Semiconductor Industry

3.7.1 Integrated Device Manufacturer

An integrated device manufacture (IDM) is a semiconductor company that designs, manufactures, and sells integrated circuit (IC) products. As a classification, IDM is often used to differentiate between a company that handles semiconductor

manufacturing in-house and a fables semiconductor company, which outsources production to a third-party. Due to the dynamic nature of the semiconductor industry, the term IDM has become less specific than when it was coined.

3.7.2 IC Foundry

An IC foundry is a company that manufactures ICs (Integrated Circuits) for IC design houses. Being regarded as a profitable and promising area, many new IC foundries have recently been established and the area is becoming increasingly competitive. In this highly competitive environment, the quality of service provided by an IC foundry has been widely regarded as the critical factors for establishing a competitive advantage.

Opinion leaders in the Taiwan IC foundry industry proposed the ―virtual fab‖ as the way to establish a leading IC foundry. A virtual fab is an IC foundry whose service is so good that customers would virtually take the foundry as their own factory.

Thus, a vertical fab, is virtually owned, monitored or controlled by its customers. If such a virtual fab is available, customers would rather place orders with IC foundries that establish a virtually customer owned IC factory.

Although many companies continue to both design and manufacture integrated circuit (achieving efficiency through vertical integration), theses integrated device manufactures (IDMs) are not alone in the marketplace. Economic forces have led to the existence of many companies that only design devices, known as fables semiconductor companies, as well as merchant foundries that only manufacture devices under contract to other companies without designing them.

IC production facilities are expensive to build and maintain. Unless they can be kept at nearly full utilization, they will become a drain on the finances of the company, so companies avoid costs by not owning such facilities. Merchant foundries, on the other hand, find work from the worldwide pool of fabless companies, and by careful scheduling, pricing and contracting keep their plants at full utilization.

Originally, microelectronic devices were manufactured by companies that both designed and produced the devices. This was necessary because manufacturing involved tweaking parameters, having a precise understanding of the manufacturing processes, and the occasional need to redesign. These manufactures were involved in

both the research and development of manufacturing process and the research and development of microcircuit design.

However, as manufacturing technology developed, microelectronic devices became more standardized, allowing them to be used by more than a single manufactures. This standardization allowed design to be spit from manufacturing. A design that obeyed the appropriate design rules could be manufactured by different companies that had compatible methods. An instrumental development that allowed this standardization was the introduction of advances in electronic design automation (EDA), which allowed circuit designers to exchange design data with other designer using different foundries. Because of the separation of manufacture and design, new types of companies were created. One type of company is called a fables semiconductor company. Such companies have no semiconductor manufacturing capability but rather contracted production from a manufacturer. This manufacturer is called a merchant foundry. The fables company concentrations on the research and development of an IC-product, the foundry concentrates on fabricating and testing the physical product. If the foundry has no semiconductor design capability, it is called a pure-play semiconductor foundry.

An absolute separation into fables and foundry companies is not necessary. Some companies continue to perform both operation and benefit from the close coupling of their skills. Some companies manufacture some of their own design and contract out the manufacturing or design of others, in case where they see value or seek special skills. The foundry model is a business vision that seeks to optimize productivity.

After the 2009, dip in the semiconductor market, in March 2010, the Taiwan semiconductor manufacturing company chairman Morris Chang predicted a strong recovery in the semiconductor market economy, with ―the global revenue for the semiconductor market to rise at an annual rate of 22 % this year, better than the 18%

he estimated in late January. He concluded the growth of the market would stay on course this year and maintain at quite high space.

Through the end of the 2008 finical crisis, the global semiconductor plant inventory was controlled for more sensitive and cautious growth, so during 2009, in the largest semiconductor market, he structure change was in the large fab capacity of the IDM facilities, which would not only halt investment in expanding production, but also, in its own fab capacity utilization, wait until the actual receipt of the order, and increase the amount of cast films.

Thus, when IDM facilities had a sudden increase, in customers‘ order volume, they met it by ordering the extra production from the foundries in an attack and retreat that kept the potential negative factors and their risk to a minimum.

In this kind of logical thinking, the entire semiconductor manufacturing chain becomes very sensitive to the inventory adjustment, the change in LCD driver IC orders last year, is a good example. During two quarters of last year, in the U.S. and China, plan to stimulate the economy, driven by LCD driver IC panel plant on demand, the customer also increased wafer foundry orders per year, but the market in last September‘s panel felt only slight demand for a flat down had less that three months time to complete the inventory adjustment.

Low inventory is becoming the normal, as sales and shipments of computers, mobile phone, and other electronic products continue to increase, so the chip supply is always lower than the demand. If past experience is an indicator, the industry should soon enter a large semiconductor plant expansion phase, but we look at capital, only foundries and memory plant boost the capital.

3.7.3 IDM Outsourcing

In year 2001, the semiconductor is in the economy downturn stage. The international IDM industry has been thinking about a new business strategy. The IDMs cannot afford the hyge manufacturing cost for the technology beyond 65 nm, the profit gain is not attractive due to the minimum investment return for the largest business interest. Therefore, the IDM plants need to be fab-lite for more benefits.

IDM outsourcing becomes a new business when IC technology goes to the 65 nm process. Many IDMs including NXP, Free-scale, Crolles, Alliance, IBM, Ti announced they were ceasing their advanced research and process development. The IDMs choose to collaborate with pure-foundry companies. Some IDMs announced the closing of their half-factory and expanded their outsourcing portion. The foundry model has swept through Asia, Japan and the global giant NEC.

IDMs plan to reduce their investment in the fab and move off the large factory model. The IDM facilities have chosen to cooperate with foundries. The implantation the fab-lite IDM strategy will inevitably increase the proportion of outsourcing and foundry orders volume will increase.

When IDM facilities are intended to be fab-lite, the foundry can not only get

low-priced equipment but also use this equipment to create more valuable products.

Similarity, the domestic foundry business can also benefit downstream industries including packaging and testing companies, especially in IC packaging. The IC packaging technology is now focused on the ball gate array package (BGA) and flip chip package (Flip Chip). IDM outsourcing can release orders and leverage their investment, thus, the fab-lite strategy affects the business model of the IC industry.

The IC market pie is divided by function, and the division of labor can decrease the market risks of integrated businesses. The fab-lite IDMs thus becomes the future trend for current IC technology nodes.

In the long run, the fab-lite IDM can also promote the products‘ cycling time since a closer relationship between the IDM and the foundry is necessary. The chip design tesm actively interacts with the foundry in the beginning, which can ensure that the foundry delivers a process that required shorter time. The foundry‘s ability to seize the business and shorten production time makes the collaboration between foundry and IDM win-win situation. Table 3.4 summarizes the reasons why fabless works

Table 3.4 Main reasons to support fabless business model

Reason Description

Technology

 Gain the benefits of process technology ownership with minimal investment

Capital  Effective use of capital for R&D

 High return on assets (ROA)

Effectiveness

 Enables increased focus driving improved business execution

 Fabless business model benefits from more effective capacity utilization