5 Issues Under The Foundry Radar

In the foundry business, the leading-edge segment grabs most, if not all, of the headlines. Foundry vendors, of course, are ramping up 16nm/14nm finFET processes, with 10nm and 7nm in R&D.

The leading-edge foundry business is sizable, but it’s not the only thing going on in the competitive arena. In fact, there are battles taking place in many other foundry segments, such as 2.5D/3D packaging, analog/RF, CMOS image sensors, low-power technology, MEMS, specialty processes, among others.

It’s a complex business. And it’s difficult to watch all segments. In the foundry business, here are five issues, or trends, that are under the radar and worth keeping an eye on:

1. The uncertain business climate
In 2014, the foundry business grew a healthy 16.1%, according to Gartner. But the foundry business is expected to slow and grow about 8% in 2015, according to Gartner.

What’s troubling is the overall trends for ICs. For example, VLSI Research recently lowered its overall IC forecast from 7.6% to 5.9% growth in 2015.

The PC market is falling off a cliff. The mobile business remains decent, but there is a slowdown in China. And the inventory levels at MediaTek, Nvidia, Qualcomm and Xilinx all spiked to multi-year highs exiting the fourth quarter of 2014, according to Pacific Crest Securities.

Plus, the transitions from planar technology to finFETs and 3D NAND are sluggish at best. Mobile DRAM is good, but desktop memory is not. It could be a modest growth year for ICs. But clearly, it’s too early to say the sky is falling.

2. IoT process war
The Internet of Things (IoT) has been billed as the next big thing for ICs. It’s still unclear where the IoT is going, but the foundries want a piece of it. They also want a piece of the wearable market, namely smart watches.
For these markets, the foundries continue to develop new processes.

On one front, there is 28nm fully-depleted silicon-on-insulator (FDSOI) technology. Samsung, STMicroelectronics and
GlobalFoundries are in that camp.

Then, last year TSMC rolled out 28HPC, a low-cost version of the company’s 28nm mobile process. This year, TSMC rolled out two new versions of 28nm technology for low-power applications.

Chipmakers, and foundries, that are tied to the Apple Watch may get some traction. Apple is projected to sell nearly 20 million Apple Watches in 2015, thereby grabbing 50% of the overall fashion watch market this year, according to Pacific Crest Securities.

Still, that only represents just over 5% of the iPhone user base. Smart watches, wearables and fitness bands appear to be good markets, but do they really move the needle for ICs? And will IoT take off? Sounds like foundries will face a capacity glut at 28nm.

3. Long fabless march
In the 1990s, China hoped to create a number of high-volume foundry players. That, of course, never happened.

Then, in 2014, the Chinese government outlined a new plan to expand its efforts in the IC industry. It involves investments by both the Chinese national government ($19.5 billion) and local government and private equity investors ($97.4 billion), according to IC Insights.

The policy is already having an impact. There were nine Chinese companies among the top-50 fabless companies in 2014, as compared to only one company in 2009. In addition, China is also acquiring various U.S. chip and sensor players, such as ISSI and OmniVision.

Summarizing the situation, IC Insights said: “China’s ambitious late-1990s plan to create numerous high-volume indigenous IC manufacturers in the pure-play foundry segment did not come to fruition, but the Chinese government is still very serious about keeping China and Chinese IC suppliers relevant in the future IC industry.”

4. Scrambling for RF SOI share
In October of 2014, GlobalFoundries signed a definitive agreement to acquire IBM’s semiconductor unit. The move gave GlobalFoundries a number of technologies, including IBM’s prized RF SOI technology.

In fact, IBM has been sold out of RF SOI capacity. The technology is used for the RF front-end in mobile products.

The booming demand for RF SOI has caused a stampede of foundry players looking to enter this market. At one time, there were only three major foundries that offered RF SOI processes–IBM, STMicroelectronics and TowerJazz. More recently, Altis, GlobalFoundries, Grace, MagnaChip, Lapis Semiconductor, Silanna and TSMC have begun to explore or develop RF SOI processes.

And the business continues to heat up. TowerJazz, for one, has qualified a second fab in Israel for RF SOI and RF CMOS. TowerJazz claims to have about 25% market share in the SOI switch and tuner foundry market. It is aiming for 50% of the market.

5. Consolidation watch
Getting back to GlobalFoundries and IBM, meanwhile, IBM paid GlobalFoundries $1.5 billion to take Big Blue’s chip unit off of its hands. Simply put, IBM was happy to shed the loss-ridden chip unit.

Now, IBM and GlobalFoundries are going through the regulatory process within the various counties to gain approval for the proposed deal. Then, GlobalFoundries must integrate IBM’s chip unit, which will be interesting to watch.
What’s next in 2015? Look for more consolidation in a tough foundry market.