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.
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