This Major Tech Trend Is Here to Stay

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Nowadays, the majority of chip-making semiconductor players think it's fabulous to be fabless or right to be fab-lite.

Chip King Kong Intel (Nasdaq: INTC  ) is just about the only one left that doesn't outsource chip fabrication. While it's the market leader with about a 15.6% share of the global semiconductor market, there are still an awful lot of chips from everyone else combined that need to be made somewhere else.

Market researcher Gartner just released its figures on the semiconductor foundry market last year, showing that it grew just 5.1% from 2010. That's much less growth than the market saw from 2009 to 2010, when it grew by 40.5%, but 2011 was held back by two separate natural disasters that ravaged the tech industry: the Japanese earthquake and the Thai floods. Even with those calamities, strong smartphone and tablet growth helped buoy the market.

Within the foundry market, Taiwan Semiconductor Manufacturing (NYSE: TSM  ) is the clear leader by far, with 48.8% market share last year.United Microelectronics (NYSE: UMC  ) took home the silver medal with a 12.1% market share -- less than a quarter of TSMC's revenue. GlobalFoundries, which was spun off by Advanced Micro Devices (NYSE: AMD  ) years ago and just recently completed the breakup, was next up with 12%. Semiconductor Manufacturing International (NYSE: SMI  ) came in fourth with a 4.4% share.

Here are just a few notable mentions.

2011 Rank


2011 Sales

2011 Market Share

1 TSMC $14.53 billion 48.8%
2 UMC $3.6 billion 12.1%
3 GlobalFoundries $3.58 billion 12%
4 SMIC $1.32 billion 4.4%
9 Samsung $470 million 1.6%

Source: Gartner.

Interestingly, Samsung would have been much higher on the list if you included the estimated $1 billion it brings in from Apple's wafer business, which would have been enough to grab the No. 4 spot from SMIC. As reported, it came in ninth place.

This broader trend of outsourcing production shows no sign of reversing anytime soon, so I'm also going to give TSMC an outperform CAPScall today as the clear leader of the contract manufacturing bunch. Fellow Fool Tim Beyers even outlines some more reasons on why it's a core holding for your portfolio.

I'm with Tim on this one. TSMC is set to be a winner, and I'm going to give it some serious consideration for my own personal portfolio.

The smartphone and tablet growth that helped keep the foundry market afloat is why you need to be looking at mobile component plays, since the smartphone and tablet semiconductor markets combined are set to reach $77 billion in 2014. That's why these component suppliers are set to cash in big time.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Intel and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Intel and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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