LONDON – The world's leading foundries are facing difficult times due to the creation of too manufacturing capacity, according to Paul Otellini, president and CEO of Intel Corp., the world's leading chip maker.
"I think the foundry business is in big trouble over the next few years," Otellini told analysts at a conference here Thursday (Feb. 17) and accessed by EE Times by a telephone replay. He put it down to "significant overcapacity" mainly due to attempts to grab market share by new player Globalfoundries Inc. (Sunnyvale, Calif.). On Friday in Hillsboro, Oregon, Otellini said Intel would build a wafer fab in Arizona
and create 4,000 U.S. jobs in 2011.
However, talk of overcapacity does not chime with the view of some analysts, such as Malcolm Penn, founder of Future Horizons (Sevenoaks, England). Penn has heralded the coming of a fab-tight era
, due to a lack of spending on manufacturing capacity by both IDMs and foundries over the last couple of years.
Some have said that the chip world is rapidly collapsing to a handful of leading-edge chip makers most of whom will have some foundry interest. Intel and Samsung still make the majority of chips for sale under their own brand while Taiwan Semiconductor Manufacturing Co. Ltd. (Hsinchu, Taiwan) and Globalfoundries are pure-play foundries.
Nonetheless Otellini does not seem eager to be joining the foundry crowd any time soon. "Foundries make money not on the leading edge but on the trailing edge, with long running products," he said.
"Leading-edge capacity excess, driven by Globalfoundries' expansion primarily, means pricing is going to come down. As leading-edge pricing comes down, so does the trailing-edge [pricing], hollowing out the business. That means real trouble for Globalfoundries and TSMC over the next few years," Otellini predicted. He conceded that with its memory and logic operations Samsung was a different case.
Otellini said chip building was all about the efficiency of the development and manufacturing operations and that Intel's was second to none.
"Our competitors have to take what TSMC and Globalfoundries offer them," indicating that Intel liked having control of its manufacturing choices. But Otellini also glided over the collorary of his prediction of price erosion at the foundries; that fabless chip companies will be getting good deals on both leading- and trailing-edge silicon making those companies, the likes of Qualcomm and Broadcom, better able to compete with Intel.
Nonetheless, Otellini's conclusion was that Intel and Samsung would increasingly pull away from the manufacturing pack, particularly Globalfoundries and TSMC.