Typical Scenarios for Outsourcing Products to a Foundry
Need for second source
Very often end customers require dual sourcing for supply security reasons, typically from different geographical regions. Customers can thus establish a second source with X-FAB in parallel to their own fab; alternatively, X-FAB can also offer double sourcing for many technologies within its fab portfolio.
Re-assignment of internal capacity
Whenever other, more strategic products demand larger capacities, less strategic products or products with limited volume or residual life time will have to free that scarce capacity and move to other fabs.
Flexibility in capacity management
When extreme demand fluctuations of certain products create significant financial risks for a fab, a foundry offers the flexibility to adjust production accordingly. The same applies to the use of a foundry as capacity buffer to cover demand peaks.
Unsatisfactory internal cost structure
Internal fabs, especially those not or no longer fully utilized, can create product costs that no longer allow being competitive in the market. Transferring load management and the corresponding cost optimization to foundries that can better leverage through a multitude of products and technologies is the best way forward.
Planned fab closure
Economic or technical reasons can lead to a situation where the economic life of a fab ends and the fab can no longer be operated profitably. Especially when many products sourced from the fab are moving to feature sizes beyond the fab’s capabilities, the remaining products have to be transferred to other fabs to enable a fab closure or complete revamp.
While insufficient utilization and technology migration to smaller feature sizes might be two reasons for a fab closure, a complete change of business model from an IDM to a fabless supplier will also yield other benefits, including higher valuations and market capitalization for fabless companies, reflecting the typically lower level of risk exposure.