Fears that new competition in the semiconductor foundry industry will cut profit margins and turn the business into a low-profit industry, such as DRAM memory chips, are unfounded, says US-based Semico Research Corp.
Earlier this year, industry analysts predicted the opening of at least three new semiconductor foundries in China and Malaysia threaten to turn the chip manufacturing business into a low-profit venture. Companies such as Taiwan Semiconductor Manufacturing Co (TSMC,
Worse, some say the industry could become a low-profit industry such as the making of DRAM memory chips, which are mass produced in such quantity that they trade on open markets like oil, grain and other commodities. Semico Research Corp says it isn't so.
"I don't think `commoditized' would be the correct label. Foundries supply a wide variety of customers/products with a wide variety of process technology needs. There is still a tendency for many foundry customers to go to TSMC, UMC and [Chartered Semiconductor Ltd (特許) of Singapore] as their most reliable sources."
"Those companies certainly are leading in technology, service offerings and size," said Joanne Itow, chip foundry researcher at Semico.
Semico last week said the foundry industry will roar back to life in 2002 and 2003 after suffering its worst year ever this year. This is the first year the foundry industry has suffered such a severe setback, Semico officials said.
TSMC and UMC have both seen chip-production lines slow all year due to a lack of customer orders. At its last investors' conference, TSMC said its utilization rate might drop below 40 percent during the third business quarter. UMC has experienced an even steeper drop.
Semico said shipments from foundries worldwide will decline 25.7 percent this year, but then rebound in 2002 with 37.1 percent growth, followed by another increase of 23 percent in 2003. Chip foundry customers will purchase only 9.48 million 8-inch equivalent silicon wafers -- the material chips are made from -- this year, down from 12.75 million wafers last year, Semico said.
These figures represent a revision of an earlier Semico forecast. The company cut an earlier forecast due to lackluster demand for semiconductors and an oversupply of chipmaking capacity. It is the current over supply that caused speculation on the future of the chip foundry industry. Too many chip plants mean low profit margins for companies in the sector.
"There is always a chance that too many foundry suppliers could possibly build too many fabs and flood the market with capacity but I don't think that will happen," Itow said.
She said that "these newcomers in China and Malaysia have their work cut out for them" in terms of competing with the technology and services that TSMC, UMC and Chartered Semiconductor already have.
But Semico believes the growth rate in the foundry industry proves it can support a few more suppliers.
"It wasn't long ago that TSMC was the only dedicated foundry supplying lagging technology to the `sweet spot' of the industry ... and making money at it. It is possible for a few newcomers to offer services at the sweetspot of the market and be very successful. The key [question] is can they deliver service and reliability?" Itow said.
The downturn this year is now believed to be the worst ever in the chip foundry business. The only other downturn suffered by the industry was in 1997 and 1998, when business fell between 0.5 percent and 1 percent, according to Semico.
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