Processor prices to fall as suppliers invest in technology
By James Carbone -- Purchasing, 11/13/2008 7:00:00 AM
Despite the financial crisis and economic slowdown, the global microprocessor (MPU) market will grow 10% to $38.2 billion and MPU prices will fall about 4% in 2009 and beyond according to researcher IC Insights.
MPU unit shipments will end this year rising by about 15%, says Brian Matas, vice president of research for IC Insights in Scottsdale, Ariz. The average price of a microprocessor was $82.26 in 2007 and will average $78.97 in 2008. Next year, the average price will fall to $76.60 and by 2012 the average processor price will be $72.09.
Prices are falling as suppliers invest in new process technology and move to 300mm wafers which results in greater manufacturing efficiencies and more usable chips per wafer.
Chip industry behemoth Intel is always one of the leaders in capital expenditures.
Its rival AMD invests less. AMD recently announced a restructuring plan and industry analysts are uncertain what it means to the overall microprocessor market and AMD's ability to keep up with Intel in terms of chip development, process technology and capacity.
Under the restructuring AMD said it is teaming up with an Abu Dhabi investment company to create a new semiconductor foundry called The Foundry Company. AMD, based in Sunnyvale, Calif., will contribute its manufacturing facilities to the new venture, including two fabrication facilities in Dresden, Germany, as well as related assets and intellectual property rights. Advanced Technology Investment Company will invest $2.1 billion to purchase its stake of The Foundry Company.
The Foundry Company will also assume approximately $1.2 billion of AMD's existing debt. ATIC will commit between $3.6–$6 billion over the next five years to fund the expansion of The Foundry Company's chipmaking capacity beyond the manufacturing facilities initially contributed by AMD.
These funds will be used by The Foundry Company to expand capacity at its fabs in Dresden, Germany and for construction of a new facility in Saratoga County, north of Albany, N.Y. Once operational, the New York facility will be the only independently-managed, leading-edge semiconductor manufacturing foundry in the U.S.
The Board of Directors of The Foundry Company will be equally divided between representatives of AMD and ATIC. AMD will own 44.4% and ATIC will own 55.6% of The Foundry Company.
The Foundry Company will join the IBM joint development alliance for both silicon-on-insulator (SOI) and bulk silicon through the 22nm generation. The alliance consists of a group of leading semiconductor companies collaborating on next generation silicon technologies.
The transaction is expected to close at the beginning of 2009 following satisfaction of conditions such as approvals from regulators and of AMD stockholders.
"This deal is a positive for AMD's balance sheet," says Bill McClean, president of IC Insights. Without it, the company most surely would have continued to die a slow death. However, this is a survival move, not a strategy that will help AMD gain market share.
The Foundry Company's capital spending plans are "uninspiring" according to McClean.
IC Insights says AMD's 2009–2013 capital spending budget is forecast to be $4.8 billion. The funds will be used to install capacity to produce devices for AMD as well as to enter the IC foundry business.
IC Insights says AMD's capital expenditures over this and the previous four years (2004–2008) are expected to total $6.4 billion. Meanwhile, Intel is expected to spend $25.6 billion dollars in capital expenditures from 2004–2008, four times what AMD will spend over the same time period. IC Insights believes that Intel's capital expenditures over the next five years will total about $30 billion, which would be five times The Foundry Company's most optimistic plan of investing $6.0 billion over that time.
"To keep capacity and process technology on par with Intel, it will require a lot of investment," says Matas. "If they get too far behind their products become secondary products."
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