Are foundries trying to inflate wafer prices?

A couple of weeks ago, TSMC and UMC announced that their capital spending in 2008 would be much more limited than this year, as less new equipment would be purchased for capacity expansion. Many had expected this to be related to expected productivity enhancements and deployment of equipment bought in 2007. But now another theory has surfaced...

Data

• David Manners reports that Bill McLean, president of IC Insights, believes the industry will be strong in 2008. Demand will thus increase faster than capacity expansion, resulting in (slightly?) higher wafer prices from foundries.
• The foundries' reasoning is that their wafer ASPs has been going down in recent past, just as many companies are now moving to an asset-light strategy. They are fed up with that situation, McLean claims, and want to change things.

Quick analysis

• As the industry moves to 45nm, many companies will be increasing their reliance on foundries. This will only become even more true at 40nm and 32nm.
• This makes next year perfect to try to increase wafer prices a bit: the decisions have generally already been made, and nobody is going to turn back now and give up on its asset-light strategy.
• Multi-sourcing from multiple foundries, and even multiple processes (not phasing out products on old processes faster than they need to be) may become required.
• A number of companies are already multi-sourcing aggressively, including Texas Instruments, Qualcomm and NVIDIA.
• The two former have had many major designs multi-sourced at all three major foundries (TSMC/UMC/Chartered).
• NVIDIA has recently reduced its reliance on TSMC by also taping-out G92 and G98 at UMC.

As capacity expansion slows down but demand keeps up, the leading foundries are nicely positioned to further improve their financial position. It may be ironic that multi-sourcing becomes increasingly relevant as mask prices and process-related design costs go up, but that's the way things seem to be heading next year.