Analyst: Foundries face “historical lows” in utilization

Dec. 5, 2008 – Wafer shipments at the world’s top two foundries, TSMC and UMC, are set to plunge further than anticipated in 4Q, but the picture for 1Q is even uglier with “historic lows” looming for utilizations, according to an analyst report.

Wafer shipments sunk 30% in 4Q vs. 3Q vs. a historical average of 5%-8% growth, and FBR Research’s Mehdi Hosseini says checks indicate they’ll keep dropping another 20% in 1Q09, vs. a typical -5% decline, with weak demand seen in “all customers across the board,” he writes. Foundry customers are seeing inventories decline, suggesting the sluggish shipments are due to weak end-demand. Look for some eye-popping floors in foundry capacity utilization, he warns — “reaching 50% and below levels,” which will further depress equipment spending.

TSMC has already warned that 4Q will be lousy (sales -30% from the prior quarter), but FBR’s Hosseini says wafer shipments will be down 30% as well, vs. a 20%-25% decline, and down 15% in 1Q09. TSMC’s downward revision is attributed to softness in all markets, though most severely from leading customers AMD/ATI, Microsoft (game consoles), Nvidia, and Marvel. ASPs are also seen down in both 4Q and 1Q, with utilization rates sinking to 60% and mid-50%, respectively. In response, the top foundry is planning to take more than the usual number of maintenance/shutdown days at year’s end, with employees encouraged to take three days off per week.

UMC, meanwhile, is expected to see shipments down -30% in 4Q, vs. expectations of -25%, and down another -30%, “much worse than previous expectations” of a -5% dip, Hosseini warns. Most of the revisions, especially for 1Q, are attributable to large customers including Broadcom, Mediatek, Nvidia, Realtek, and TI. Utilization rates are expected to sink to “50%-ish” in 4Q, and even further to the “low-40%” in 1Q.

FBR analyst Craig Berger elaborates on the softness from foundries top customers in a related report, noting broad production cuts through 1Q09 across the board. “PC chip firms continue to see significant production weakness,” he writes, while “communication IC vendors are seeing recent weakness.” Look for 4Q production declines in the teens up to -30% or more, from firms including Broadcom (-13% Q/Q), Marvell (-18%), TI (-18%), Nvidia (-25%), Qualcomm (-30%), and Mediatek (-25%). Berger sees similar declines in 1Q09: BRCM -17%, MRVL -10%, TXN -20%, NVDA -20%, QCOM “flattish,” and Mediatek -20%. Xilinx, on the other hand, “may be a relative outperformer,” he notes, with smaller production declines planned: -10% in 4Q09 and -12% in 1Q09.

The hardest hit foundry customers appear to be in the communications IC sector, he notes. “Vendors like Broadcom have been relative outperformers” since 2Q08, he notes, but new checks indicate “this end market is weakening now as it ‘catches up’ to the weakness already seen in other sectors, particularly as the economic malaise spreads to corporations and enterprises.” He projects a -5% to -10% decline in discretionary IT spending in 2009.


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