Ties That Bind - Bay Area Council Economic Institute

Investment: Building Global Businesses in a New China
costs among a large number of fabless customers. The fabless/foundry model
also offers flexibility in terms of mixed lots and an individual company’s peak
demand. Some integrated device manufacturers…have chosen to go “fablite” for
part of their product lines, while continuing to internally produce other products.
The fabless/foundry model has grown rapidly, with the fabless part of the business
now representing 20% of the total U.S. industry. The fabless/foundry model
has been primarily in digital logic chips. Microprocessors, DRAMs, analog and
discrete products continue to be produced primarily by Integrated Device Manufacturers,
or IDMs.
Industry experts differ on how much further this model will grow. Some experts
argue that high costs of 300mm wafer fabs will lead to more companies choosing
to become fabless, or fablite. Others note that below 0.25 microns, the physics
of the devices on each chip becomes increasingly difficult and that integrated
device manufacturers who can better couple design and process engineering have
an advantage.”
After falling behind Japan in the mid-1980’s, U.S. semiconductor manufacturers regained
the market share lead in 1992 and have held about 50% worldwide market share since 1997.
In 2005, the U.S. industry had $110 billion of the $228 billion world semiconductor market,
about 48%; North American fabless companies accounted for about $29 billion, or about 26%
of U.S. industry revenues. U.S. designers and manufacturers accounted for 61% of the Americas
market, 51% of the European market, 24% of the Japan market, and 52% of the remaining Asia-
Pacific market.
Of the major product markets, the U.S. was strongest in the micro market—including microprocessors
and digital signal processors, with an 83% share. U.S. producers hold a 47% share in
MOS Logic, which includes many of the semi-custom products such as field programmable logic
devices; a 58% share in analog chips for consumer, computer, automobile and telecom applications;
and a 21% share in memory chips.
From 1997–2005, as U.S. market share has held steady at around 50% (and ended at 48% as
mentioned), Japanese producers have seen market share decline from 30% to 23%, and other
producers—some Korean and European, but mainly in Taiwan and the PRC—grow from 20–
29% of the global market.
China Grabs Foundry Market Share
Well into the 1990s, chip design stayed in Silicon Valley and fabrication shifted to Taiwan foundries
operated by Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp. or a
multitude of smaller production firms. Today TSMC and UMC account for more than half of
total foundry capacity in Asia, and the largest concentration of 300mm wafer capacity in the
world. They easily dominated the $19.5 billion global foundry market in 2005 ($16.5 billion generated
by pure play foundries, and another estimated $3 billion from foundries operated by
119