IBM's teeth bite in chip foundry market

Such firms are called "chip foundries" - firms like Nvidia, AMD, ATI, Via, Broadcom, Transmeta and many others design chips for use in consumer, IT and other electronic applications, which are then made by firms with big chip factories, known as "fabrication plants", or "fabs" in the argot.

According to market research firm iSuppli, IBM Microelectronics, since it made a decision to expand into the foundry business last year, has already clawed its way into third place, following Taiwan Semiconductor Manufacturing Co (TSMC), and United Microelectronics Manufacturing (UMC). TSMC essentially created the foundry market.

IBM's problem is that it has invested billions in high tech fab plants and must get a return on the investment. It doesn't sell enough of its own chips to justify the investments it has made.

According to senior analyst Len Jelinek at iSuppli, IBM's foundry revenues soared by $180 million during 2002. Big Blue isn't just a provider of mature technology, Jelinek points out. It has very advanced technology, specifically at its East Fishkill fab in New York State.

He predicts that during this year, the foundry market is set to grow by 22 per cent, with sales over $14 billion. µ

The following chart, courtesy of iSuppli shows how the foundry cake crumbled in 2002.

It's surprising finding out who makes what. For example, Intel makes HP Alphas and PA-RISCs for Carly Fiorina's company. Texas Instrument fabricates Sun Microsystems' SPARCy chips.

As fabrication plants, especially those using the latest process technology and larger wafer sizes cost up to $2 billion to build, there's no attraction nor financial advantage to chip companies like ATI, Nvidia, or others to make such capital investments. µ

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