Gartner Says Semiconductor Outsourcing Services Revenue to Grow 11 Percent in 2008

STAMFORD, Conn. -- July 24, 2008 -- Worldwide semiconductor outsourcing services revenue is on pace to total $47.4 billion in 2008, a 10.8 percent increase from 2007 revenue of $42.8 billion, according to Gartner, Inc. The market is forecast to reach $66.8 billion in 2012.

“During these tough economic times, product design is the major competitive advantage and must be the major focus for resources,” said Jim Walker, research vice president at Gartner. “Installing and maintaining captive semiconductor manufacturing facilities has become a huge burden with the cost of building a state of the art wafer fabrication facility currently coming in at between $3 billion and $4 billion. The management of capital risk versus reward will only serve to promote the growth of outsourcing in the future.”

Worldwide foundry services revenue is forecast to reach $25.5 billion in 2008, a 14.8 percent increase from 2007 revenue of $22.2 billion. Further growth is expected in the third quarter, supported by better product mix, an improved pricing environment and stronger wafer demand, particularly from wireline, baseband, handset, storage and networking applications.

Semiconductor assembly and test services (SATS) revenue is on pace to reach $21.9 billion in 2008, up 6.6 percent from 2007 revenue of $20.6 billion. Pricing should be stable for the remainder of the year, but there will be pressure to reduce package prices, especially in the highly volatile memory markets. Test prices will remain steady for most devices. However, there will be pressure to reduce costs for memory as the final product average selling prices (ASPs) continue to erode.

Mr. Walker said that even in the difficult economy, the time is coming when advanced processes and technologies offered by the outsourcing market are of equal competency with most internal development and capabilities by integrated device manufactures (IDMs) and OEMs. Many of them have grown their dependence on the outsourcing community in recent years with "asset lite" and "fab lite" strategies, and for many, there would be no turning back to in-house production as in previous cycles.

“As the IDMs and OEMs become more ‘fabless’ and ‘assemblyless’ in this nature, this plays directly into the hands of the SATS companies, with the net result that foundry and SATS outsourcing services will expand at faster growth rates than the overall semiconductor industry,” Mr. Walker said. “Outsourcing services are no longer just used for excess production requirements; they are truly part of the manufacturing chain.”

Additional information is available in the Gartner report "Forecast: Semiconductor Outsourcing Services to Outpace Semiconductor Industry in 2008." The report is available on Gartner's Web site at http://www.gartner.com/DisplayDocument?ref=g_search&id=716027&subref=simplesearch.

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