The Foundry Market Shows Its Maturity

Third quarter results have been posted and the fourth quarter is set. There are even some indications regarding the outcome for first quarter 2007 performance. Dedicated foundries have always provided a window to the next quarter performance through their visibility of orders and business activity.

Chartered, TSMC and UMC all expect a slower fourth quarter. Lower revenues will be a result of lower wafer shipments and/or lower ASPs compared to Q3 2006.

TSMC expects revenues to be down 8%-10%. TSMC believes the inventory correction for computing that started in the second quarter 2006 is over but the cell phone market adjustment which started in Q3 2006 and will flow through to the first quarter 2007. Chartered expects revenues to be down approximately 5%, while UMC expects to see shipments down by 2-3% and ASPs down by 5-6%.

Of the top four dedicated foundries, SMIC is the only company setting guidance for fourth quarter higher than third quarter. It's only a 1-2% increase but that's better than a decline. Smaller foundries such as Vanguard and others expect to see continued growth through 2006 and into 2007. Vanguard is guiding up 20%.

Semico Spin

Foundry performance is consistent with Semico's 2006 expectations and reinforces our forecast for 2007. Semico expects a slower than seasonal first half in 2007, with improvements beginning to take shape by the second half.

It is interesting to note that the larger foundries are experiencing a slowdown that is consistent with the overall industry while the smaller foundries are bucking the trend and out performing the overall industry growth rates. The niche strategies are paying off.

Last week Semico had the opportunity of visiting with Tower Semiconductor in Migdal Haemek, Israel. What a unique and positive experience. The foundry has announced a number of new customer wins and is optimistic about the rest of this year as well as 2007. What a change from just two years ago.

Because the large dedicated foundries are serving the mainstream markets, they will experience the mainstream industry cycles. On the other hand, the smaller foundries have been able to find pockets of higher growth markets. They've been forced to target niche markets which in this cycle are proving to be a smart move.