Tuesday, March 1, 2011
Malcolm Penn, chairman and CEO, Future Horizons, asked the question at the SEMI ISS2011 Europe event at Grenoble, France, early this week: Whether this is the time to rethink the industry assumptions?
For instance, fabs have no strategic value, until you haven’t got one and lost control of your business. ASPs will keep on falling, just like house prices kept on rising? The semicon industry growth rate has slowed to ’7 percent per annum, which is only possible if ASPs keep falling 4 percent given an 11 percent unit growth.
Foundry wafers will always be cheap and freely available, just like cheap debt, right? Multiple sources will keep the foundries ‘honest’, since it is assumed that multi-sourcing at 20/22nm is going to be ‘interesting‘. It is also OK to focus on more than Moore competence, as today’s ‘More Moore’ is tomorrow’s ‘More Than Moore’.
Industry fundamental #1 – Economy: This was NOT a recession, someone turned off the lightsPre-Lehman, the chip industry was in very good shape. There was strong unit demand, and no excess inventory.There was limited wafer fab capacity, and no overspend/cutting back. Next, the ASPs were recovering, although, structurally driven. However, the strong global world economy was being deliberately slowed. The money really stopped moving in the post-Lehmann crash!
The economic coupling Is statistically weak. The economy is just one part of the equation. The chip industry marches to its own drum as well.
Industry fundamental #2: Unit demand: The Moore’s Law giveth and taketh away! Long-term average ICs/wafers grow only very slowly. There are more complex ICs counter balance die shrinks (1-2 percent productivity gain). Besides, 9-10 percent new capacity is needed to match the 11 percent average IC unit growth.
Industrial fundamental #3: Fab capacity: Let’s look at the IC manufacturing fundamentals — four quarter minimum lag from decision to impact.
* Total equipment capex = 85 percent of the total capex
* Wafer fab capex = 70 percent total equipment capex
* Order today = Wafer fab capex one quarter later* Wafer fab capex = Additional capacity two quarters later
* Additional capacity = IC units out one quarter later.
Pig cycles and cobwebs will keep happening due to long supply-side lead times (4 Months – production / 2 Years – fabs / 5+ years – design).
The fab capacity is still seriously tight. The Q4-10 status is still down 7.5 percent vs. Q3-08 peak. Also, the first relief happened in Q4-10 (from Q3/Q4-09’s spend) following six flat quarters.
The IC wafer fab capacity for Q3/Q4-09 spend, was equal to +80k ws/w In Q4-10. The 2010 spend was equal to ~400k ws/w additional by Q4-11? The wafer fab capex is still running ‘fab tight!’ Here are some more pointers:
* Not yet overheating, despite 140 percent 2010 growth.
* 2010 spend same as 2006; 10 percent lower than 2007 and 80 percent of 2000’s all time peak.
* Q1-11 book to bill <1; slowing Q2-11 sales.
* 2011 up between 5-15 percent, still within ‘safe haven’ region.
* TSMC thunders on with capex up 30 percent sales up 22 percent; the leadership gap up.
Industry fundamental #4: ASPs: The perceived industry wisdom all along has been that ASPs will keep on falling forever. Also, it is believed that the industry growth days are over with future CAGR ~7 percent pa — 11 percent units and -4 percent ASPs.
The reality is different. Rule one, ASPs can’t keep falling forever, They eventually self correct! The second rule — when in doubt, Rule #1 will apply, Now, the fact is: ASPs stopped falling In Q4-2009! Still no one believes it!
Industry fundamental #5: Perception. This makes an interesting reading, as follows:
* Loss of industry confidence means that “The glory days are over”.
* Maths and logic says one thing, the hearts and minds another.
* Risk aversion and worry leads to timidity and short-term focus.
* Financial driven decisions — will that lead to business? Or, even customers??
* Pandemic of over (under) reaction — leads to knee-jerk reactions.
* Kowtowing to “Wall Street” — well, it is to far better to dance with the devil!
* Near-term reaction to daily deluge of data only leads to ignoring the trends.
* Lip service to ‘real’ (product) marketing only means “massage the numbers.”
* Poor industry “can do” leadership and vision as it is better to be safe than sorry.
* Achieving success in the age of nano tech — new rules for the old?
What exactly is so wrong with ’4 percent’ global GDP growth? What’s the 2011 forecast? Plus 9 percent? Just because 9 percent is lower than 32 percent, it is not boom turned to dust! It is just business as normal with more up than downside!!
The really good news — so many new markets, products, solutions, as well as European R&D leadership. The really bad news — the chip industry model is broken. Here’s why:
* Over dis-aggregated supply chain with no-one in control.
* SC and SEMI industry stand-off at 450nm (just wait for sub-22nm!!).
* Zero commitment from anyone at the C2C interfaces (loads of them).
* New chip industry start-ups hard to finance/break into the market.
* No-one’s measuring activity in the end application markets
* Long-term planning now in months rather than quarters, let alone years.
* And YES! At last, the penny’s finally dropping, manufacturing does matter!
Posted by Pradeep Chakraborty at 5:30 PM