Semi foundry industry healthy, but threatened by economic meltdown

Some good news for semiconductor foundry businesses in 2012 – more and more electronics worming their way into tablets, smartphones, and Ultrabooks are going to see a healthy 12 percent boost in revenues compared to a year before. Unless the rocky global economy tips up to ruin the party.

Pure-play foundry supplier revenue is set to grow $29.6 billion, up 12 percent from 2011’s $26.5 billion. According to industry watchers at IHS iSuppli, that tallies up to roughly triple the expected level for the semiconductor industry overall. Foundry suppliers should enjoy increasing demand towards the end of Q1, which usually peaks in the third quarter.

The figures will be music to the ears of industry players who were no doubt disappointed with 2011’s pitiful three percent expansion. There should be double digit growth going into 2014 and 2015.

The suppliers will be thanking their lucky stars for all the new devices the world will see as the smart device boom continues: Android handsets and Apple devices will see demand keep growing, and many businesses are hoping that Intel’s Ultrabook will also kickstart new growth.

Revenue expansion for the NAND and ASIC markets will both enjoy decent growth. DRAM, unsurprisingly, is expected to underperform, with Elpida’s bankruptcy still forcing a domino effect on the rest of the industry.

Of the pure play foundries, the top four were unchanged last year: TSMC leads with $14 billion in revenues, followed by UMC with $3.6 billion in revenues, GlobalFoundries with $3.5 billion in revenues, and SMIC with $1.3 billion in revenues. They are ahead of the rest of the pack by far: the top of the tier two suppliers was TowerJazz Semiconductor with $613 million. However, IHS believes TowerJazz differentiates with its own capacity model, using fab acquisition with multiyear foundry manufacturing agreements – what the analyst house says is the “most viable” expansion method.

Despite the good news, the stinking spectre of a world in the throes of economic meltdown lingers around the projected profits. IHS warns that if tensions are “unresolved” in the Middle East, oil-dependent countries could find themselves in a rut.

Inventory, too, is a potential problem, as companies still wait to the last minute to place orders, because manufacturing capacity is still outpacing demand. Companies are remaining cautious about actual capital spending, too. Expenditures are estimated to drop 19 percent this year.