
I agree that apart from these two there probably isn't anyone else who has both the money, the technology and the will to become a major foundry player.
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iniewski
12/16/2010 11:02 AM EST
I agree with Peter, at best there are maximum 7 foundries that can afford a new fab. With so much risk and such a high cost why enter that market? I bet that 7 will become 5 or maybe 3 in 10 years out. Look who builds airplanes: Boeing and Airbus. The rest is just small planes, niche markets. Semiconductor processing will be the same eventually...Kris
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GoGoGeek
12/16/2010 12:40 PM EST
"Fab-tight" is great wording. SEMI's World Fab Forecast talked about exactly that end of November. See article: "Fab Capacity Back in the Black - uncertain outlook for New Fab Construction" http://www.semi.org/en/MarketInfo/ctr_042104
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Patk0317
12/17/2010 12:16 AM EST
Perhaps "fab-tight" will enable some foundries to re-open in the USA? Especially if wafer costs rise, it may be more economical to fab some technologies here again. What do you think?
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peter.clarke
12/17/2010 7:38 AM EST
Some older or more specialized technologies perhaps. But in essence wafer production is about economies of scale and whoever makes on the biggest wafers in the biggest volumes has the per-chip price advantage.
The problem is you have to commit to spend $5 to $10 billion to do that. So it comes down to the cost of capital. In Taiwan TSMC was encouraged and supported has now achieved a leading position. In Abu Dhabi they are providing about $10 billion to give GlobalFoundries a chance of getting established.
That is helping to produce the GlobalFoundries' New York wafer fab but apart from that i don't see much reason for optimism about chip manufacturing "coming home."
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the_floating_ gate
12/17/2010 12:24 AM EST
Guess what
there will be 450mm and there will be a new player;
you (the fabless chipmakers) will not put their eggs in one nest - that's risk mangement
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peter.clarke
12/17/2010 7:42 AM EST
OK....I can see production on 450-mm diameter wafers coming from say, Intel, Samsung and TSMC, for example. But only after a period of stand-off when each waits for one of the others to commit the funds and pay the price of going first.
So Floating Gate when do you see 450-mm production starting... 2015, 2020 or 2025 or later?....and a new player?....maybe in a niche ....but not in high volume, not on 450-mm wafers, surely?
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RobDinsmore
12/17/2010 11:25 AM EST
450mm will not be possible until Intel builds D1X or TSMC, GF or Samsung builds a 450mm ready fab to house the tools. Even then where are the tools? Nobody, that I am aware of, has even built a prototype 450mm production tool. Scaling a production process from 300mm to 450mm is going to be very challenging, to say the least.
If we go by Intel's model, it will take them 2 years to get 450mm process up and running once the tools are in place. Maybe 18months if they can transfer the previous process from 300-450 smoothly. Regardless that time is after the tools are developed and manufactured en mass.
One thing that I don't like about this fab light, tight or whatever strategy, is that we do not have the R&D capacity for new technologies to be developed and incorporated into new devices. Foundries are all about using the same few processes to fab logic, dram, flash, bulk ICs, etc, and they are only looking to develop technologies that will fit those needs. What innovative technologies are we missing out on because companies cannot invest in technologies that are a little more out there? I mean things like superconducting quantum computation or other interesting analog technologies that come from cutting edge device research in academia. These types of technology really need an industrial approach to get them working, but the prevalence of the fab-light-tight model will have them labeled as too risky and unfundable.
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Dave.Dykstra
12/18/2010 5:52 PM EST
Well, fab-light or fab-tight or fab-less, right now there is more concern over where the worlds economies are heading in the short term and that leads to a lack of investment until there appears to be more short term certainty.
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docdivakar
12/20/2010 3:04 PM EST
I believe there is a healthy market for MEMS devices which do not need a state-of-the-art fab and the associated big price tag. These along with 3D chip integration via stacking are expected to provide economies of value as an alternative to few IDM's that afford economies of scale.
The 3D integration though may be more a packaging and assembly play at the backend than the fab at the front. How ever, the 3D 'flows' are still evolving, it will be interesting what 2011 brings.
Dr. MP Divakar
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Baolt
12/23/2010 8:13 PM EST
Many chip company has gone to fab lite because of economic downturn and advanteges of foundry services. However as soon as the economic situation comes back normal i dont think theyd be gone for fabless phase. The nicest example of fabless company model is AMD, where they were battling against intel. No need to talk about who is the winner of the race (ok let say AMD had some other issues but main thing was lack of production capacity/advanced pricing)
Yeah, its true that building up a new fab gets more and more expensive and few can bear it but the rule is the same. Who is really eagered to be involved and win the game. Abu dhabi has money and would like to power up anybody who would be in their side. Who knows about Chinese fellows and their dreams
I still dont think tight capacity and foundry fact would effect future of semiconductor markets that dramatically, its rather effecting speed of release of innovative electronics and of course the increasing the cost/value.
in any case who has the money and will, can still gear up for higher capacity if their need increases. Example? TI and their vertical implementation of fabs, toshiba and now sony...So who has the money still can get fab capacity without need to deal with foundry.
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