The foundry market grows faster than the semiconductor market

The latest data from the foundry market reveals that the pure-play foundries keep taking market share in the semiconductor market. (For those not familiar with the industry, foundries are subcontractors that manufacture chips for semiconductor companies).

In 2016 the foundry market outgrew the semiconductor market with close to 10% following the last couple of years trend.

At the same time, the largest foundry, TSMC increased their gross margin with 1.4 basis points to 50.1% in a flat market without manufacturing restraint.

It might be less investment intensive for semiconductor companies to choose foundries over their own manufacturing facilities but it comes with a cost. Fabless and fablight companies have to surrender part of their value chain to the foundries. The value loss is accelerating, based on TSMC's increasing margin.

As the cost of participating in technology race increases, more semiconductor companies surrender to the fabless or fab light model. This is dividing the semiconductor market into two segments with very different operating models.

It will be vital for foundry based semiconductor companies to stay clear of creating standard products. When the manufacturing base is equalised, the only thing left to discuss is price left to compete with. Fabless companies need to engage closely and early with their customers to create value.

Read the full story from IC Insights here.

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