We all have echoed the fact that the arrival of fabless business model in the semiconductor industry has transformed it completely. The book, “Fabless: The Transformation of the Semiconductor Industry” provides several stories around that. In the backdrop of that, one key point to ponder upon is the start of pure-play foundries; TSMC being the initiator in 1987. The availability of pure-play foundries gave the boost and courage to small as well as large players around the world to start designs without owning fabs. The net result was a flood of fabless design companies and innovations in designs around the world. This is not without the pure-play foundries innovating themselves too. TSMC and subsequent foundries provided leading edge processes and technologies in manufacturing. Today, pure-play foundries provide manufacturing services not only to fabless companies but also to IDMs. Hence, looking at the other side of the coin, it would not be imprecise to say that the pure-play foundry model also transformed the semiconductor industry.
After TSMC, about ten more pure-play foundries were founded around the world, the latest being GLOBALFOUNDRIESin 2009. According to the first quarter sales figures of 2015, three pure-play foundries (TSMC, GLOBALFOUNDRIES, and UMC) occupy the ranks within top20 semiconductor companies in the world, TSMC being 3[SUP]rd[/SUP]. Interesting to note among the pure-play foundries is the following –
The percentage share of these top3 pure-play foundries clubbed together in the overall pure-play foundry sales is 79% and above; $33.68 B out of a total of $42.4 B in 2014, and $9.32 B out of a total of $11.4 B in 1Q 2015, i.e. 82%.
If we do a further analysis of TSMC’s share among the top20 pure-play foundries (i.e. the three foundries as stated above), it’s 74% in 2014 ($24.976 B out of $33.68 B) and 75% in 1Q 2015 ($6.995 B out of $9.318 B). What do we call TSMC in such a scenario?
Let’s also see the pure-play foundry business in recent perspective where we know TSMC had lost some business due to Samsungstarting in-house manufacturing of its Exynos and Appleallocating a part of their processors to Intel and Samsung. However, Apple is expected to come back to TSMC’s 16nm FinFET for their A9 processors in iPhone7. There are reasons for it; I’m not going in those details here. However, I would like to debate on how TSMC influences the overall pure-play foundry business. Let’s look at the following chart reported by IC Insights –
This chart depicts the usual trend of the best growth for pure-play foundries in Q2 every year (double-digit growth compared to Q1), i.e. ahead of Q3, the best quarter for total IC industry. However, in 2015 that trend was broken; in Q2 the sales declined slightly compared to Q1 instead of increasing as was seen in previous years. The reason – 5% decline in TSMC’s revenue in Q2 compared to Q1. If TSMC’s 5% change in revenue can change the pure-play industry trend, then that’s definitely the ‘Top Dog’ in the industry. Although there are competing technologies possessed by other foundries as well, I would go back to my hypothesis that business leadership along with technology leadership is the key to establish someone as the ‘Top Dog’.
For TSMC, rest of this year and 2016 are certainly looking better. IC Insights forecasts the overall pure-play foundry sales in Q4 2015 to reach over $12 B, the highest ever. The IC Insights pure-play foundry report is HERE for your reference.
Changing Trends at the Top of Semicon Space. The chart in this article provides the sales numbers of the top3 pure-play foundries mentioned above.
Pawan Kumar Fangaria
Founder & President at www.fangarias.com