Apple Inc.’s migration of the production of key semiconductors from Samsung to pure-play foundries will single-handedly boost the growth of the chip contract manufacturing market this year.
Pure-play foundries are companies that exclusively perform contract manufacturing of chips for other semiconductor suppliers. Major companies in the pure-play foundry business include Taiwan Semiconductor Manufacturing Co. Ltd. and United Microelectronics Corp.
According to the new report ‘Low-Cost Tablet Processor Market Computes New Growth’ from information and analytics provider IHS, pure-play semiconductor foundry market revenue is forecast to rise 21% by the end of the year compared to 2012. However, takings for the overall semiconductor industry will expand by only 5%.
The pure-play foundry industry is already on track to achieve such growth this year, with revenue amounting to $8.2 billion in the first quarter, up 4% from $7.9 billion in the fourth quarter last year. In comparison, the overall semiconductor market was down by 5% during the same period.
Apple takes apps processor business elsewhere
According to Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS, the growth outlook for the pure-play foundry business has risen considerably in anticipation of Apple’s transition of its applications processor chip manufacturing to third-party manufacturers. Previously, Apple had relied on Samsung as the primary supplier of applications processor chips for the iPhone and iPad. However, Samsung is not considered a pure-play foundry, instead designated as an integrated device manufacturer (IDM).
Apple already has its own designs and does not need an IDM for its chips to be made, so it can just as easily move its semiconductors to a foundry.
Jelinek adds that Apple’s anticipated shift is also the result of its well-publicised row with Samsung over patent infringements.
Moving forward, Apple is likely to use a producer such as TSMC, the largest foundry in the business, with $16.9 billion in revenue for 2012.
Wireless on the rise
While the overall semiconductor industry continues to be heavily dependent on components sold to the PC market, foundry players have hitched their revenue prospects to the rising fortunes of the wireless segment. As a result, revenue for foundries has been expanding steadily, while that for the overall chip industry has been less assured.
Threats and risks ahead
Despite the strong growth projected in 2013 for foundry suppliers, several concerns persist about the global economy, as well as the inventory maintained by their clients. Should the world market sputter, consumer demand for electronic products will weaken, impacting chip makers and foundries alike. If inventory grows out of control for foundry clients as it did in the second half of 2012, manufacturing run rates for foundries could decline significantly for the remaining six months of 2013 as their customers hold back on chip orders.
A rising threat to foundries is also coming from IDMs such as Samsung and chipmaker Intel, from whom they face technological competition, adding to the competition that already exists between leading foundries.
As several IDMs attempt to revamp their manufacturing models and move to new and more efficient lithographies, incumbent foundries will be forced to accelerate internal technology development. The race between the two rival groups will result in a shortening of technology cycles and fierce competition among participants.
Ultimately the consumer will be the winner. Technological developments will provide designers the ability to integrate multiple functions onto a chip, offered at a unit cost that results in cheaper, yet more powerful consumer products.