For AAPL, once yield issues are worked out, it will be in a great position to exert maximum pressure on each foundry in future capacity contracting.
For example, one of the foundries audited is a 5 days/week operated cold blast foundry with a melting capacity of 14 t h−1.
Most chip companies–Intel rival Advanced Micro Devices comes to mind are finding that the transition to bigger wafers and smaller chip sizes is too expensive to undertake alone and are expected to start outsourcing more of their manufacturing capacity to foundry companies like Taiwan Semiconductor Manufacturing and United Microelectronics, both based in Taiwan.
"Foundries almost have to put capacity in front of demand".
The recent upturn in demand and orders for semiconductors has left TSMC, the largest chip foundry in the world, scrambling for capacity.
"One issue DSP faced in the past was that they did not have sufficient capacity from its main foundry partner, and now it would be interesting to see what the Intel relationship will do for them," says Harris.
As the IDM is also a potential capacity source, the IDM and foundry are in a horizontal setting rather than a purely vertical setting.
Pricing of its products should firm, such that even with higher foundry prices to be paid due to capacity limitations in 2010, operating margins should materially widen from the low single digits expected in the third quarter.
Since foundries often have cost advantage over IDMs due to their specialization and economies of scale, IDMs have incentives to source from foundries for the purpose of avoiding excessive capacity investment risk.
Besides the new fab in Borneo, this year they also opened a foundry on the mainland.All this is nothing beside the capacity that is about to come onstream in China.
