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Europe’s Foundries Find Success With Niche Strategies

While Asian semiconductor wafer contractors — foundries, as they are better known — typically garner more attention, two German companies are stirring up serious interest.

With their efforts focused on the fast-growing power management market, X-FAB Semiconductor Foundries AG and LFoundry GmbH are securing a niche as suppliers of analog and mixed-signal semiconductors, notes Len Jelinek, {complink 7427|iSuppli Corp.}'s director and chief analyst for semiconductor manufacturing, in a recent report.

Additionally, targeted growth strategies — centered on the expansion of manufacturing operations through timely acquisitions of existing wafer fabs previously facing financial difficulties — have proven to be an advantage over Asian counterparts, which continue to engage in capital spending wars, according to Jelinek.

Financially, both operations show promise. Despite seeing revenues drop from $369 million in 2008 to $210 million in 2009 as the recession took its toll, privately held X-FAB is expected by iSuppli to rebound and book $315 million this year. LFoundry, which spun off from {complink 4637|Renesas Technology Corp.} in 2008, had only $33 million in revenues in 2009, its first full year of business. But its recent acquisition of the {complink 520|Atmel Corp.} manufacturing facility in Rousset, France, should peg 2010 revenues at $200 million, iSuppli predicts.

How well these companies ultimately fare will depend largely on how they manage their growth as the electronics sector recovers, and how easily they ward off challenges from Asian competitors looking to increase their European presence. Jelinek also alludes to the importance of forging relationships with emerging design companies in Asia, which undeniably will be an important key to meeting shifting global demand.

As far as the global electronics supply chain goes, I wonder what role European contract manufacturers and foundries will play in the next couple of years as the economy and consumer end-markets gain momentum. Every few years, the winds seem to change direction: Sometimes chipmakers and OEMs go the lower-cost route, and at other times they opt to keep manufacturing partners closer to the markets they intend to serve.

Which way are the winds currently blowing? Will the region’s proximity to the developing markets of Russia, the Middle East, and Africa trump lower-cost Asian production? Let me know what you are picking up from the grapevine.

4 comments on “Europe’s Foundries Find Success With Niche Strategies

  1. DataCrunch
    November 5, 2010

    Hi Jenn, interesting article.  I could see a steady stream of revenue for the local niche players in Europe for the foreseeable future, but I am not sure I see stellar performance.  I still see Asia as the giant for some time to come.  We always hear about China, which of course is the current leader in this space, but I wouldn’t be surprised to see India become a major player, if they could get their infrastructure up to speed.    India’s foundry business is experiencing a revival mainly due to the automotive industry and the high demand for cars in the region, despite the downturn in the world economy.  Would be interesting to see how it plays out over the next few years.

  2. Ashu001
    November 6, 2010

    Jennifer,

    My feeling is that the proximity of these facilities to the Fast growing markets of Africa,Middle East and Eastern Europe mean that they do have a major advantage over Asian foundries.Especially as Shipping costs and delays rise considerably(thanks to Increased checks on account of bomb threats as well as due to weather problems).

    Proximity to markets is a major advantage(especially if they manage to keep their products cost-competitive with Asian Suppliers).

    regards

    Ashish.

  3. Jennifer Baljko
    November 8, 2010

    Hi Dave,

    Thanks for the post. True, India will be a country to watch for many reasons, including the ones you mention. I think their ability and effectiveness in pulling off production for the region's growing low-cost car segment will be something device makers will want to keep tabs on. That, combined with their relatively strong software development background and customer service call center niche may make for an interesting all-services outsourcing locale.

    We'll see how it unfolds.

    Jenn

  4. Jennifer Baljko
    November 8, 2010

    Hi Ashish,

    Thanks for the post. I agree that shipping costs are a huge expensive that has to be considered in the total cost picture. Like you said, supply chain disruptions (whether caused by weather, terorism-linked customs delays, transportation/infrastructure issues, or any number of other issues) will continue to occur in some way, shape or form, regardless of the all the steps taken to prevent them. It seems like this costs vs promixity debate will be with us for quite some time, and companies will still have to weigh the pros and cons of each.

    Jenn

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