Semicon foundries catching up after poor Q1

NEW TRIPOLI, USA: Semiconductor capacity utilization can give an indication of not only the state of the semiconductor industry but also prospects for the semiconductor equipment markets, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

Because of the downturn in the overall economy in 2009, capacity utilization -– the number of semiconductors made as a ratio to the plant (fab) capacity -- dropped precipitously in Q1 2009 to 55.6 percent from 89.7 percent in Q1 2008, according to SICAS statistics from the Semiconductor Industry Association (SIA).

“Clearly semiconductor manufacturers would not be building new fabs at $3 each to expand capacity when more than 40 percent of their plants are idle. Thus, equipment purchases by these manufacturers would not be for capacity expansion but for new technology usually planned several months out, as it can take up to a year for a company to make a purchase, have the equipment installed, qualified, and then ramped for production,” noted Dr. Robert Castellano, President of The Information Network.

In Q2 2009, as the economy improved and these companies sold off excess inventory, capacity utilization jumped to 76.7 percent. In the chart below, we call this row “actual” capacity utilization as reported by SICAS.Source: The Information Network

Closer examination shows that total semiconductor fab capacity dropped 12.4 percent between Q2 2008 and Q2 2009 as a result of 20 fab closures in 2009. If we calculate capacity utilization based on capacity for Q2 2008 (before the fab closures) and actual chip production in Q2 2009, capacity utilization would be only 67.2 percent in Q2 up from 51.5 percent in Q1 based on capacity in Q1 2008 and actual production in Q1 2009. In the chart, we call this “normalized” capacity utilization.

Obviously, capacity expansion is the furthest thing on semiconductor manufacturer’s minds in 2009. That leaves us with technology expansion. Again looking deeper into the capacity data, if we look at the leading-edge semiconductors, those made with dimension less than 80 nanometers, “actual” capacity utilization rose from 69.9 percent in Q1 2009 to 90.8 percent in Q2 2009.

For these advanced chips, capacity increased 0.7 percent between Q2 2008 and Q2 2009. The capacity utilization of only 69.9 percent in Q1 2009 needs further interpretation. If we again compare capacity in Q1 2008 with actual production in Q1 2009, “normalized” capacity utilization would be 85.6 percent. So, capacity utilization in Q2 2009 only increased 5.2 percent.

We forecast the semiconductor equipment market will drop 46 percent in 2009. What’s the basis of our forecast? Semiconductor manufacturers are bringing up the capacity utilization in the overall semiconductor market, but equipment is almost totally being purchased for technology expansion at the 80nm and below feature sizes, and that expansion so far this year is only 5.2 percent for leading-edge semiconductors.

The capacity for the leading edge semiconductors represented 42 percent of the total capacity in Q2 2009.

Foundries are a different story. Our semiconductor forecast growth for full year 2009 will be minus 17 percent. We expect the foundry sector to underperform the semiconductor market by 2 or 3 percentage points, thus down 19 percent or 20 percent from 2009. Why? In Q1 2009, the semiconductor market dropped 30 percent year over year. However, the foundry sector dropped more than 50 percent.

Foundry capacity, both “actual” and “normalized”, grew 66 percent and 56.5 percent, respectively, between Q1 and Q2 2009.

“They are catching up for a dismal Q1 and hence they will only underperform the overall semiconductor market by 2 to 3 percent,” added Dr. Castellano.

Chip fab obsolescence compounds foundry misery

EL SEGUNDO, USA: As if the massive downturn in global revenue weren’t enough, the global semiconductor pure-play foundry industry also is undergoing a period of wrenching changes, according to iSuppli Corp.

For 2009, the global pure-play foundry business is expected to underperform the total semiconductor industry. The current forecast is for the pure-play foundry industry to experience a 25.2 percent contraction in global revenue in 2009, while the total semiconductor industry will experience a 23 percent decline.

“Overall, 2009 will go down in the history books as one of the most difficult years ever experienced by the global semiconductor and foundry industries,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli.

“Unlike previous industry downturns, where supply and demand have driven upturns and downturns, the debacle in 2009 can be mainly attributed to external economic influences on the semiconductor industry that will take years from which to recover.”

Foundry reshuffle
Beyond the weak economic industry and economic conditions, the pure-play foundry industry is going through a fundamental reconfiguration that is affecting every aspect of the business.

This reshuffle has its origins in the trend of semiconductor manufacturing specialization and aggregation of demand. With the high cost of transitioning to more advanced semiconductor production technologies, more semiconductor suppliers have chosen to support technology development platforms through the use of third-party foundry manufacturing to develop differentiation through unique chip designs.

Chip suppliers also are reducing their product portfolios in order to become more responsive to changing market conditions. The economics of a company maintaining multiple manufacturing facilities to produce a broad base of products are clearly not practical when competing with highly focused manufacturers.

Gaining maturity
This change in business realities is forcing semiconductor manufacturers to retire older facilities at a faster rate.

“Historically, when semiconductor suppliers transitioned to new technologies, they maintained their mature factories for cost-effective manufacturing of older technology,” Jelinek said. “Today, as competitors transition mature technology to newer manufacturing platforms, cost pressures are making older manufacturing facilities uncompetitive to operate.”

In North America, the lifecycle for mature manufacturing facilities has reached its twilight. In Europe and Japan, companies are struggling with the social economic impact of shuttering facilities that are no longer competitive. All of this is being accelerated by favorable economic policies toward manufacturing in Asian countries.

As these policies continue to gain favor, companies will continue to transition manufacturing to these more cost-effective locations.

With capacity increases and outsourcing of semiconductor manufacturing concentrated on a smaller group of companies in low-cost production regions, the foundry industry is unlikely to mount a major recovery anytime soon.

Globalfoundries appoints Head of Enterprise Quality

SUNNYVALE, USA: GLOBALFOUNDRIES announced the appointment of Ron Dickinson as vice president of enterprise quality. The appointment marks the completion of the senior management team, cementing a strong leadership base to support the long-term growth and success of GLOBALFOUNDRIES as it aims to reshape the foundry landscape.

In his role, Dickinson will enhance the customer experience by driving maximum levels of quality assurance and reliability for internal and external areas across the business.

“To become the industry’s premier global foundry company, we need to execute on an uncompromised standard of excellence when it comes to quality management,” said GLOBALFOUNDRIES CEO Doug Grose. “Ron brings nearly three decades of world-class experience to help us achieve this goal by implementing a program that consistently meets and exceeds industry-leading benchmarks in efficiency, yields, quality, and cost.”

Dickinson will develop and implement a quality strategy and underlying processes, driving continuous process improvement across the company and streamlining processes by eliminating variation and increasing productivity. He will initially be based at Fab 1 in Dresden, Germany, and will transition to New York in the near future to oversee the assembly of a quality organization to support Fab 2—a $4.2 billion project to build the world’s most advanced semiconductor manufacturing facility.

“The establishment of GLOBALFOUNDRIES is creating a disruption in the industry with tremendous excitement around a new business model for global leading-edge foundry services,” Dickinson said. “I look forward to partnering with leaders across the company to drive productivity by developing and leveraging tools on an enterprise-wide basis. Our unyielding commitment to quality will be a key differentiator for our customers.”

Dickinson has spent nearly 30 years driving quality and operational excellence in highly competitive semiconductor manufacturing environments. Most recently, he served as director of operations and general manager for Freescale Semiconductor’s fab in East Kilbride, Scotland. There, he was responsible for implementing major performance improvements, including reducing operating costs and increasing direct labor productivity.
Prior to his tenure at Freescale, Dickinson held numerous quality and operations management roles at Chartered Semiconductor in Singapore—including running Chartered’s highest-volume wafer fab—and he had a distinguished engineering career in Motorola’s Semiconductor Products Sector.

Dickinson holds bachelor’s and doctorate degrees in chemistry from the University of Glasgow.

TSMC enhances 0.13-micron family

HSINCHU, TAIWAN: Taiwan Semiconductor Manufacturing Co. Ltd has released an enhanced version of its 0.13-micron process to benefit customers' cost and competition and to enable the integration of power management functions.

The 0.13-micron/0.11-micron family now includes a slim standard cell, SRAM and I/O with substantial area reduction and the 0.13-micron process also adopts LD-MOS (5V~20V) on RF platforms to enable analog and power management applications. The slim platform is available in the third quarter this year while the LD-MOS on RF platforms will be available in Q4 this year.

To meet the ever shrinking requirements for basic consumer and RF applications, the slim platform I/O area achieves a 30% reduction and SRAM bit cells demonstrate a 25% reduction when compared with traditional offerings. Furthermore, a 0.13-micron LD-MOS device built upon a RF platform enables SOC designs with power management functionality.

"This is another example of how TSMC is committed to enabling more efficient SoC design of wireless, consumer and communications devices using 0.13-micron process technology," said Dr. Simon Wang, senior director of Advanced Technology Business Division. "The result of these enhancements will spawn the next generation of innovation," he said.

TSMC's investment in R&D for technology and IP portfolios within the 0.13-micron/0.11-micron family now delivers a true 5V with Copper interconnect for the integration of analog, high-speed DSP, power management and watt-scale class-D amplification.

Along with new features development for system-on-chip design, TSMC also offers a shrunken path to enhance customer's competitiveness including sub-node and slim technology platform.

Foundry semiconductor market to rise in Q2

EL SEGUNDO, USA: After three quarters of contraction, the pure-play foundry semiconductor manufacturing industry will enjoy robust growth in the second quarter—but how long will the good times last?

Global revenue for pure-play foundries, i.e., companies dedicated to producing semiconductors on behalf of other chipmakers, is set to rise to $3.6 billion in the second quarter, up 59.3 percent from $2.2 billion in the first. The increase follows a 1.8 percent sequential decrease in the third quarter of 2008, a 32.3 percent decline in the fourth quarter of 2008 and a 38.2 percent plunge in the first quarter of 2009.

“The foundry market in the second quarter is benefitting from both a major reduction in semiconductor inventories throughout the electronics supply chain and innovative new designs requiring innovative technology,” said Len Jelinek, director and principal analyst, semiconductor manufacturing, for iSuppli Corp. “However, while this growth will come as a relief to the foundries, it will not result in 2009 being a growth year for the foundry industry. Sustainable semiconductor growth will come only when the global economy recovers and consumers return to more normal patterns of purchases.”

For all of 2009, the pure-play foundry market will underperform the overall semiconductor industry, with foundries suffering a revenue decline of 26.5 percent.

Q1 catastrophe
Global pure-play foundry revenue in the first quarter of 2009 fell by 57.7 percent from $5.3 billion in the first quarter of 2008.

The foundry market’s disastrous performance in the first quarter was reflected in the weak results of the Top-10 players, nine of which suffered double-digit percentage declines in revenue, both on a sequential and a year-over-year basis.

The table presents iSuppli’s ranking of the world’s Top-10 pure-play foundries in the first quarter.

iSuppli Table: Worldwide Pure-Play Foundry Ranking for Q1 2009 (Ranking by Revenue in Millions of US Dollars)Source: iSuppli, June 2009

The best performers among the Top-10 were Chartered Semiconductor and the newly-combined Tower Semiconductor Ltd. and Jazz Semiconductor Inc.

No.-3 ranked Chartered managed to outperform the overall foundry market by limiting its year-over-year sales decline to 43.4 percent. Company market share increased to 11.3 percent in the first quarter of 2009, up 2.8 points from 8.5 percent during the same period in 2008.

Tower’s revenue remained flat compared to a year earlier, allowing the company to expand its share by 1.5 points to 2.6 percent, up from 1.1 percent in the first quarter of 2008.

“Chartered’s and Tower’s relatively strong performances in the first quarter were due to acquisitions that expanded their revenue, rather than organic growth,” Jelinek said.

Chartered purchased an 8-inch manufacturing facility previously operated by Hitachi Semiconductor, while Tower acquired Jazz.

“Although 2009 will continue to be a challenging year for pure-play foundries, those companies that took aggressive actions to strategically prepare for the future in the second half of 2008 will emerge with increased market share and financial strength,” Jelinek said.