Tech Hardware Supply Chain - Gazhoo

Bhavin Shah
(852) 2800-8538
bhavin.a.shah@jpmorgan.com
Intel is likely to port Atom Core
onto TSMC's process and gain
access to TSMC’s SoC IP
336
Asia Pacific Equity Research
20 April 2009
TSMC volume increase in 2Q09, slightly higher price erosion
Wafer shipment increase in 2Q09 comes from PC graphics, CMOS image sensor,
HDD disk controller and Bluetooth; we believe there has been a further rise in orders
post mid-March, especially from PC graphics and handsets, including China white
box and RIM. Customers that we believe account for more than half of 2Q09 order
increase are Ominvision, Nvidia, Marvell, CSR, Qualcomm, Mediatek and AMD.
Our checks indicate that TSMC may have offered additional price discount to
customers in exchange for wafer loading increase in 2Q09 and in exchange for
assuring that TSMC gets bulk of the leading-edge orders from some of the
customers.
UMC have finally gained business at 65nm
Customers working with UMC likely include TI, Qualcomm, Broadcom, Nvidia and
Xilinx. We believe UMC could largely improve its utilization rate with the China
demand. The main contributors for UMC’s 2Q09 utilization improvement should be:
1) its product deployment in China, such as white-box handsets, netbooks and China
3G; 2) iPhone; and 3) new orders from top branded handsets. However, the risk of
overbooking in the supply chain could be a key threat to their sustainability.
Table 178: 65nm market shares by revenue
1Q08 2Q08 3Q08 4Q08 1Q09E 2Q09E
TSMC 85% 88% 90% 88% 87% 85%
UMC 11% 7% 6% 7% 7% 11%
Chartered 4% 5% 4% 5% 6% 4%
Source: Company reports, J.P. Morgan estimates. Note: CHRT's SOI contribution has been excluded.
Table 179: 90nm market shares by revenue
1Q08 2Q08 3Q08 4Q08 1Q09E 2Q09E
TSMC 72% 71% 71% 70% 67% 62%
UMC 22% 23% 22% 26% 25% 33%
Chartered 2% 2% 1% 0% 1% 2%
SMIC 4% 4% 6% 4% 7% 3%
Source: Company reports, J.P. Morgan estimates. Company guidance and Bloomberg for figures for SMIC.
Developments at leading foundries
TSMC’s emerging business with Intel: It is about Atom, but SoCs and not CPUs
Intel will likely port its Atom processor core to TSMC’s process. We believe Intel
will get access to TSMC’s IP library, which is critical to building SoC solutions.
Intel is targeting various end-markets, including embedded applications, consumer
electronic devices, nettops and future netbooks, as well as handheld devices with
these SoC applications. ARM has very a strong hold in many of the SoC
applications, and TSMC has a very strong market presence in the ARM-based
processor market, in our view. As Intel tries to penetrate these markets, an alliance
with TSMC may be beneficial because of TSMC’s IP library. For TSMC, this may
open more doors to do SoC business with Intel and potentially Atom-based CPUs in
the future. A less likely but also possible option is for TSMC to become the de-facto
foundry for Atom-based SoCs, if other semiconductor companies decide to adopt
Atom.
What has changed in UMC?
Progress led by new CEO Dr. Sun: We observe some structural changes since Dr.
Sun was appointed as the CEO last July: