Fabless semiconductor firms are expected to face low demand in their products in the coming months, said a report from Jefferies & Co.

Fabless firms develop the designs of semiconductor chips and then outsource the making to other manufacturing firms called foundries. This helps them achieve and maintain premium manufacturing standards.

However, their competitors like Intel and Samsung that have their own manufactories are offering a tough competition to fables firms; the main reason being the low manufacturing costs.

Due to the reason the likes of Intel, Samsung, Texas Instruments own manufacturing plants, they have the financial and strategic muscle to drive the costs down. Semiconductor industry is seeing low demand due to the dwindling global economic condition, especially in Europe. The demand for electronic gadgets has decreased exponentially in last 10 months.

“We don’t expect fabless semiconductor players at the leading edge to derive cost benefits like they used to,” wrote Jefferies & Co. analyst Mark Lipacis. “Over the next three to five years, we think exponential growth in leading-edge factory costs will undermine the cost per transistor declines the industry has come to rely on.”

Companies like Intel and Samsung will drive costs down in the coming months to resuscitate the demand in electronic products. It will certain decide the fate of fables organizations.

“We expect this will translate to a structural shift that will benefit integrators on mature process nodes (Maxim, Broadcom, Texas Instruments, NXP Semiconductors, challenge fabless players on the leading edge Nvidia, Altera, and Xilinx, and drive unexpected share gains for Intel and Samsung,” he said.

Lipacis downgraded rating on Altera shares, a fables company, to hold from buy, while upgraded Maxim Integrated Products (a chipmaker) shares from hold to buy. He also upped his expectations on Maxim stock to $33 from 29. The company is currently trading at $27.03.

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