The Asia-Pacific dedicated integrated circuit (IC) foundry sector, which includes companies such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電), is expected to face increasing risks beginning late next year, Fitch Ratings said in a report.
The report, published on Sunday, said aggressive capital expenditure and competition from integrated device manufacturing foundries would have a negative financial impact on “pure-play” foundries, while second-tier players such as China’s Semiconductor Manufacturing International Corp (SMIC, 中芯) would be more vulnerable during a downturn.
As for growing industry competition, Fitch said Abu Dhabi-funded GlobalFoundries Inc was poised to become a strong player in the years to come, while other new players, such as Samsung Electronics Co, Intel Corp and Powerchip Technology Corp (力晶科技), have entered or are planning to enter the sector to diversify their revenue streams and increase capacity utilization.
Currently, TSMC is the dominant “pure-play” foundry with nearly a 50 percent market share, according to IC Insights’ January data. Together with UMC, the two Taiwanese foundries have more than a 60 percent market share worldwide, followed by GlobalFoundries, with a market share of about 12 percent.
“Fitch anticipates that a substantial ramp-up of production and capacity expansion in 2010 and 2011 are supply side factors that will result in lower selling prices, lower capacity utilization and hence, lower revenue growth,” Fitch analysts Kevin Chang (張崇人) and Matt Jamieson wrote in the report.
This year, the world’s major IC foundry companies have allotted about US$19.7 billion for capital spending, 42.75 percent higher than about US$13.8 billion for last year, according to data compiled by IC Insights.
However, since the foundry sector was in a two-year upcycle between last year and this year, the accumulated capital expenditures during these two years were just 5 percent less than the aggregated capital expenditures during the five years from 2005 to 2009, resulting in market concerns about over-supply and weakening capital utilization.
“Fitch expects capacity utilization to weaken over the next six quarters — before substantial over-supply kicks in from 2013,” Chang and Jamieson wrote.
Based on Fitch’s analysis, capacity utilization among foundry companies has declined for two quarters since peaking in the third quarter of last year. Moreover, foundries’ revenue growth is likely to slow to 10.2 percent this year following a 49.6 percent rise last year and the growth is likely to ease further to 6.7 percent next year, the ratings agency cited IC Insight’s forecast as saying.
“Growth in the foundry business generally outpaced that of the semiconductor market, with increased outsourcing of chip manufacturing ... But the foundry market may suffer from price competition in 2013, leading to lower growth than for the overall semiconductor market,” the two analysts wrote.
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