Components | April 18, 2012
Pure-Play semi foundry market with 12% growth in 2012
Increasing electronics content in popular tablet and smartphone devices like the iPad and iPhone and in Ultrabook PCs will drive accelerated growth for the global semiconductor foundry business this year, according to IHS.
Revenue in 2012 for pure-play foundry suppliers is forecast to grow to $29.6 billion, up a brisk 12 percent from $26.5 billion in 2011. This is about triple the level expected for the overall semiconductor industry. Foundry suppliers started to see a steady increase in demand starting late in the first quarter, with revenue expected to peak in the traditionally strong third quarter. The rapid growth this year is a major improvement from the tepid 3 percent expansion in 2011, when industry growth slowed after a blistering 45 percent surge in 2010 following the recession. Unlike last year’s sudden slowdown, however, foundry revenue will remain strong in the years ahead. Revenue will rise another 14 percent next year to an estimated $33.6 billion, with solid double-digit growth continuing in 2014 and 2015. Foundries are manufacturers that produce semiconductors for fabless firms, i.e., companies that don’t operate their own semiconductor-manufacturing facilities. “This year’s notable performance is a result of the widespread growth of consumer-related products requiring advanced technology for low-power applications,” said Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. “For such applications, the overall number of semiconductors—or semiconductor content—must grow in order to support the more sophisticated functionalities.” Among the products that will increase their semiconductor content this year are hot portable devices like tablets, such as the industry-leading iPad; smartphones, including those from Apple as well as Google Android handsets; and ultrabooks, a key new device that many companies hope will drive fresh growth. In particular, the increased sales expected this year in tablets and smartphones will spur revenue expansion for the NAND flash memory and logic application-specific integrated circuit (ASIC) semiconductor markets. Meanwhile, a revitalized notebook market—due to the Ultrabook’s emergence—will power revenue growth in the microprocessor semiconductor space. The winning segments above will represent a stark contrast to one dwindling semiconductor market in the foundry segment. This year, the slowing sales of dynamic random access memory (DRAM)—a former revenue and technology leader within the broader memory segment—is forecast to underperform, especially in light of the recent bankruptcy filed by key DRAM player Elpida Memory Inc. of Japan. Challenges remain despite rosy picture Even with the sense of widespread optimism now sweeping through the semiconductor industry, daunting challenges remain. The most critical issue in 2012 will continue to be the global economy, IHS believes. Although conditions in the United States and some Eurozone countries are beginning to improve, growth could still stall for these and other economies dependent on oil, especially in the wake of already high energy prices that could spiral further out of control if tensions remain unresolved in the Middle East. Inventory also remains a key concern throughout the supply chain at this time. Companies, for instance, are still waiting to place orders at the last possible minute, knowing that overall manufacturing capacity remains in excess of demand. How much additional inventory reduction will be necessary remains to be seen, dependent more on possible new innovations that could fuel semiconductor growth than on a simple adjustment being made to supply and demand for existing products. A third challenge for foundries relates to finances. Firms are projected to be even more cautious on actual capital spending in 2012, although expenditures already are forecast to plunge 19 percent this year. Foundries also will have to contend with a continuing decline in average selling prices (ASP) in light of increased overall competition. TSMC rules the foundry roost The pure-play foundry landscape continues to be fragmented into a principal echelon comprising the Top 4 suppliers, with the remaining 16 companies forming a less influential second tier. The Top 4 pure-play foundries last year included No. 1 Taiwan Semiconductor Manufacturing Corp. (TSMC) with revenue of $14.0 billion, followed by UMC at a distant second with $3.6 billion. The remaining Tier 1 suppliers were No. 3 Globalfoundries with $3.5 billion, and fourth-placed Semiconductor Manufacturing International Corp. (SMIC) with $1.3 billion. At No. 5 last year and ranked at the top of the second tier was TowerJazz Semiconductor with $613.0 million. TowerJazz also enjoys another distinction: The model used by the company to increase capacity, through fab acquisition with a multiyear foundry manufacturing agreement, remains the most viable expansion method for companies looking to grow capacity, IHS believes. Such a solution, which involves acquiring a fab and then building off of the expertise of an existing manufacturing facility, is the most effective way to serve demand when it is aggregated in the semiconductor market, especially as many second-tier foundries in China and Europe are finding it difficult to achieve differentiation. TSMC remains in the unique position of having more capacity than all of its competitors combined, as well as possessing the financial strength to outspend every one of its rivals.
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