July 27, 2009 – Foundries have been growing at a better rate than the semiconductor industry for several years, but the global economic quagmire compounds a fundamental restructuring of the pure-play contract chipmaking sector centered on how to deal with facilities being made obsolete in the changing marketplace, according to a new report from iSuppli.

While the total semiconductor industry will drop an expected -23% in 2009, foundry sales should slide a little bit more, -25.2%, according to the analyst firm, due to a shift with origins of semiconductor manufacturing specialization and demand aggregation. Costs of transitioning to more advanced nodes have pushed more suppliers to support technology development platforms through third-party foundries, and focus on differentiation through chip designs.

Also, product portfolios also are being pruned to be more responsive to market conditions. Dedicated manufacturing facilities to multiple product lines simply isn’t practical anymore; and older sites are being mothballed at an increasing rate. “Historically, when semiconductor suppliers transitioned to new technologies, they maintained their mature factories for cost-effective manufacturing of older technology,” noted Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli, in a statement.

While favorable economic policies create additional lure to manufacturing operations in Asia, mature manufacturing facility lifecycles in North America, Europe, and Japan are becoming an increasing issue — not only for the companies’ books, but also a socioeconomic impact to the location/region.

“With capacity increases and outsourcing of semiconductor manufacturing concentrated on a smaller group of companies in low-cost production regions, the foundry industry is unlikely to mount a major recovery anytime soon,” the report notes.