The Buzz on the Fab/Foundry/OSATS Paradigm Shift

I’ve been reading a lot about the future of the fabless/foundry model. Most articles I’ve seen only count the fab/foundry parts, but I add OSATS to the list, because due to the emergence of 3DICs, it’s a topic of interest to all three segments of semiconductor manufacturing: namely the front- mid- and back-ends. In fact, you’ll find many of the articles lump “3D stacks” in with EUV, FinFETS and 20nm as one of the main considerations for this paradigm shift in the value chain.*

Mark LePedus, captured the essence of what’s happening on the foundry end on well in this week’s post Firms Rethink the Fabless-Foundry ModelIn it he notes that leading edge foundries (in particular, TSMC, GlobalFoundries, and UMC) are getting serious about what’s been dubbed the “virtual IDM” “…in which vendors will act more like integrated device manufacturers (IDMs), as opposed to being mere production partners. In this model, the foundries are not only manufacturing partners, but there is a deeper collaboration within a customer’s design team,” writes LePedus. He then goes on to detail the business model adaptations planned by each foundry, as well as some surprising news from Qualcomm (to get that nugget of information, you need to go read the post, because far be it from me to scoop LePedus!)

Other novel business models are popping up to deal with such issues ensuring silicon supply, and covering equipment development costs. With regard to silicon supply, there are two notable approaches, one being the much-talked about single customer fab approach, such as in the case of TSMC, which I mentioned in a post earlier this week; and the second being dedicated “modules” in the case of GlobalFoundries (referenced in the previously referenced post by Mark Lepedus here.)

In his SemiWiki post, Is the Traditional Model of Funding Semiconductor Equipment Broken? Paul McLellen cites the recent investments by Intel and TSMC in ASML to fund development of next generation tools as an indicator that the equipment industry isn’t profitable enough to fund future investments, especially when it’s not clear what the future holds for process generations to recoup those investments.

Ok, that’s one way of spinning it. Or perhaps the equipment industry has just decided that there needs to be a bigger share in the risks associated with developing both EUV technologies and 450mm. It’s not necessarily about being profitable, but about being smart. If the manufacturers are pushing for the wafer transition, than it’s only right they share some of the burden. Rather than the model being “broken”, it seems to me the companies are finding more innovative ways to ensure future success and sustainability.

I suspect this could also be a viable approach for the advanced packaging equipment manufacturers, whose tools will also have to accommodate 450mm wafer sizes for advanced WLP and 3D processes. Traditionally, foundries are used to paying much more for tools than the OSATS, and as noted by microelectronics industry consultant Lee Smith, in his article, The Back End’s Back Ache, pubished on Chip Scale Review’s website, “…very little, if any, attention is being given to the 450mm tools required for the back-end, including who can afford to develop and procure tools for Probe, bump, WLP, wafer thinning, wafer support systems for TSV back-end, dicing and die-attach systems…”.  It seems that for these companies, sharing development costs with customers is the key to making 450mm feasible. ~ F.v.T.

* P.S. Supply Chain vs. Value Chain It has been brought to my attention that at this point we should stop referring to the “supply chain” and instead refer to the “value chain” as this concept is more applicable to what we are experiencing in the industry. The difference between the concept of supply chain and value chain is detailed here in this paper titled Value Chains Versus Supply Chains, by Andrew Feller, Dr. Dan Shunk, and Dr. Tom Callarman published in 2006 by BPT Trends. In summary it goes like this: “the primary difference between a supply chain and a value chain is a fundamental shift in focus from the supply base to the customer.  Supply chains focus upstream on integrating supplier and producer processes, improving efficiency and reducing waste, while value chains focus downstream, on creating value in the eyes of the customer.”  I think this aptly describes the very foundation of the paradigm shift we’re experiencing in the semiconductor industry, so henceforth on 3D InCites, I will refer to the Value Chain vs. the Supply Chain.