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Higher Margins For Foundries and Fabs

On March 17th, 2010, SEMI released its 2009 semiconductor material market statistics.  While the headline pegged worldwide semiconductor material sales at $34.6 billion, that was reportedly a 19% decline in sales compared to 2008.

Although SEMI stated that was not as bad as the 26% decline suffered by material suppliers in the devastating 2001 down cycle, the numbers aren’t easy to swallow.

Table 1:  Semiconductor Revenues, Units, Wafers, Materials


Source:  SEMI, SIA/WSTS and Semico Research Corp. SIA/WSTS reports that total semiconductor units dropped by 5.6%.  Semico Research's analysis determined wafer demand only dropped by 2.7%.  How did the materials going into the making of these chips and wafers decline by 19%?  Even total semiconductor revenues only declined by 9%. Here are some possible reasons.

  1. Semiconductor manufacturers      had a stockpile of inventory and worked those down
  2. Semiconductor manufacturers      were able to reduce material consumption.
  3. Material prices declined.

In today’s just-in-time environment, Semico does not believe that manufacturers stockpile.  The draw down of inventories could not have been a significant contributor to the decline in material sales. Did productivity improvements cut material inputs at double digit rates?  Productivity improvements in material were certainly likely.  But once again, we would be surprised if manufacturers reduced material inputs by that much. Did suppliers cut material prices just to sell product?  We do know that material demand recovered by the second half of the year and in some cases, so did pricing.  In fact, some materials actually increased in price, such as gold. But total silicon wafer sales for semiconductor production was reported at $6.7 billion in 2009 compared to $11.4 billion in 2008, a 41% drop.  Silicon is approximately 47.1% of the total wafer manufacturing material (not including packaging materials) in 2008 and 37% in 2009.  That’s a significant drop in the cost attributable to the silicon wafer. Table 2:  Silicon as a Percent of Wafer Manufacturing Materials


Note:  Wafer manufacturing materials equals total materials minus packaging materials. Source:  SEMI, Semico Research Corp. So if total material costs really did decline by 18.5%, semiconductor manufacturers should have experienced some nice margins.  Is this true?  We should see evidence of this in foundry margins.   This could also mean lots of room for chip price reductions in the coming year.  As Walden Rhines, CEO Mentor Graphics pointed out at the 2010 Semico Outlook event, lower ASPs will spur another round of innovative applications for the efficient and cost effective transistors.