While the pure-play foundry business is expanding again, growth is coming off of extremely depressed levels, indicating that market conditions are not as good as they might seem, according to research by iSuppli Corp.

Foundries are reporting weakness in their sales of semiconductors to the communications and computing segments, with the exception of netbook PCs, an area that is seeing some strength. (Courtesy: iSuppli)

Global pure-play semiconductor revenue is set to amount to $5.6 billion in the fourth quarter of 2009, up 53.7 per cent from the same period in 2008.

However, the increase is not as good as it looks. The fourth quarter of 2008 marked the beginning of a sharp downturn in the global pure-play foundry business. Revenue in the fourth quarter of 2008 amounted only to $3.7 billion, a 32.3 per cent and $1.7 billion plunge from $5.4 billion during the previous quarter.

“The strong year-over-year rise in pure-play foundry revenue in the fourth quarter paints a deceptively strong picture of industry growth,” said Len Jelinek, director and chief analyst, semiconductor manufacturing, for iSuppli, in a statement.

“The reality is that the fourth quarter is bringing only a moderate expansion in revenue compared to the third quarter. Furthermore, foundries are noting a slowing of orders, indicating an underlying uncertainty in the market.”

Global semiconductor foundry revenue in the fourth quarter is set to rise by a comparatively mild 6 per cent compared to the third quarter.

Foundries are reporting weakness in their sales of semiconductors to the communications and computing segments, with the exception of netbook PCs, an area that is seeing some strength. The companies also note healthy orders in the consumer segment.

Foundries also are reporting downward pricing pressure at advanced semiconductor manufacturing process nodes, such as 65 nanometer, as more suppliers enter this segment of the market. However, pricing for more mature semiconductor processes, such as 0.18-micron, is holding steady.

“In early 2009, when utilisation rates were low, foundries were willing to cut prices on mature semiconductor processes to fill their fabs,” Jelinek said. “However, with utilisation having risen at the end of the year, companies no longer are willing to compromise on pricing for mature technologies.”

Global pure-play semiconductor foundry utilisation is set to rise to 83 percent in the fourth quarter of 2009, up from 72 percent in the first quarter.

In one positive indicator for the industry, inventories held by foundries remain in a healthy state of balance. This means that any increase in end demand will result in revenue increases for the foundry industry.

Last month, iSuppli reported that the global semiconductor foundry market is set to grow in 2010, but, due to the recent downturn, there are likely to be just three top-tier, pure-play suppliers. Regardless, the foundry market in 2010 will outperform the overall semiconductor industry, which will expand by 13.8 percent.