MARKET OBSERVATIONS AND INSIGHTS FOR 2012
Momentum from the 2010 semiconductor market rebound carried into Q1 2011, but quickly dissipated as devastating natural disasters took their toll on the industry, not to mention the countless lives of people in Japan and Thailand. This, combined with a general economic malaise stemming from concerns about sovereign debt, housing, oil, and unemployment paved the way for virtually flat growth in 2011. These economic realities are increasingly forcing companies to streamline themselves and reexamine capital allocation strategies. With the exception of large players such as Intel, Samsung, and TSMC – who in aggregate are projected to account for half of the industry’s capital expenditures in 2012 – companies will largely tap their brakes on capital investment this year.
This continued streamlining is leading to interesting opportunities for buyers. Business units and related assets deemed ‘non-core’ will present attractive acquisition opportunities for strategic buyers. The dynamic of consolidation has been at the heart of the spike in M&A transactions seen in 2011 – an increase of over 30% in the number of deals and a whopping 120% jump in aggregate value over 2010. ATREG anticipates the strong trend of consolidation persisting in 2012 as companies continue to refocus priorities and solidify their road maps for future growth.
Despite persisting global macroeconomic challenges, the semiconductor industry is stabilizing, and while industry growth predictions vary, the consensus points toward moderate, single-digit growth for the year. Ultimately, ATREG sees 2012 as a year during which the industry rebalances itself and creates a strong foundation on which to build sustainable growth in 2013 and beyond.
De-risking the supply chain
If there is one thing the past year has taught us, it is that at the heart of any successful company’s overarching strategy lies constant examination of its supply chain – whether insourced, outsourced, or some combination thereof. Even IDMs, which maintain some degree of internal manufacturing capability for relatively mature devices, now typically rely on foundries as their sole source for advanced IC production. As these IDMs and fabless companies increasingly lean on outsourced manufacturing providers, they will seek avenues to de-risk their supply chain.
First and foremost, the effects of the Japanese earthquake and Thai flooding have somewhat forcefully underlined the importance of geographical diversification. GLOBALFOUNDRIES is the first foundry to offer customers leading-edge 300mm supply in Asia, Europe, and North America. TSMC and UMC have undoubtedly taken notice of GLOBALFOUNDRIES’ distributed capacity offering and the unique value proposition it offers to the market. We would be surprised if TSMC or UMC do not announce plans to expand 300mm manufacturing outside Taiwan within the next 12 to 18 months.
United States: A re-emerging player in IC manufacturing
Interestingly, the U.S. is increasingly being reconsidered as a cost-effective hub for IC manufacturing. Not only does the U.S. offer geographic diversification in a stable manufacturing environment, companies also recognize the U.S. is conducive to innovation and product development. Larger companies such as Texas Instruments, Samsung, Intel, and GLOBALFOUNDRIES have shown a strong commitment to U.S.-based manufacturing, and small to mid-size companies such as TELEFUNKEN Semiconductors have incorporated the United States into their manufacturing strategy by acquiring and re-investing in existing manufacturing operations.
If a balanced fab-lite strategy makes sense for IDMs, can it make sense for a fabless company? Alpha & Omega Semiconductor Ltd. (AOS) certainly thinks so. Counter to the IC industry’s outsourcing trend, AOS recently completed its acquisition of IDT’s operational 200mm fab in Hillsboro, OR. The acquisition will allow the Sunnyvale, CA-based company to exert more control over its supply chain while enjoying the benefits of having a light and nimble manufacturing operation. As more fabless companies seriously evaluate potential acquisition opportunities to gain control over a portion of their manufacturing, this will be an interesting segment of the market to watch in coming months.
Joint investment models gaining traction?
Not long ago, IDMs controlled their primary source of production, utilizing foundries as a second source for topping off production as dictated by market conditions. To the extent that IDMs utilize foundries in a similar manner today, it is only for relatively mature manufacturing production. For most IDMs, foundries have become the primary source for advanced manufacturing due to the increasingly high cost of going it alone. Given this fundamental shift, we are seeing growing interest from IDMs to explore joint investment manufacturing models that offer them some level of control, yet also provide some of the cost benefits associated with the traditional foundry model. Whether looking to meet long-term capacity needs and / or migrating to more advanced technology nodes, we expect to see IDMs and fabless companies explore joint investment models with stable partners to lower costs, mitigate risk of allocation, and support their technology roadmaps to enable future product development.
President / Managing Principal
COME HEAR ATREG SPEAK AT GSF 2012
In an increasingly competitive and volatile economy, semiconductor companies are starting to reconsider their manufacturing strategy and infuse creativity in their operational fab deal structures. Recent examples are the acquisition of the Renesas Roseville, CA fab by TELEFUNKEN Semiconductors and the purchase of IDT’s Hillsboro, OR fab by Alpha and Omega Semiconductor Ltd. (AOS).
If a fab-lite strategy makes sense for an IDM, can it make sense for a fabless company? What are the key deciding factors behind this new approach? These are the questions that Doug Barrett and Eric Larsen from ATREG will address at the 9th Annual Leading Global Semiconductor Forum (GSF) to be held March 7-9 in Shanghai, China, based on real-world case studies and 10 years of advising semiconductor companies with their fab disposition and acquisitions. Email us for a copy of our presentation.
ATREG ADVISES SUCCESSFUL SALE OF IDT FAB TO AOS
A fabless company buying a fab is an unusual deal, but a new and innovative approach that we may see more of in 2012. ATREG has successfully advised IDT in the sale of its operational 200mm semiconductor manufacturing facility based in Hillsboro, OR to Alpha and Omega Semiconductor Limited (AOS), a designer, developer, and global supplier of a broad range of power semiconductors based in Sunnyvale, Calif.
The flexible campus, located close to the Portland-Hillsboro airport, includes a 50,000 square foot class-one cleanroom in which IDT manufactured standard logic, PLL, network ICs, SRAM, and multiport semiconductor products. The 25-acre, 245,000 square foot facility can be expanded to accommodate future growth.
AVAILABLE FOR PURCHASE: TEXAS INSTRUMENTS FABS IN KYUSHU AND HOUSTON
ATREG invites interested buyers to explore two Texas Instruments fab offerings. The Kyushu, Japan campus includes a 150mm operational fab along with an advanced assembly, test, and packaging operation capable of 300mm and 200mm. The Houston, TX site offers a 150mm operational fab and wafer bump facility.
JAPAN: 150mm operational fab / advanced A/T and packaging operation
The well-maintained Hiji fab located in the silicon manufacturing region of Kyushu, Japan includes a high-quality, 150mm operational fab and an advanced packaging operation capable of 300mm and 200mm production. Technologies used in the fab include multiple analog CMOS (0.72-1.2 µm), multiple (1.0 to 0.72 µm) high-power analog BiCMOS, and high-voltage SOI BiCMOS with a current equipment capacity of approximately 22,500 wafers per month (0.5µm and larger). The fab is automotive-qualified. The A/T facility produces ultra-fine pitch FlipChip, stacked package on package, stacked die, and high-density, high pin-count copper wire bonding, offering a capacity of approximately 5,000,000 units per month at a 250 average pin count.
USA: 150mm operational fab and wafer bump facility
A robust and cost-effective 150mm operational fab, the Houston facility is located on a 196-acre site. Offering a capacity of approximately 40,000 wafers per month, the fab is automotive-qualified (ISO / TS 16949-certified) and offers a unique wafer bump facility (wafer-level chip-scale package / plating capability). Technologies used include 1.0 µm CMOS with embedded flash memory, automotive 0.8 µm BiCMOS, multiple CMOS logic (0.72-2.0 µm), multiple analog CMOS (0.8-1.2µm), multiple (1.0-0.72 µm) high-power analog BiCMOS, high-precision analog bipolar, and ultra high-speed analog bipolar.