World's semiconductor production shifts to 'fab-tight'

The semiconductor industry is starting to build manufacturing capacity in response to demand, rather than ahead of demand, according to an analyst.

It is a major shift, according to Malcolm Penn, chief executive officer of semiconductor industry analysis firm Future Horizons.

"Welcome to fab-tight," he told delegates at a Future Horizons event in London on Tuesday. The semiconductor industry is no longer building capacity — manufacturing centres known as 'fabs' — in advance of demand, he said.

Fabs for manufacturing semiconductors are being built at a slower rate than before, with many of the major foundries, such as the Taiwan Semiconductor Manufacturing Corporation (TSMC) keeping their capital expenditure spending on the same level — or less — as 2009, rather than ramping it up for an expansion in manufacturing capacity.

This fall in overall manufacturing capacity may drive prices up for semiconductor wafers, Penn said.

In a related issue, the drive for sub-50nm scale semiconductors will increase the need for collaboration between chip designing companies and their foundries, Penn added.

"[Integrated circuits] are not a normal component...You're not building nuts and bolts, you're building the most advanced equipment in the world", he said.

Links will need to deepen between chip makers and their foundries, he suggested, if the manufacturer does not already own their own foundry or have close ties with a manufacturer. This, too, will drive demand, Penn said.

Chip designer ARM signed a contract with TSMC for the production of 20nm scale chips in July. The agreement will see the companies working together to optimise ARM's chip designs for TSMC's manufacturing technology.