The Fabless/Foundry Supply Chain
Fabless companies are growing and evolving, driven by the need for a wider array of high performance, low power products in tablets, smartphones, and ultrabooks. Foundries are racing to meet their needs.
Led by Qualcomm, Broadcom, AMD, Nvidia and Marvell, fabless companies are quickly evolving, developing high performance, low power products in tablets, smartphones, and ultrabooks. Foundries, led by TSMC, UMC, GLOBALFOUNDRIES and SMIC, are racing to meet their needs, pushing into the 22nm technology node and more advanced types of packaging, including 3D integration.
Meanwhile, all eyes are on Intel's recent expansion into the foundry business. The giant microprocessor company recently landed three new fabless customers: Netronome, Tabula and Achronix. That's just a toe in the water at this point, but the potential to be a major player is explosive.
Also making a major change in the conventional fabless/foundry supply chain model is the industry leader, Taiwan Semiconductor Manufacturing Company (TSMC). The company recently announced plans to offer some levels of advanced packaging ??? so-called 2.5 3D integration ??? which pits is squarely against OSATS (companies offering OutSourced Assembly and Test Services), such as Amkor, ASE and STATSChipPAC. TSMC has also expanded into solar, LEDs and MEMS, and it's a sure bet other foundries are at least contemplating similar moves.
The overall supply chain is made of fabless companies ??? more than 1800 of them according to the Global Semiconductor Alliance (GSA) ??? foundries that do that do manufacturing and OSATS that do the packaging and testing of the parts. Analysts differentiate "pure play" foundries that do nothing but foundry work from other companies that offer foundry services. At one time or another, almost any company with excess manufacturing capabilities has entered the foundry business. Alternatively, when capacity is tight, it might also make sense for these same companies to outsource the manufacturing of some products. There is also a relatively new trend to a business model known as "asset lite" or "capital lite," where a company will have some limited manufacturing capability but will outsource most of the production to foundries. Why? The soaring cost of fabs. At the Common Platform Technology Forum in March Ana Hunter, vice president of technology for Samsung's System LSI foundry business, said the cost of a new, state-of-the-art fab is $7.5 billion. This means only a handful of companies can afford leading-edge manufacturing capability. Bill McClean of IC Insights notes that 27 companies now own 300mm fabs, and that only 14 companies have the potential to build a 450mm fab. Even fewer have the capability to push to 22nm and below.
One such company, Intel, recently extended its relationship with Netronome, manufacturing its flow processors using its 22nm tri-gate transistor architecture. Netronome claims the 22nm technology will enable new levels of flow processor performance, power and cost in network and security applications. The fabless semiconductor company joins 2 other Intel foundry customers, Tabula (programmable logic) and Achronix (FPGAs).
Intel's Custom Foundry services provide "substantial benefits" to Netronome products, with state-of-the-art transistor design; access to the 22nm process; and design for manufacturing (DFM), test (DFT), and reliability (DFR) practices, Netronome reports, anticipating reduced development costs and time to market. The semiconductor companies will engage in a joint development and manufacturing engagement on the product, sharing Intel's tools, processes, and proprietary modeling capabilities. "Intel can see expansion led in part by further monetizing its manufacturing (i.e. foundry/AAPL)," noted C.J. Muse, Barclays Capital.
According to an IHS iSuppli Semiconductor Manufacturing and Supply Market Tracker report, the pure-play semiconductor foundry business will ride the growth of mobile electronics and ultrabooks to $29.6 billion in revenues in 2012. This is a 12% increase over $26.5 billion in 2011, about 3x the rate of growth expected for the overall semiconductor industry. From 2010 to 2011, foundries saw only 3% growth, falling off after a 45% increase 2009-2010.
Demand will steadily increase from late in Q1 2012 to a peak in Q3. Unlike the drop-off seen in 2011, this foundry revenue growth will carry through in the years ahead. 2013 can expect 14% revenue growth ($33.6 billion), and 2014 and 2015 will also see solid double-digit growth, according to IHS (Fig. 1).
Worldwide pure-play semiconductor foundry revenue forecast. SOURCE: IHS iSuppli Research, April 2012.
Consumer electronics require advanced semiconductors with high performance and low power consumption, said Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. These applications use more semiconductors per product to support these needs. Notable drivers include tablets, smartphones, and ultrabooks. Increased tablet and smartphone sales will spur revenue expansion for NAND flash memory and logic application-specific integrated circuit (ASIC) semiconductor markets. The ultrabook will revitalize notebook PCs, in turn growing revenues for microprocessors.
The pure-play foundry landscape comprises 4 Tier 1 suppliers, and 16 Tier 2 companies. Rankings: Taiwan Semiconductor Manufacturing Corp. (TSMC) holds the top spot with $14 billion in 2011 revenue. 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, according to IHS. TSMC recently beat its Q1 expectations. UMC is a distant #2 with $3.6 billion revenues. GLOBALFOUNDRIES follows with $3.5 billion, and Semiconductor Manufacturing International Corp. (SMIC) made $1.3 billion (see Table 1).
At the top of Tier 2 is TowerJazz Semiconductor, with $613.0 million in 2011 revenues. 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 asserts. TowerJazz acquires a fab and then builds off of the expertise of an existing manufacturing facility, effectively serving 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.
The top 25 fabless IC suppliers captured 80% of a total $64.9 billion fabless IC market in 2011, according to IC Insights (Table 2). Sales topped $1 billion at 12 fabless companies; Qualcomm topped the list with nearly $10 billion in sales. US-based suppliers captured 8 of the top 10 rankings.
Worldwide fabless IC sales grew 4%, outpacing total IC market growth (1%), after an anomaly year in 2010 (total IC market growth was 33% vs 27% for fabless). Overall, 15 of the top 25 fabless IC companies outperformed the total 2011 fabless IC sales growth rate of 4%. Double-digit sales increases were seen at 8 fabless companies.
China-based Spreadtrum was the star performer among the fabless IC producers last year, logging an amazing 95% sales jump. Spreadtrum supplies baseband processors and highly integrated CMOS RF transceivers for wireless applications with over 90% of its sales to China-based customers.
Spreadtrum and ST-Ericsson are both heavily involved in the cellphone marketplace. In contrast to Spreadtrum, ST-Ericsson's IC sales dropped 28% in 2011 after declining by 9% in 2010. The difficult times at the company led to a restructuring in March of 2012 and it is rumored that this was a prelude to eventually putting the company up for sale, IC Insights reports.
The 8 top-25 fabless IC companies that registered double-digit growth in 2011 had combined sales of $20.1 billion, up 29% from their combined sales of $15.6 billion in 2010. Overall, these top eight performers increased their combined sales by $4.5 billion last year as compared to a $2.4 billion increase for total fabless IC company sales in 2011. It is obvious that these eight companies are now prime targets for the IC foundries (e.g., TSMC, GlobalFoundries, UMC, Samsung, etc.), according to IC Insights.
Much has been written about the need for collaboration across the fabless/foundry supply chain and strategies. An excellent source is the Global Semiconductor Alliance (www.gsaglobal.org). Increasingly, it is the field of 3D packaging that requires attention. The frontend, backend, and system suppliers must collaborate in chip development. Early engagement, EDA tool flow optimization, turnkey wafer-to-package assembly, and other risk reduction strategies take a design from R&D into high-volume manufacturing.
Nick Yu, VP of technology development, Qualcomm, brought a fabless perspective to The ConFab last year. In "3D Through Si Stacking Technology ??? a Qualcomm Perspective," Yu noted that 3D packaging creates thin, small, exciting products with long battery life. All 3D packages create better form factors on the board, increased performance for the device, and higher modularity in the design. The options to create a 3D package, however, are myriad: wire bonded chip stacks, flipped stacked chips, bumped/bonded chip stacks, through silicon vias (TSV) implemented as interposers, via first, or mid-process. Leading-edge technologies, like wide I/O memory on logic, are moving from lab to fab for the best of all worlds.
Solid State Technology, Volume 55, Issue 4, May 2012