Chip Manufacturing Bent, But Didn’t Break Under the Recession Tweet

But what is in store for semiconductor makers in 2010?

After suffering through one of the most significant declines in manufacturing in the history of the chip making business in the first quarter of 2009, companies were rewarded with three subsequent quarters of improved factory utilization. As a result of conservative management of capacity, most companies ended 2009 with manufacturing levels approaching those of the pre downturn levels of the third quarter of 2008, according to iSuppli Corp.

What’s in store for manufacturers in 2010? Will the recovery continue—or will the global economy again divert consumer spending to more basic necessities, causing a slowdown in semiconductor consumption?

Throughout 2009, the uncertainty of global economics dictated how semiconductor companies managed operations. It was not until late in the fourth quarter of 2009 that companies became willing to make decisions that had implications focused on expansion.

Enter 2010
In 2010, there are numerous indicators that support a much more positive outlook for manufacturing run rates than were apparent 12 months ago.

Innovative new products and a conservative approach to inventory levels throughout the supply chain are probably the two key indicators that are spurring optimism among manufacturers.

iSuppli anticipates that manufacturing run rates in the second half of 2010 will drive total factory utilizations into the high 80’s to low 90’s for most companies. For advanced semiconductor manufacturing processes and memory technologies, factory utilizations will be in excess of 90 percent and will approach 100 percent by year­end.

With significantly increased levels of manufacturing, companies will be forced to expand manufacturing. This will reverse the recent three-year decline in capital expenditures that the equipment companies have been forced to manage. iSuppli anticipates that global capital expenditures will increase by 46.8 percent year-over-year.

The largest year-over-year increase in capital will be for the manufacturing of memory products. iSuppli anticipates that capital in support of memory manufacturing will increase in 2010 by 65.5 percent.

An Alternative
Third-party manufacturing will continue to be focused on Taiwan. However, with the emergence of Globalfoundries and its manufacturing operations in Europe and Singapore, fabless companies demanding state-of-the-art manufacturing will now have an alternative to Taiwan’s TSMC and UMC.

iSuppli anticipates that in 2010, chip manufacturers in China will continue to take the role of low-cost, fast followers. Chinese foundries will continue to face aggressive challenges from Taiwan while attempting to grow their regional market share.

Manufacturers will find 2010 to be a year of recovery and expansion. This does not mean it will be a year without significant challenges. Profitable growth will dominate discussions for most semiconductor companies. Ultimately, the global economic recovery will determine the degree of success for most semiconductor manufacturers.

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