San Jose, Calif. — As digital integrated-device manufacturers increasingly turn to foundries for their production needs, with some announcing they will no longer build fabs, an inevitable question arises: Will the big analog IDMs follow the same path and move toward fab-lite or even fabless strategies? The analog vendors say no. The foundries say yes. The truth appears to be somewhere in the middle.
With the foundries having largely conquered the digital space, analog is the next fertile frontier for chip outsourcing. The analog IC market is projected to fall by 2 percent, to $36.2 billion, in 2007, according to IC Insights Inc. (Scottsdale, Ariz.). But the company forecasts that analog chip sales will rebound with a 15 percent increase, to a record-high $41.7 billion, in 2008.
For years, analog IDMs have manufactured the bulk of their products in-house, shipping only a small percentage to foundries, for a number of reasons. Many analog products do not require leading-edge fabs or processes. Analog products generally have longer life cycles and can be made cheaply in older fabs for several years. And analog vendors insist fabs still give them a competitive edge.
But one specialty foundry provider suggests the tide is slowly turning for analog IDMs such as Analog Devices, Maxim Integrated Products, Linear Technology, National Semiconductor and Texas Instruments.
“A lot of these companies are now looking to outsource,” said Marco Racanelli, vice president of technology and engineering for Jazz Semiconductor Inc. (Newport Beach, Calif.).
Jazz, X-Fab Semiconductor Foundries AG (Munich, Germany) and other analog-oriented outsourcing specialists are beginning to see some manufacturing demand for products that traditionally have not been outsourced, such as high-precision data converters. “We see that business accelerating,” Racanelli said in a recent interview.
But the outsourcing trend goes beyond a simple device or two. Analog IDMs are not expected to shutter their fabs and make a mad rush to the foundries, but their “interest level [in outsourcing] has dramatically increased,” said Thomas Hartung, vice president of sales and marketing for specialty foundry provider X-Fab.
Some analog outsourcing is indeed taking place, confirmed Joanne Itow, an analyst with Semiconductor Partners LLC. “Companies like National and Fairchild have plenty of capacity right now and aren't outsourcing much this year,” Itow said, “but some of the smaller RF analog companies are using Jazz, X-Fab, etc.”
The shift will be an evolving process for analog IDMs, said X-Fab's Hartung. “Some are moving faster than others.”
Like their digital counterparts, analog IDMs are looking to outsource select products to cut production costs. Some are also using foundries for select lines if they do not have certain technical capabilities in-house.
And the pendulum could swing further to the foundries as the older analog fabs run out of gas. Many analog fabs are capable of going down to 0.35 micron, but the bulk of the new design activity revolves around 0.25- and 0.18-micron geometries.
The trends are reminiscent of the digital-outsourcing boom that started in the late 1980s to early 1990s. At the time, the emergence of Chartered Semiconductor Manufacturing, Taiwan Semiconductor Manufacturing Corp. (TSMC), United Microelectronics Corp. (UMC) and other digital foundry providers helped propel the fabless semiconductor design community. In more recent times, the big logic IDMs such as Freescale Semiconductor, NXP, STMicroelectronics and TI have readily embraced the foundries as a means to cut their respective R&D and production costs.
Over the years, several analog and mixed-signal foundry specialists have emerged with hopes of duplicating the wild success of TSMC and others in the digital world.
Among the players in the analog and mixed-signal foundry business are Advanced Semiconductor Manufacturing Corp. (ASMC), Austriamicrosystems, Jazz, MagnaChip Semiconductor, Vanguard and X-Fab. The large foundries–such as Chartered, TSMC, UMC, Semi- conductor Manufacturing International Corp. (SMIC) and IBM's “fab club”–also offer mixed-signal and analog-like processes to varying degrees.
According to market watcher Gartner Inc., the worldwide foundry market is expected to grow 3.3 percent in 2007 and to increase 17 percent next year, coming in at $26.2 billion.
Analog and mixed-signal foundry vendors generate some 70 percent of their business from the growing fabless design community. The remaining 30 percent comes from IDMs and OEMs.
Some analog IDMs outsource more than others. For years, Analog Devices Inc. has made no secret of its outsourcing of some production to TSMC. ADI also makes use of foundry services from Win Semiconductor Corp. for gallium arsenide ICs.
But Linear, Maxim and National insist that they give relatively little business to the foundry providers.
“Linear plans to continue investing in its wafer fabs, assembly operations and in final test operations,” said a company spokesman. “Linear uses foundries to produce less than 5 percent of [its] wafers and expects to continue at this level.”
“The analog guys aren't anxious to outsource,” said Gartner analyst Stephan Ohr. Many low-volume and specialized analog products are not suited for the foundries, he said.
But analog products with digital circuitry–such as audio analog/digital converters, digital/analog converters and class D amplifiers–are being manufactured in volume in the foundries today, Ohr said.
In general, analog IDMs outsource only about 5 percent of their overall production to the foundries, said Doug Freedman, an analyst with American Technology Research Inc. But there are some subtle changes taking place in the arena, he said.
Analog IDMs are “moving leading-edge demand to the foundries, but they will continue to bring up volume ramps or specialized [products] in-house,” said Freedman.
Vendors such as Intersil Corp. and Semtech Corp. are expanding their relationships with the foundries, but Freedman doesn't expect a wholesale shift.
“I don't think [analog IDMs] will give up their fabs,” Freedman said. “They run thousands of die types [in their own fabs], which does not fit well with the foundry model.”
Still, the specialty foundries are gearing up for what could be a boom in analog. Last month, Jazz Semiconductor announced an acceleration of its efforts in the analog and mixed-signal foundry markets. Jazz's Analog-Intensive Mixed-Signal (AIMS) initiative will push its current processes, such as specialty CMOS, BiCMOS, silicon-germanium (SiGe) Bi- CMOS and high-voltage CMOS.
“Over the next 18 months, Jazz will announce new process offerings and services that support this aggressive initiative,” Gil Amelio, Jazz chairman and CEO, said in announcing the program.
Besides pushing its own analog and mixed-signal processes, Germany's X-Fab has implemented a somewhat different strategy: The company has acquired fabs from various IDMs. In 1999, X-Fab acquired a Texas fab from TI. Then, in 2002, the foundry provider acquired a U.K. fab from Zarlink Semiconductor.
Last year, X-Fab acquired Malaysian foundry vendor 1st Silicon. And Earlier this year, X-Fab bought ZMD AG's wafer-processing subsidiary, ZFoundry. As a result, ZMD will become a fabless company; X-Fab will provide foundry services to the chip manufacturer.
“We are a strong believer that the consolidation [in analog and mixed-signal production] will continue for the next five to 10 years,” X-Fab's Hartung said. “A lot of IDMs are saying 'How can I optimize my business model?' They are looking at outsourcing to become more efficient. I think they have to do that.”