GF gets smaller and more focused (as planned) while ON Semi gains the means to supply growing demand for its products
Earlier this week, ON Semiconductor (ON Semi) announced it was buying the GlobalFoundries ex-IBM fab in a $430 million deal that will transition the fab to new ownership over the next three years.
The news comes as no surprise to many in the industry. Though a significant player, GlobalFoundries (GF), did not have the resources to compete with market leader TSMC. In any case, this has been part of a calculated strategy, as Rick Merritt highlighted in his report on the acquisition.
Malcolm Penn, chairman and CEO of market research firm Future Horizons, told EE Times the challenge for GF was that it never really was able to achieve the economies of scale to compete with number one. And for ON Semi, the company has “gone full circle back to the IBM model,” expanding its manufacturing base and improving its offer across the entire value chain, from design to manufacturing.
Elaborating on this, Rob Lineback, senior market research analyst with IC Insights told EE Times, “Clearly, GF must become smaller and more focused on certain technologies to survive, and this deal with ON Semi is a major step in that direction. Both companies stand to benefit from the way this agreement is structured with the transfer of the East Fishkill fab being done over the next three years — and production services between the two being provided to each other at the beginning and end of the deal.” ON Semi will be getting wafers from GF before taking over the fab at the end of 2022 and GF will have the option to get wafers from ON Semi for a few years until 2025. Lineback added, “That certainly helps to ensure a smooth transition in the transfer of products in and out of the fab.”
Regarding ON Semi’s position, Lineback said that it needs its internal 300mm wafer processes to remain competitive in power MOSFETs and IGBT transistors, especially with rival Infineon Technologies being very aggressive in moving those products from 200mm to 300mm diameter wafers in Germany and Austria.
He said, “ON Semiconductor is the second largest supplier of discrete semiconductors (about $2.4 billion in 2018, a 14% increase by our estimates) while Infineon remains the largest (with $3 billion in sales last year, a 16% increase from 2017). Both power semiconductor rivals have grown their MOSFET and IGBT businesses through major acquisitions in recent years — ON buying Fairchild Semiconductor for $2.5 billion in 2016 and Infineon acquiring International Rectifier in 2015 for about $3 billion.”
Closing a 40-Week Gap
Lineback added, “This means the demand for power transistors and diodes has exceeded supplies for a couple of years with lead times exceeding 40 weeks for deliveries of some parts in 2018 compared to eight weeks in normal market conditions. ON Semi and other major power semiconductor suppliers are under tremendous pressure to increase capacity for these power products.”
On another front, Lineback said that ON Semi has also faced pressure to move analog and mixed-signal integrated circuit (IC) production to 300mm with rival TI continuing to expand its capacity on large diameter wafers. “TI announced last week it was moving ahead with a second 300mm wafer fab next to its existing plant in Richardson, Texas. The new fab is expected to cost $3.1 billion when fully equipped. Other analog suppliers are reducing costs by moving to 300mm wafers.
GlobalFoundries Sells Ex-IBM Fab
With the deal to buy GF’s 300mm fab for $430 million and spending an additional $270 million on the facility in the coming years, ON Semi believes it can squeeze the ratio of its capital expenditures as a percent of revenues to 6%-7% vs. about 8% currently.”
Lineback concluded “We’re reaching the point to where there are a growing number of aging 300mm fabs and many of them have long potential lives producing a range of semiconductor products beyond digital ICs — meaning more analog, mixed-signal products, display drivers, microcontrollers, radio frequency (RF) and microwave devices, sensors, discretes.”
EE Times also spoke to wafer supplier Soitec, for whom GF is one of its top RF-SOI customers. Soitec’s executive vice president of global strategy, Thomas Piliszczuk, echoed what the analysts said: that this week’s announcement was good news for GF, since the East Fishkill fab was not fully loaded and wasn’t fitting in well with its RF strategy.
Focus on RF
He said that GF’s CEO Tom Caulfield is trying to readjust the company’s strategy with more compelling roadmaps and fabs running at full capacity. He added that GF is still the number one foundry for RF services, with many of its products for 300mm consolidated in Singapore. Some of its other products, such as PD-SOI, could potentially be transferred to its Malta fab or even to its Dresden fab. He added that Caulfield had already moved some processes from Singapore, such as high voltage, to Dresden. “This can be way more loaded that in the past, which is good for Dresden, and for its profitability,” he said.
Piliszczuk added that 5G is becoming a big driver for engineered substrates both for RF-SOI and FD-SOI, with companies such as HiSilicon being big customers for RF-SOI in smartphones. Earlier this month, the company said in its earnings announcement that sales of 300mm wafers were up 95% in the fourth quarter of FY19 (ending March 31, 2019), compared with the fourth quarter of FY18, reflecting a very strong surge in sales of both FD-SOI and RF-SOI 300mm wafers, which are the two most important components of 300mm wafer sales. Sales of both imager-SOI and photonics-SOI were higher than in the fourth quarter of FY18. Soitec also saw sales of 200mm wafers increasing 21% in the fourth quarter of FY19, compared to the fourth quarter of FY18, mostly driven by RF-SOI wafers sales.