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Who will win the foundries capex race?

Posted: 10 May 2010     Print Version  Bookmark and Share

Keywords:foundry capex  wafer fab  capital spending race 

Several years ago, the silicon foundries tended to announce and build fabs on a whim in order to stay one step ahead of their rivals.

It was a reckless practice, as many vendors built fabs in spite of the IC downturns. But in recent times, the foundries have become more conservative in capital spending as a means to avoid dreaded capacity gluts.

Now, many foundries appear to be reverting to past tactics. Many foundry vendors are engaged in a capital spending war or "arms race," said C.J. Muse, an analyst with the Barclays Capital, in a new report.

Three vendors—GlobalFoundries, Samsung and TSMC—appear to be engaged in a new capital spending race in an effort to gain share in current and future cycles. The trends could be a problem for the other digital foundries, such as SMIC, UMC and others, many of which cannot keep up with the spending race and will likely fall behind the curve.

The question is clear: Who will be left standing when it's all said and done? TSMC, GlobalFoundries and Samsung will survive, observers said. UMC and SMIC could hit the wall and/or may get acquired, they added.

"We have been advocating for some time that meaningful foundry spending, initiated by TSMC's earlier yield problems, continues to be sustained by the emerging foundry arms race," Muse said. "This competition is fuelled by the disruptive presence of technically competent GlobalFoundries with a working 32nm process and Samsung's growing presence through its System LSI business, having recently won away Xilinx business from UMC/Toshiba."

The analyst was referring to Taiwan Semiconductor Manufacturing Co. Ltd, which had problems ramping up its 40nm process due to yield issues. TSMC claims that the problem has been resolved.

As reported earlier this year, Xilinx Inc. said it will use leading foundry TSMC as one of two foundry suppliers for its 28nm FPGAs, a major strategy shift that has been the subject of industry rumours and analyst speculation for weeks.

Xilinx said it is using TSMC and Samsung Electronics Co. Ltd's foundry division to make 28nm parts. Xilinx' shift to TSMC is a bitter pill for rival foundry United Microelectronics Corp. (UMC), which has been a foundry supplier to Xilinx for more than a decade.

Capex race
Silicon foundry giant TSMC has raised its capital spending on various occasions. At present, TSMC's capital spending is targeted at Rs.22,164.96 crore ($4.8 billion) for 2010. It could go higher, according to an analyst.

"Given that TSMC had initially suggested a 60:40 spend split for their then higher than expected Rs.22,164.96 crore ($4.8 billion) capex, some bears have suggested that the growth is concentrated in the 1H and that the second half is likely to be lackluster one," Muse said. "However, our latest checks suggest that TSMC is likely to increase its capex budget by up to Rs.4,617.70 crore ($1 billion), with at least a Rs.2,308.85 crore ($500 million) increase likely certain, in our opinion."

Others are also on a spending spree. "Moving to their competitor, GlobalFoundries, one can see that they are also starting to spend, and with their Rs.11,544.25 crore ($2.5 billion) capex for 2010 still only marginally depleted, 2H should be an ideal time frame to expect more orders from them, for their Dresden, Singapore (Chartered) and finally at the end of the year, for their New York fab," Muse said.

The dark horse is Samsung. "Our checks suggest that their capex might touch $1 trillion [Rs.46,17,700] crore

won $894 million [Rs.4,128.22 crore], spread throughout the year. And with customers like Apple (iPad processor), Qualcomm, Xilinx etc. in addition to making chips for Samsung's flat panel-related drivers as well as chips for their mobile phones and other appliances, we think that their spending level should only head higher from here," he said.

Taiwan foundry United Microelectronics Corp. plans to spend between Rs.6,926.55 crore ($1.5 billion) and Rs.9,235.40 crore ($2 billion) on capital expenditures in 2010, the company said.

China chip foundries Semiconductor Manufacturing International Corp. (SMIC) and Hua Li are also spending money. Hua Li is a joint fab venture between Grace and HHNEC. As reported, Grace Semiconductor Manufacturing Corp and Shanghai Hua Hong NEC Electronics Co. Ltd (HHNEC) have begun construction of a 300mm wafer fab at Zhangjiang Hi-Tech Park, Shanghai.

"In addition SMIC has been spending in 1Q and will continue to spend not just based on its official capex but also from funding or financing they have been able to obtain from provincial/state governments. Finally, Hua Li (HHNEC + Grace) orders are likely to start in the next few months, filling up the roster of orders for a likely 40kwspm capacity build and while initially we too were sceptical, more and more indications are that it is real," he added.

- Mark LaPedus
EE Times





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