Connectors, DRAM, Foundries on the Rise

It is not just semiconductors that are off to a good start in 2011. The connector industry is as tight as a drum, too. Orders in December were up 13.3 percent year-over-year, with full-year orders up 29.3 percent over 2009, though down sequentially 11.1 percent from November 2010.

The December connector book-to-bill ratio was 1.01, unchanged from November. By the way, this industry segment still publishes orders and book-to-bill data, unlike the chip industry, which very foolishly stopped publishing such information several years ago. The increase is even more significant because it happened in the seasonally slow first quarter of the year. Yet few people believe there is a supply problem in prospect. Just as at this time last year, industry denial is rampant, way beyond reasonable caution and ignoring the underlying trends.

We estimate that the worldwide growth rate for PCs in 2011 will be a healthy 10 percent, with 3.9GB the average DRAM content per box. New capacity and die shrinks are putting near-term pressure on over-supply and pricing, but there are now moves afoot from {complink 1769|Elpida Memory Inc.} and others to start raising prices.

Where they can, to gain a price advantage, DRAM vendors are actively adjusting their supply from commodity DRAM in favor of mobile, due to the current strong demand in the smartphone and tablet PC markets, with a 1GB-per-box average DRAM content. Server demand continues to be the other star segment, not just in unit demand but in content per box as well — estimated to average around 30GB in 2011. This will drive a 50 to 60 percent increase in server DRAM demand. Finally, in graphics, demand for specialty DRAM is also very strong, driven by the rapid takeoff of 3DTV and continuing strong growth in Blu-ray DVD.

The overall DRAM industry is thus gradually diversifying from manufacturing mainly commodity DRAM to diversified products such as mobile DRAM, server basis DRAM, specialty DRAM, and graphic memory. DRAM vendors, however, are experiencing mixed fortunes, with Elpida and {complink 12912|Hynix Semiconductor Inc.} having the worst net cash positions, with barely enough cash to cover their short-term debts.

The Taiwanese vendors find themselves stuck in a technology trap, unable to invest in the immersion technology needed to break through the 5nm node, meaning that in the absence of a good market uptick to improve cashflow and profits, a shakeout in the DRAM supply base seems unavoidable.

Events are unfolding rapidly in the foundry market, too. In its fourth-quarter investor relations Webcast, {complink 5388|Taiwan Semiconductor Manufacturing Co. (TSMC)} predicted the semiconductor market will grow 7 percent in 2011, in line with our own expectations. TSMC expects its revenues will increase a massive 20 percent to 22 percent year-on-year in 2011.

This exemplary performance was attributed to TSMC's anticipated share gain in advanced and specialty technologies. The company is continuing to out-invest its mainstream foundry competitors in both capital expenditure and R&D, increasing its leadership technology and manufacturing gap, and has been running at full utilization for the past seven consecutive quarters.

Despite its massive capex budget in 2010, TSMC expects to be running at 100 percent capacity utilization throughout 2011. Both TSMC and {complink 5826|United Microelectronics Corp. (UMC)} were forced to cancel or reduce maintenance downtime during the Chinese New Year holidays in response to the high levels of orders their production lines were struggling to cope with. This had never happened before — typically, firms set aside two to three days during the holidays for their annual maintenance programs.

Along with cutting back on engineering access, restricting wafer variety runs, and ignoring small-volume/low-yield device orders, not doing annual maintenance during periods of tight capacity might just backfire later in the year. There is a real danger that yields will start to uncontrollably drift as a result of skipping the annual maintenance. That would carry a massive risk for the world’s IC makers, affecting every single fabless and fab-lite vendor alike.

4 comments on “Connectors, DRAM, Foundries on the Rise

  1. Backorder
    February 28, 2011

    I am trying to evaluate the TSMC facts in this article against the statements emanating out of Intel about the foundry business; terming it as having a  “significant overcapacity”. I still feel the R&D investments being pushed into Foundries are seriously going to undermine similar investments in wafer fabs by companies like Intel.

  2. Hawk
    February 28, 2011

    Backorder, I couldn't square up Intel's foundry overcapacity comments too with what's coming out in research reports, not just from Malcolm Penn. Sure, GlobalFoundries and TSMC are adding capacity but more companies are using foundries today and that trend is unlikely to change. Only companies like Intel and Samsung Electronics can afford fabs today so the rest of the crowd will have to source semiconductor wafers from foundries or use older existing fabs.

    Was Intel talking about leading-edge foundry capacity or trailing edge? It's not clear. If semiconductor sales falls off by the second quarter then we could see a situation of foundry overcapacity but if demand remains strong I don't see that happening.

  3. Ashu001
    February 28, 2011


    Looking at how fast Technology cycles it wont be much time before Leading edge becomes Trailing edge!!!

    Jokes apart do we really need to worry too much about this issue?? What is more important is whether or not there is a market for the chips(regardless of whether or not they are leading/trailing edge),after all even today there is a market for 8-bit/16-bit processors…



  4. Backorder
    February 28, 2011


    I think whats leading and whats trailing in the manufacturing sphere is very subjective and any objectivity that remains is being driven out rapidly by conflicting statements from the leaders of both worlds. While Intel has categorically projected itself as investing in fabs for advanced products, and TSMC/Global as demand fulfillment agencies, TSMC would always say that they are working for technologies as leading edge as they come. I wouldnt disagree too. And it is not just the Intel and Samsung. Companies like TI are adding to the capacities. All said and done, I feel it would be a mistake to take the foundry giants and their expansion plans lightly.

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