The trend to go fabless at 65nm, the trend to $3bn fabs reducing the number of IDMs and foundries which can afford them, the trend for capacity to lag demand rather than lead it, and the trend to 450mm are combining to make leading edge capacity limited, expensive and tight.
Between 1998 and 2008 investment in new semiconductor equipment as a percentage of semiconductor sales was around the 16.75% trend line but, in Q1 2008, investment was cut back.
Although it bounced back in 2010, it failed to reach the level of investment seen in 2007, was 9% percent lower than the previous investment peak in 2000, and significantly slowed in Q4 2010, despite the fact that utilisation was running at 96.6% and on allocation.
Utilisation has continued to increase, a situation that is not going to change given the investment cutbacks now in place. A cut-back in equipment spending of 19% this year is predicted.
Leading-edge wafer fab capacity is not going to become a commodity item, supply will be limited and longer term supply commitments are the new name of the game. The era of ever-cheaper, freely available wafers is over, at least at the leading edge.
Compounding the problem is the likely move to 450mm wafers. The firms with 450mm capability have a potential 30% lower die cost advantage and a more efficient manufacturing tool platform.
The remaining 300mm platforms will be squeezed into increasingly over-crowded niches.
Transistor design complexity, new structures and tighter design rules will mean that semiconductor firms will be forced to choose a lifetime foundry partner; divorce and second sourcing will become too expensive for all but the very biggest firms to even contemplate.
Only a handful of chip firms will have early access to next-generation foundry technology, giving them at least a one-year advantage over their competitors.
Buying capacity up front will become the new industry norm, eventually to be enhanced by up-front contributions to future capacity investment costs and effectively co-owning portions of the capacity – a kind of IDM-lite model.
From an equipment industry perspective, financing new tool development will mirror the airline industry model, whereby customers make long-term up-front commitments with deposits and partial payments to ensure both delivery and their place in the queue.
The combined effect that these changes will have on the semiconductor supply chain will be both far-reaching and profound, and a very different industry will emerge by the end of the decade. No longer will the industry simply muddle through the various challenges.
New business models will emerge built increasingly on co-operation and partnerships, with an ever-increasing need for all parties to share the technology risks and costs, and the old adversarial-driven supplier-customer relationship will no longer be appropriate.