Consolidation in the silicon foundry industry will see the industry dominated by three main players, TSMC, UMC and Global Foundries, according to US analysts iSuppli, citing a wave of mergers in the industry.
These include: the pending merger between Hua Hong NEC and Grace Semiconductor; Tower Semiconductor's 2008 purchase of Jazz Semiconductor; the proposed acquisition of HeJian Technologies by UMC; the purchase of Chartered by Global Foundries.
Possible future mergers are: Semiconductor Manufacturing International Corp. (SMIC) acquiring Cension Semiconductor Manufacturing International and Wuhan Xinxin Semiconductor Manufacturing - two companies which SMIC is managing.
iSuppli adds: "Small foundries Silterra, Altis and Landshunt all are struggling, and thus have become the subject of speculation regarding a merger with another manufacturer."
"Next year is likely to bring a new set of challenges, as the rising cost of competition winnows down the number of players in the market", says Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli, "the expense of developing and implementing next-generation processes for a variety of technologies is rising rapidly. The only way to be a leader and outperform the market is to stay at the cutting edge of semiconductor process development. Only companies with sufficient size can support these costs."
Jelinek added: "In the past, some foundries have found success by focusing on low-cost manufacturing, trailing behind the process migrations of the most advanced players. However, this so-called "fast-follower" strategy no longer is a route to success amid slowing market success. In fact, the fast-follower strategy now serves only as a route to the fringes of the semiconductor manufacturing business."
Global pure-play foundry revenue is set to rise to $21.6bn in 2010, up 21% from $17.8bn in 2009. This follows a 10.9% plunge in 2009. The foundry market in 2010 will outperform the overall semiconductor industry, which will expand by 13.8%, says iSuppli.
At last week's International Electronics Forum 2009 in Geneva, Future Horizons' CEO Malcolm Penn quoted TSMC's European President Maria Marced as warning that foundry capacity is so tight, there could be allocation of wafers next year.