THE INFLECTION POINT: THE FUTURE ISN’T WHAT IT USED TO BE
As we look forward into 2013, the uncertainty in the semiconductor sector is readily apparent when one examines recently announced 2013 growth predictions for the industry ranging between -1.1% and 12.4%. Obviously time will tell, but ATREG is more interested in understanding the underlying dynamics of the semiconductor market and their long-term implications for the industry as a whole.
What was a growth sector for the past three decades has reached middle age, bringing with it some unwelcome changes. Cyclicality can mask a gradual maturing of an industry, as can macro-economic shocks. However, the evidence is clear – slowing industry growth and an increasingly competitive market is leading to a compression of valuation multiples as investors no longer expect the same robust returns from the sector.
The semiconductor industry is at an inflection point:
- The fabless operating model is becoming less attractive as factors such as the over-reliance of foundries on their geographic concentration, a possible time-to-market disadvantage, and the lack of the virtuous cycle of design and engineering have caused investor sentiment to cool. We believe fabless companies will begin taking a more involved role in the manufacturing process.
- The rise of the branded OEMs in the fast-growing mobile market is leading to supernormal profitability and large stockpiles of cash. OEMs will use any means necessary to ensure the continued supply of advanced semiconductor components.
- Increasing vertical re-integration, led in part by OEMs, is expected to continue in response to increased pressure on all facets of the semiconductor supply chain.
In the context of this changing landscape, we see four possible futures emerging for the industry – three of which are detrimental for incumbent chip suppliers. We profile these four futures in the first paper of a brand-new ATREG Thought-Leadership Series entitled The Inflection Point: Macro Forces & Emerging Trends That Will Reshape the Semiconductor Industry Through 2016. My colleague Barney Silver recently presented an overview of these findings at ISS Europe 2013 in Stresa, Italy. If you were unable to attend the conference and are interested in learning more, email us to receive a copy of our paper.
Sincerely,
Stephen Rothrock
President / Managing Principal
COME HEAR ATREG SPEAK AT SEMICON CHINA
ATREG has been invited to speak at two SEMICON China events in Shanghai this month. On March 17, President & Managing Principal Stephen Rothrock will present The Inflection Point: Macro Forces & Emerging Trends That Will Reshape The Semiconductor Industry Through 2016 as part of the conference’s Emerging Semiconductor Technology Symposium. With the global semiconductor industry at a major inflection point due to various intersecting trends impacting virtually all semiconductor companies, this presentation looks at the critical factors and emerging manufacturing models that will reshape the industry and competitive landscape in a dramatic new fashion during the next three to four years.
On March 18, Senior Advisor Rex Sherry will present Worldwide M&A Trends In The Pan-Semiconductor Industry at SEMICON China’s Tech Investment Forum – China 2013. This presentation will focus on the strategic implications of consolidation on the industry going forward. Email us to receive a copy of our presentations.
EXECUTIVE Q&A: JEAN-PAUL BEISSON, CEO, ALTIS SEMICONDUCTOR
The current and future role of specialty foundries
The foundry manufacturing model is well rooted within the semiconductor sector. While the largest foundries capture much of the headlines, there are a number of smaller specialty foundries aiming to fill gaps in the market. ATREG recently sat down with Jean-Paul Beisson, CEO of French company Altis Semiconductor, to discuss the role of specialty foundries, differentiation, evolving customer needs, and potential for consolidation. Based in the Greater Paris area in France, Altis Semiconductor is an innovative European-based specialty foundry that addresses the growing market demand for high-quality, high-reliability end-to-end foundry services. As an independent company originally stemming from IBM, Altis inherits a tradition of excellence and strength of capabilities and continues to excel in manufacturing expertise, efficiency, and quality, delivering advanced technologies to the marketplace.
What makes Altis a specialty foundry and what differentiates the company from other specialty foundries?
Altis Semiconductor has a long-standing history of innovative technology development, customization, and customer-specific technology transfers. It is recognized and well known for its flexibility in adapting to specific customer needs and requirements, particularly in the automotive and security fields. We choose to focus on our core competencies targeting analog, mixed-signal, radio frequency, high-voltage, and embedded non-volatile memory technology platforms. Our customers have access to a full set of generic and derivative technology platforms ranging from 250nm to 110nm. They have already achieved a broad range of end-market applications in the automotive, industrial, consumer, wireless, and computer segments using platforms with Altis’ underlying Total Quality Management system (ISO9001-, automotive ISO- / TS16949-certified). Our customers select us because we offer flexible business models (e.g. technology transfer or customization) while leveraging small- to large-volume production. We also provide a broad range of test services, including assembly, as a one-stop-shop solution.
What challenges and opportunities are unique to specialty foundries?
Differentiation is a key attribute enabling our customers to provide innovative and competitive solutions. That’s the reason why Altis has developed a strong R&D program in close collaboration with its customers to anticipate the development of tomorrow’s products. In contrast to digital ICs, analog, mixed-signal, and high-voltage technologies provide a communication bridge between digital systems and the real world whereby each product design has its own distinctive elements and intellectual property (IP) needs. Altis is pursuing special element and IP development to help its customers shorten their time-to-market. Thanks to our business model promoting the joint development of new technologies in conjunction with customers, we have formed strong, long-term customer partnerships. And because our customers have such stringent design and customization needs, our key challenge is to engage in face-to-face communication with them and provide consulting services.
What do you consider important in developing and maintaining relationships with your foundry customers?
Trust, trust, and trust. Overall as a company policy, we are always looking at developing long-term relationships with our customers. Responsiveness, flexibility, quality, the development of a wide variety of applications from our core technologies, and the joint development of new technologies in conjunction with customers are the key success factors to develop and maintain strong customer relationships.
Are the needs of Altis’ customers evolving? How so?
Yes. An increasing number of our customers rely on Altis to help them develop the solution (not limited to design architecture or manufacturing process customization) by providing a complete ecosystem (EDA, IP providers, and design partners). IP service capabilities represent one domain where our customers are more and more demanding and rely on us.
With many foundries struggling to achieve consistent profitability, can we expect consolidation in the foundry industry? Why or why not?
Clearly in the past few years, a number of mergers and acquisitions have taken place amongst foundry players, e.g. GLOBALFOUNDRIES / Chartered, Tower / Jazz, or Grace / HHNEC. I believe more will happen in the future as small- and medium-sized foundries need to achieve larger economies of scale.
Morris Chang has stated it now makes sense for TSMC to consider dedicating a whole fab to a single customer in certain cases. Do you feel that some fabless companies will be making the move to take increased control over their supply chain? What effect, if any, do you believe this will have on the industry and Altis?
As we move to more advanced technologies (e.g. 28nm / 20nm), securing capacity is a major concern for some customers demanding large volume to address mobile or tablet markets e.g. This is mainly due to a limited number of foundries offering this capability because of large investment, more process complexity, and hence lower expected yield. However by definition, it is not in the nature of an open foundry to have a dedicated production line for one specific customer. TSMC has multiple fabs of advanced nodes and might be able to do that within the realms of a strong customer contract.
If you could give one piece of advice to companies contemplating a new foundry relationship, what would it be?
It’s not just the wafer manufacturing process that has to be taken into consideration, it’s the complete ecosystem. Today, a foundry needs to provide solutions to enable customer tape-outs whose objective is to satisfy production and revenues on both sides. We meet our customers’ requests with IP services, the development of process options, or the joint development of new technologies.
About Jean-Paul Beisson
Jean-Paul was appointed CEO of Altis Semiconductor in 2006. As part of the company’s founding team, he has been a member of the Executive Committee since its creation in 1999. Among other achievements, he successfully managed key partnerships with Toppan Photomasks, BOC Edwards, and Air Liquide. He created the Altis Nanotech R&D Center in 2004. Prior to Altis, Jean-Paul spent 20 years at IBM where he held senior management positions both in France and the USA in the microelectronic division in areas of corporate affairs and strategy, worldwide supply chain, business development, and corporate management. He holds a Master’s degree in Engineering from École Centrale in Lyon, France.
ATREG FACILITATES SALE OF MAXIM INTEGRATED’S FAB IN IRVING, TEXAS
ATREG is pleased to announce that after being retained as advisors by Maxim Integrated, it has successfully facilitated the sale of the company’s idle semiconductor fab based in Irving, TX to Quality Technology Services (QTS) who plans to transform the facility into a state-of-the-art data center. QTS provides more than 800 enterprise businesses with fully managed core data center services with over three million square feet of secure data center infrastructure based all over the country. The acquisition of the Irving facility establishes QTS’ presence in the fourth-largest data center market in the USA.
With little semiconductor demand for a fab shell in a saturated market, the 660,000 sq. ft. Irving fab located on a 39-acre campus had been unutilized for five years and was costly to maintain. A creative way had to be found to market the facility to new buyers who were able to adaptively reuse the buildings and advanced infrastructure. Like many semiconductor campuses, the Irving site is powered by an on-site 140MW dual-fed substation. The facility’s diverse fiber network connections allow QTS to provide carrier-neutral connectivity with maximum flexibility, giving customer access to the area’s numerous network providers.
To attract interest from data center companies, ATREG commissioned an independent design analysis of the site’s extensive electrical power, cooling capacity, and potential data center rack layout, and thereby helped Maxim Integrated achieve good value for the facility in the only sizeable empty fab sale to occur in the last several years.