Analyst: Why TSMC will stay tops in 40nm

April 5, 2010 – Updating outlooks for foundry rivals TSMC and UMC, FBR Research analyst Mehdi Hosseini suggests that business will stay brisk through year’s end — and that the leading-edge horizon is clear of trouble for the top foundry.

Wafer shipments in 1Q10 were better than expected for both TSMC ("flattish" Q/Q vs. -2%) and UMC (3% Q/Q vs. "flattish"), and apparently demand is broad-based , both consumer- and communications-centric. For 2Q, Hosseini projects another 10% jump in wafer shipments at TSMC and 8%-10% "if not more" at UMC.

Capacity is a key area to watch with these two foundries as the year progresses, and will help keep utilization rates high and reduce risks to any inventory correction, Hosseini says. TSMC’s quarterly capacity-addition plans ("6%-8% in 2Q10, 3Q, and 4Q), with utilization rates staying >95% assuming ≥5% wafer-shipment growth. UMC is more backloaded in its capacity plans (2%-4% Q/Q in 1H10, 10% Q/Q in 2H10), but should still keep its utilization rates >90% assuming normal seasonal trends.

To those who would question legitimacy of 2H10 projections so early in the year, Hosseini points out that TSMC customers (particularly leading-edge ≤65nm) are on allocation, and if 2H10 shipments get downwardly revised that just means removing extra orders to rebalance supply and demand, without actual impact on shipments. And Japanese IDMs are increasing their outsourcing, he adds, which means more potential business.

Looking over the capacity and competitive landscape, Hosseini concludes that TSMC "remains the only 40nm foundry solution" which limits the risk of industrywide double-ordering. Look for TSMC’s 40nm mix to nearly double by year’s end to 22% of sales, he suggests — rival UMC might get to 3% mix by 4Q10. GlobalFoundries, touted as a rising top foundry competitor, "has already fallen behind" with a capacity ramp at Chartered’s Fab 7, while construction at its new Fab 8 in New York "will not even be completed before year-end," keeping the chipmaker off the 40nm playing field anytime soon. In China, there’s no 40nm capacity while SMIC undergoes significant restructuring. And checks in Korea and Japan suggest that "except for a few rare occasions, Samsung is not interested in offering foundry services," nor is Toshiba as it focuses on a new NAND factory.


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