Foundries slip in 2005—some more than others

March 29, 2006 – For the first time in memory, foundry segment revenue growth lagged behind that of the overall semiconductor industry in 2005, according to preliminary data from Gartner Dataquest. Worldwide foundry revenue declined 2.5% to $18.36 billion in 2005, while combined revenue for the top 10 foundries, accounting for 86% of total sales, inched lower by just 0.3%.

What caused the shift in momentum? Foundries have rapidly grown to account for 22% of worldwide semiconductor revenues, and the segment is now more susceptible to changes in the semiconductor supply chain, according to Jim Hines, foundry analyst at Gartner Inc.’s Dataquest unit in San Jose, CA. Thus, they were burned by a steep dropoff in business in early 2005, as customers (including IDMs) cut back on orders to absorb inventories built up in late 2004. He also noted that “the big growth has already occurred” for the fabless sector, which drove early expansion of the foundry segment. He expects this year will see a return to “relatively strong” foundry growth outpacing overall the chip industry, roughly +18% growth, vs. overall chip sales growth of ~9%…”still not the way it was back in the 1990s,” but appearing to be sustainable, he said.

Two noticeable points jump out from the rankings. The first is that Chinese foundry Semiconductor Manufacturing International Co. (SMIC) grew revenues by 20% last year to snatch the No. 3 spot from Singapore’s Chartered Semiconductor. “SMIC is a pretty remarkable story, how quickly they’ve grown to a significant size,” said Hines. Yet a big chunk of SMIC’s business is DRAM production (mainly for Infineon), a strategy to quickly achieve critical mass—much as TSMC and UMC did in their early days, he noted. Comparing SMIC’s more complex and higher-margin logic business to other foundries, SMIC 2005 sales amounted to just $787 million, basically flat from the previous year. Hines expects Chartered could quickly reassume the No. 3 spot, as its alliance with IBM for 90nm-and below processes begins bearing fruit. Meanwhile, SMIC “needs to make a critical transition from a high-growth startup to something more sustainable going forward,” and more reliant on logic-based services, Hines said.

Also of note during 2005 was a 19% sales slump for No. 2 United Microelectronics Corp. (UMC). Aside from the distraction of its scuffle with the Taiwanese government about its ties to China’s HeJian Technology, the company has a glaring strategic flaw—unlike most of the other top foundries (TSMC/Crolles, Chartered/IBM, and even SMIC/Infineon and Toshiba), UMC isn’t aligned with anyone for leading-edge process technology development, Hines said. “UMC is really unclear what their strategy is for developing their next generation of technology,” particularly for the initial introduction of 65nm.

One name to watch is Samsung, which has recently announced its intention to pursue more foundry activities, Hines said. Not only does Samsung have ties into the IBM/Chartered technology alliance, it also has very large production capabilities and fab capacity, and technology development capabilities that could create a much bigger operation than other foundry players. Whether Samsung can fully embrace the foundry business model, as other IDMs have tried to do (IBM, Toshiba, Fujitsu), remains to be seen, Hines noted. — J.M.

Top 10 foundries by revenue (US $M)

Rank Company Revenue 2004 Revenue 2005 (% change) Market share (%)

1 TSMC 7668 8223 (7.2) 44.8
2 UMC 3497 2822 (-19.3) 15.4
3 SMIC 975 1171 (20.1) 6.4
4 Chartered Semiconductor 1103 1132 (2.6) 6.2
5 IBM Microelectronics 850 832 (-2.1) 4.5
6 MagnaChip Semiconductor (Hynix) 360 396 (10.0) 2.2
7 Vanguard International Semiconductor 393 354 (-9.8) 1.9
8 DongbuAnam Semiconductor 333 347 (4.2) 1.9
9 Hua Hong NEC 324 305 (-5.7) 1.7
10 Jazz Semiconductor 220 210 (-4.5) 1.1
Top 10 totals 15,843 15,793 (-0.3) 86.0
Others 2988 2563 (-14.2) 14.0
TOTAL 18,831 18,356 (-2.5) 100.0

WaferNews source: Gartner Dataquest


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