Silicon foundry market in flux as market stalls

Foundry vendors see a temporary lull in the market for now, but many expect the business will rebound in the second half of 2004. Others see a sudden IC inventory buildup, causing a foundry slowdown in early 2005. And one vendor sees foundry volumes dropping by some 20 percent as early as the first half of 2005.

Still, the foundry business is growing at a faster clip than the overall semiconductor industry, said Kuen Chow, vice president of field applications engineering for Taiwan's United Microelectronics Corp. (UMC), the world's second largest foundry vendor.

Overall, the foundry industry is expected to grow 20 percent over the next several years, from $7.5 billion in 2002 to $32 billion by 2002, Chow said in a presentation at the forum sponsored by the Fabless Semiconductor Association.

In an interview after the presentation, Chow said he remains upbeat in spite of the current lull in the marketplace and fears of a possible downturn as early as 2005. "We believe the current slowdown we're seeing is temporary," Chow said. "I think the growth will resume."

The UMC executive also dismissed fears of an inventory glut in the market. "The inventory we're seeing is not very high," he said. "There is very little inventory."

Overall, he remains bullish about the foundry business' outlook in the second half of 2004 and beyond. "We will see growth in 2005," he added.

One vendor disagreed. "Right now, our fabs are full and customers are crying for wafers," said Thomas Hartung, vice president of sales and marketing for foundry specialist X-Fab Semiconductor Foundries AG of Germany.

"But I'm seeing signs that demand will consolidate," Hartung said in an interview here. "I expect in the first or second quarter of next year that demand will moderate."

The X-Fab executive said customers are ordering wafers, but they are also stockpiling parts and leaving them on the shelves. This in turn is creating an inventory buildup, which points to a pending slowdown in the first half of 2005, he said.

"I see volumes dropping by 20 percent," he said.