TSMC’s new fab cost more than the yearly foundry Capex.

Morris Chang of TSMC recently gave his view of the capital investments needed for the company’s next 3nm fab in southern Taiwan. Chang believes the fab will require an investment of 20B$ before it is fully operational. This is more than the total yearly capital investments for the entire semiconductor foundry industry.

The total CapEx of Semiconductor companies, Semiconductor conglomerates and Semiconductor foundries will not pay for many fabs moving forwards. Manufacturing will be a game only played by the largest of companies.

 

 

Although semiconductor foundries are controlling more of the total semiconductor manufacturing they are not able to capture the value creation from their customers in the current growth market. While most of their customers have grown both revenue and operating profit the foundry industry has not been able to follow. Read the Bloomberg article here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Semiconductor Fabless Revenue is not growing.

Many Semiconductor companies have embarked on a strategy without semiconductor manufacturing. The immediate advantages of a fabless model is a positive impact on the investment cash flow as capital expenditures for new factories now is the problem of the foundry. The long-term ramifications are difficult to predict but short-term gains are hard to resist, even if there is a price to pay.

 

 

We have started to track the performance of the different manufacturing categories, ranging from fabless to fully fab’ed semiconductor companies, with two categories in between.

A good performance metric to evaluate the different model is the operating income and it does not look favourable for the fabless category in the latest upturn. Every other category has done better the last 6 quarters. Not surprisingly the FullFab category has benefitted from the memory boom as memory companies owns their own fabs. The fab heavy category is impacted by a positive gain by NXP in Q1-17 but has generally grown healthy. The best model over the last 6 quarters has been the FabLight model.

Investigating if there is a shift in the profit of the semiconductor value chain requires an investigation of the operating profit of the foundry companies.

 

 

With an initial gain in both revenue and operating income, both are now pointing south indicating that the bargaining power is back in the hands of the foundry customers. This could indicate a market shift.

It might still be too early to conclude which model is optimum for Semiconductor companies, but we are committed to drilling for data and insights needed to make the right strategic decisions.

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Toshiba can eat its cake and keep it

It looks like a Toshiba’s memory division finally will be sold, and the cash-strapped conglomerate can get a much-needed cash infusion. A consortium constructed by Bain capital has been selected by Toshiba as the winning bid (not necessarily the highest bid), that also can satisfy the Japanese authorities. The deal can still be derailed by Western Digital that has several joint ventures with Toshiba and has sued the corporation to stop the transaction.

 

It has been incredibly complicated for Bain to navigate the many stakeholders and get to a deal. Not only has there been the national interests of Japan to protect but also many different stakeholders have been trying to get a share of TMC. Several customers like Apple, Dell and Kingston, are working to hedge themselves against further increases in Flash pricing by getting a share of the profits joined by suppliers, competitors and joint venture partners.

There have been several antitrust issues to be avoided. Seagate, Toshiba and Western Digital (part of the competing bid from KKR & Co) have full control of the hard disk market and Toshiba, Hynix and Western Digital combined would control more than 43% of the NAND flash markets. Both of these antitrust issues would prevent a normal acquisition of the Toshiba Memory Corporation.

 

 

The construction from Bain involves eight different investment partners. To make the deal palatable to authorities and Toshiba, Bain is creating an investment vehicle with several different share classes to isolate some of the joint venture partners from influence. Bain has created an acquisition company called Pangea to act as the buyer of Toshiba Memory Corporation.

 

 

The owners of Pangea are:

  • Bain Capital. Responsible for the construction and a future IPO.
  • Toshiba. Reinvesting a significant amount of the proceedings into the new company.
  • Hoya Corporation: A supplier to Toshiba and seen as important in the eyes of the Japanse authorities.
  • SK Hynix: A direct competitor to Toshiba that is prevented from buying TMC directly.
  • A US Consortium: Four of the largest customers of NAND flash in the world. Dell, Apple, Kingston and Seagate.

There is now sufficient information to get an overview of the ownership structure of Pangea. The construction is built around three share classes that isolate some of the companies from direct influence:

  • Common Shares – with full voting rights
  • Convertible Preferred Stock – Likely with guaranteed dividends, liquidation rights and conversion right to common shares under IPO and similar circumstances.
  • Unconvertible Preferred Stock – Without liquidation and conversion rights. But a significant hedging investment if your company is buying flash.
  • An ownership structure that would satisfy the available information can be seen below:

 

 

Effectively Bain has constructed a financial setup that will give Toshiba Corporation 1.65 Trillion Yen and let them, together with Hoya, keep control of the company on Japanese hands. Bain themselves get a massive influence for a relatively small investment, while Hynix, the largest single investor get very limitied influcence.

 

 

 

Get more free research here

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Money for nothing

Yesterday, Micron gave us insights into their most recent quarter that showed the memory market is still on fire. With virtually no increase in the cost of products sold, Micron managed to grow the business solidly. In short, customers are paying more for the same. We are certainly not blaming Micron for making a buck. The memory market is not for the faint at heart, you need to make a buck when you can to pay for the next generation fabs.

 

Digging a bit deeper reveals a more nuanced picture. Micron is increasing the number of bits shipped both in DRAM and in NAND but keeping the gains in improved manufacturing efficiency for itself. The focus from a capacity perspective has been on NAND that has increased 78% in capacity over the last year while pricing has been relatively stable. Micon has in reality been able to pocket the entire efficiency gain from NAND over the last year. For DRAM it has been even better. The focus on NAND capacity is at the sacrifice of DRAM capacity. The increasing undersupply in the DRAM market means that Micron not only could keep the manufacturing gains but also increase pricing per bit. As a result – DRAM is now 66% of Microns business.

Overall Micron is managing this cycle brilliantly and is reinvesting in the business. It has also managed to get control of the manufacturing joint venture with Nanya and now has full ownership of Inotera. This is going to be important for future capacity.

 

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

The dark matter of semiconductor revenue

Unknown to most in the west, the Chinese fabless semiconductor companies continue to outgrow the industry. Companies like Spreadtrum, Hisilicon, Galaxycore, Silan or Rockchip might not ring a bell, but these companies are increasingly supplying Chinese companies for products to Chinese consumers. Some are subsidiaries of the manufacturing company ensuring guaranteed access to revenue. A lot of these companies get their silicon from SMIC, the leading foundry in mainland China. The company reports of SMIC gives an insight into the size and growth rate of Chinese fabless semiconductor companies. SMIC estimates that Chinese fabless will account for more than half the fabless market in 2020 and more than 12% of the total market.

You can see more free charts here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Intel is still dominant in the datacenter but not in Cloud.

The Datacenter is now very close to being the most important semiconductor market from a revenue perspective. From a dominant position a few quarters ago, Intel barely manages to grow the business while their competitors are are having a party. The problem for Intel is that the company is less dominant in the fast-growing cloud segment of the data center where Nvidia, Samsung, Micron and Hynix have won most of the additional business.

You can see more free charts here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

The End of the Acquisition Era for Semiconductor Industry

As the semiconductor industry matured and industry growth rates declined to low single digits, companies increasingly turned to acquisitions to boost revenue. This activity peaked in 2015 and 2016 with many large deals announced. Although the appetite for acquisitions is unchanged, the situation has changed dramatically. The memory driven boom has affected most semiconductor stocks making deals more expensive but the most dramatic change is in the regulatory environment. The political world has taken a turn towards anti-globalisation with nationalist parties gaining more influence. This has impacted the regulatory environment that has moved from merger-friendly to merger-hostile.

Although deals are still being digested as can be seen from the investment cash flow of the industry it is also obvious that the semiconductor companies have turned their attention away from acquisitions and back to capital investments backing organic growth.

You can see more free charts here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Only a few bricks left in the Semiconductor Industry.

Most semiconductor companies have outsourced all or some of their wafer manufacturing to foundry services. This has a positive impact on free cashflow with a possible negative impact on gross margins. Outsourcing manufacturing is not unique to the semiconductor industry but particularly attractive because of the massive investments needed to participate in the technology race. All outsourcing comes with a loss of control of your supply chain and only time can tell if it is a good strategic choice for a semiconductor company.

If you want to be a memory company, you need factories. As memories are highly competitive and either extremly profitable or running at a loss it require a highly specialised business model. When times are good you invest, when times are bad – you wait.

You can see more free charts here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

The Future of Semiconductor Memory is a rabbit hunt.

The current memory boom we are experiencing is not new. What might be new is that one of the regulating factors that limit memory pricing is not working anymore. Most memory has been bought by consumers and increases in pricing has dampened the consumption. However, the current memory boom is driven by a new market that worries less about pricing than consumers do. This could mean a fundamentally different memory market in which the normal supply and demand equation is suspended. Right now the supply side of the equation is trying to hunt the demand rabbit – with little luck. Limited capital investments, too late have given the rabbit a head start and pricing is skyrocketing. This should normally curb demand which has not happened yet.

You can buy the complete memory report here

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

The stalemate has been broken between the Harddisk Giants

For a long time, hard disks have been the preferred storage for large amounts of data. Being relatively cheap and following the technological path of Moore’s law business has been good for the large hard disk companies. Eventually, the market ended up with 3 major players, Western Digital and Seagate with an equal market share in the low forties and Toshiba in the high teens. The two giants had followed an equal technological path and were in a stalemate situation. Until Western Digital decided to act on a market trend created by the cloud data centre. The cloud data centre is not only treating data as a cost but more importantly as a resource. When the focus shifts from storing data to investigating big data relationship, so do the need for storage. While the hard disk revenues declined during 2016, Flash revenue exploded. Western Digital could not have chosen a better time to acquire one of the top Flash players: SanDisk. Within a few quarters, flash grew to become half the revenue of Western Digital, while Seagate experienced negative growth.

 

With only a few flash companies left in the market, Seagate will have to hurry. Unfortunately, the only flash company up for sale is Toshiba. Being the third harddisk player, Seagate is not likely to receive regulatory approval of a deal due to anticompetitive legislation. The only option is to become part of a consortium bidding for Toshiba, which is what Seagate has chosen to do.

 

The Bain consortium including Apple, Hynix and Dell can possibly get an approval if they promise to protect Japanese jobs and manufacturing plants. This is likely the only chance for Seagate to get their fingers into the Flash pie and save the day. Should the consortium succeed, Seagate will use all options to increase its ownership share of the group to match the capabilities of Western Digital.

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Samsung has approved a 7B$ investment in a new NAND fab in China

The memory market is red hot and it is time to invest in the next upturn. If you are a semiconductor memory company, you need bricks and machines. It has not yet been successful to move memory production to foundry so there is a direct correlation between capital investments and future revenue. Samsung is already dominant in the NAND market and has decided to keep it that way by approving a 7B$ investment in a new NAND fab in China.

The scale of this investment should be seen in relations to the capital investments of the other players in the industry. The chart shows the capital investments for the entire company and not a specific investment into memory capacity. However, it is still pretty obvious who is investing in the future and who is sitting watching. Western Digital became the 2nd largest NAND company in Q2 overtaking a struggling Toshiba. Both companies are investing very carefully at the moment and combined it would take both their entire group capital investment for 5 years to pay for the Samsung fab. Both number 4 and 5, Hynix and Micron are signicanlty more aggressive but still some distance from Samsung. Their investment is however fully made into memory capacity.

 

 

 

 

Is your Strategy based on anecdotes? Do you want opinions or data-driven insights? Semiconductor Business Intelligence follows the industry in detail. We update our customers with general or customised quarterly reports on companies, products and end-markets. All of our research is based on our proprietary data and analysis of top semiconductor companies and related markets. We create a quarterly Factbook for each product group, end markets and of each of the top 50 semiconductor companies at a fraction of the time and price your business intelligence team can compile it.

Need semiconductor insights? Buy our general reports here

Want free Insights: Sign up to our mailing list here

Need Semiconductor Consulting? Guidepoint

Connect to Claus Aasholm on LinkedIn

Semiconductor fab ownership ratio

Fab Ownership

The semiconductor industry is rapidly outsourcing manufacturing and with that losing control of a key element of the supply chain. The success of memory companies is still intimately associated with fab ownership but most other semiconductor companies have outsourced a proportion of manufacturing. It is possible to get insight into the extent of the outsourcing by investigating how much revenue is created by every dollar of Property, Plant and Equipment (PPE). Fully fab'ed companies typically generate less than 2$ of yearly revenue for every 1$ of PPE they own, for fabless companies, it is typically over 8$. The chart does not reveal what model is the best - this is fully dependent on the company its strategy and the market cycle.

Microchip Timeline

A timeline view of the Revenue/PPE data can reveal the strategic mode of a company. When Microchip acquired Atmel, they also inherited manufacturing capacity. In all likelihood, this is not part of the long term strategy of Microchip that is in the process of moving their revenue to foundry based manufacturing.