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More Foundry Competition Means Lower Chip Prices


The addition of more capacity and greater competition among semiconductor foundries will lead to lower prices for some semiconductors over the next several years, according to market researcher IC Insights.

Just as major electronics OEMs outsource equipment production to electronics manufacturing services providers, many semiconductor companies are outsourcing more chip making to foundries. Such companies include pure-play foundries such as TSMC and UMC, as well as integrated device manufacturers. IDMs build their own semiconductors, but also make some chips for other semiconductor companies. Examples of IDMs include IBM, Samsung, and Texas Instruments.

The foundry market is dominated by pure-play foundries which do not have their own chip designs and build semiconductors for other companies. Pure-play foundries represent about 88 percent of the foundry market, IC Insights reported.


The semiconductor foundry business will reach $50 billion by 2015, as semiconductor suppliers outsource more chip production.
The overall foundry business is expected to grow over the next several years because more IDMs are not investing in new fabs and are adopting a “fab-lite” business model, outsourcing more chip production. As result, IC foundry business is expected to grow from about $34 billion in 2011 to about $50 billion in 2015, according to IC Insights.

While demand for foundry services is increasing, it is expected that foundries will be competing for business because of the recent addition of Samsung to the list of major IDM foundries and GlobalFoundries’ addition to the roster of major pure-play foundries. The addition of those two companies is expected to put pressure on foundry pricing over the next five years, reported IC Insights. That will result in greater downward price pressure on such products as programmable logic devices, field programmable gate arrays, or chips that have some digital signal processing, according to Brian Matas, vice president of market research for IC Insights.

For semiconductor companies that have more advanced chip designs, “having this additional capacity out there will be an attraction. There will be more competition for business and they (semiconductor companies) can play one vendor off the other to get a little bit better pricing for their products,” said Matas. “Instead of having TSMC and UMC fighting it out a little bit, now you have GlobalFoundries and Samsung adding some additional competition in the leading-edge segment of the foundry market. While established foundries want to maintain their market share, GlobalFoundries and Samsung coming into the picture kind of sends ripple through the industry.”

However, how much competition there will be in the foundry business depends on “how much capacity the foundries will continue put to put it in,” Matas noted. With the rate of growth within the semiconductor industry dropping to the low single digits this year, some foundries will scale back on their capital spending.

The amount of competition for foundry business also depends on chip demand growth and to what degree IDMs decide to outsource more semiconductor production to foundries.

Besides competition, another reason chip prices will decline is that foundries have installed leading-edge process technology to build chips which will mean greater manufacturing efficiencies and lower prices per chip.

Those cost savings will eventually be passed on to customers, Matas added.

“It may not happen initially, but over time the cost savings will trickle down so everyone will benefit from foundries moving to more leading-edge processes,” said Matas.

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