Gartner: OEMs eyeing direct-to-foundry route

Posted : 12 Jun 2007   Print Version   E-mail this to a colleague   Send inquiry

Slowing growth in semiconductors will drive new rounds of consolidation and partnerships as chipmakers seek creative strategies, according to an analyst atGartner Inc. Under the continued price pressures, some systems makers are experimenting with direct links tofoundries, cutting traditional chipmakers out of the picture, said Bryan Lewis, a vice president of research at Gartner.
"Long-term compound annual growth rates have declined from 15 to 10 percent and now we are looking at five percent," Lewis said.
In its latest chip forecast,Gartner revised its 2007 semiconductor forecast from 6.4 percent down to just 2.5 percent growth this year. The market watcher estimates compound growth in chips over the next five years at 5.1 percent. The good news is the steepness of semiconductor up and down cycles are moderating, thanks to a market less dependent on memory and more controlled about inventories.
In this environment, "price pressures are everywhere and they will only get worse," Lewis said. "We have entered a slower growth era and you have to adjust your strategies," the analyst said. "Overall there will be more consolidation and some outright market exists" due to the continued slowdown in semiconductors, he added.
Companies are working a variety of strategies ranging from mergers, such as those between LSI Logic Corp. and Agere Systems Inc., to private equity deals similar to those struck by Freescale Semiconductor Inc. and NXP Semiconductors. However, Lewis poured cold water on rumors that private equity firms would buy up and combine Cadence Design Systems Inc. and Mentor Graphics Inc. "That would be biting off much more than anyone could handle," he said.
Partnerships between systems makers and foundries that cut out chipmakers as middlemen is one of the more interesting strategies emerging in this climate, Lewis said.
He pointed to the example of Microsoft, which licensed for its Xbox360a graphics design from the former ATI Technologies ULC and had it made at Taiwan Semiconductor Manufacturing Co. Ltd. The company considered a similar move for its Xbox360processor designed by IBM Corp. but at the last minute decided to have IBM assume overall responsibility for making, packaging and testing the chip rather than buying raw wafers from Chartered Semiconductor Manufacturing Pte Ltd.
Nevertheless, the market analyst praised the partnership IBM has struck with Chartered and Samsung Electronics Co. Ltd to share marketing as well as development of process technology and libraries. The trio recently snatched some of Qualcomm‘s foundry business from TSMC, he noted.
Cisco Systems Inc. has had mixed experience trying a similar approach of taking some of its chip designs directly to foundries. In addition, some of China‘s system makers are trying this tactic for chips they reverse engineer for sale in the country and make in China foundries, avoidingIntellectual property royalties, Lewis said.
- Rick Merritt
EE Times