Abstract

Economic Downturn Fosters Fabless Business Model

The global economy is currently in a downturn, and this makes it difficult to accurately forecast end-market demand. In this environment, it is equally difficult for chip suppliers to forecast their product sales. Compared to fables companies, IDM (Integrated Device Manufacturer) companies have huge costs in terms of semiconductor production equipment and production process R&D. The pressure and risks involved in such operations are thus very high as well. After reviewing core competitiveness and renewing plans for production process development schedules and production capacity, the possibility of outsourcing parts or all of wafer production increases. Even though the recent cooperation between Intel and TSMC is not pure outsourcing, production is still transferred to a foundry, highlighting the aforementioned trend.

Wafer Contract Manufacturing Client Portfolio Could Be Affected

TSMC's collaboration with Intel to set up a strategic alliance and develop Atom SoCs is different from pure outsourcing. For TSMC, this new alliance poses risks in terms of whether other clients, such as Qualcomm and TI, will start to have doubts about TSMC's close relationship with Intel and seek other outsourcing partners or increase the share of other foundries. In particular, if indeed the Atom chips developed in this model are successful in the market, alliances could be formed in the ARM camp. The client portfolio of foundries could possible see changes as a result.

Atom's Role in Pushing Intel's Shipment Volume Increasing

Looking at Atom development, chip suppliers in the netbook PC field are increasing, and could even become a threat in the future. Intel urgently needs a product featuring low power consumption, low prices and basic computing capabilities in order to protect its market share in netbook platforms. Currently, as many consumers are still used to the Windows operating system, netbook PC manufacturers still face challenges in terms of switching x86 architecture products. It is expected that Intel will still control 90% of netbook PC shipments in 2009. If the cooperation between Intel and TSMC for Atom chips achieves significant results in the future, it is expected that new entrants will face even higher barriers. Intel will then have even more opportunities to protect its netbook market share with the Atom chip.

Atom is an important product for Intel in its efforts to enter other fields, which was highlighted by the participation of two senior executives in the announcement of the cooperation between Intel and TSMC. The importance of Atom within Intel is continuously growing.

The shipment volume growth of the Atom is expected to lead to a rapid decline in ASP (Average Selling Price) for Intel. From the perspective of long-term overall resource allocation, Intel will still invest many key resources in the development of relatively high-priced CPUs featuring complex technologies. If the resources invested in the non-PC market Atom are relatively few, Intel will encounter stiff challenges from companies outside of the traditional PC field.

Increasing Degree of SoC Integration Could Affect Value of System Integrators

The low-price trend, which has been reinforced by the current economic downturn, often presents challenges to companies in terms of design. The key lies in how to select low-cost components and achieve the expected performance. SoC can significantly decrease time and costs needed for sourcing and integration. Therefore, if there are suitable solutions, the market for application in low-price products has considerable potential. For system integrators, however, the increasing degree of SoC integration means that the value they can create becomes increasingly less. Therefore, if Atom SoC integration continues to increase, the value which can be created by system integrators in the value chain will be reduced. From a function perspective, this could even impact mid-range and high-end products. System integrators must therefore focus even more on the development of value for other customers.

Appendix

List of Companies