Wafer demand outstripping supply, according to research firm
By Crista Souza
Electronic Buyers' News
(09/13/99, 09:03:45 AM EDT)
PHOENIX -- A tight foundry market will leave the semiconductor industry wanting for 0.25-micron capacity later this year, a situation that is likely to continue through 2003, according to a new industry study.
And the looming wafer shortage-which is compounded by a scarcity of 0.35-micron foundry capacity-may be intensified by difficulties migrating designs to next-generation processes.
According to the latest forecast from Semico Research Corp., wafer demand will grow only 4% this year. But over the next five years, demand will increase at a pace of 11% CAGR, exceeding the production limits of many silicon suppliers, the Phoenix-based market research firm said.
The heaviest wafer burden seems to fall on dedicated foundries, with demand forecast to increase 40% this year, and 20% in 2000. Foundries, which supply 50% of the industry's total wafer production, are sold out through the end of the year, said Semico analyst Joanne Itow.
Consequently, wafer pricing is inching upward, in what foundries described as a "correction." At Taiwan Semiconductor Manufacturing Co., increases of 5% to 10% are neither uncommon nor unexpected, according to Magnus Ryde, president of TSMC-USA, based in San Jose.
TSMC is crunched for leading-edge capacity through the fourth quarter based on customer forecasts, and is bringing on new capacity "at a furious pace," Ryde said. "All our programs are going full bore," he said. "I would love to say we have a couple more rabbits to pull out of our hat."
UMC Group, sold out into the first quarter of 2000, is expanding at a rate of 50% per year. "By this time next year, half of our capacity will be at 0.25- and 0.18-micron," said James Kupec, president of UMC Group (USA) and worldwide field operations.
Not everyone is spending so enthusiastically, however. Having dramatically curtailed capital expenditures two years ago to allow the industry to burn off excess inventory, semiconductor manufacturers are still underinvesting in new factories, Itow said. Of the top 20 capital-spenders for the past three years, only Advanced Micro Devices, Lucent, Micron Technology, and TSMC expect to spend more in 1999 than they did in 1997, she said.
By next year, the industry may be short as many as 400,000 quarter-micron wafers, with the gap increasing to almost 3 million by 2003, according to the Semico report.
Today, foundries are scrambling to find 0.35-micron capacity for their customers. While some designs can be converted to more advanced processes, many foundry users are reluctant to go that route, said TSMC's Ryde.
"We're telling customers they can shrink their designs to 0.30- or 0.25-micron, but that requires a lot more engineering effort on their part," Ryde said. "The number one issue is, customers don't think they get enough return on their investment to switch [to a more advanced process] in some cases."
But while the leading foundries are reporting sell-out levels of demand for 0.35-micron wafers, Semico asserted that there are as many as 1 million excess 0.35-micron wafers out there, possibly being offered on a spot-market basis by memory-chip and other IC houses that have accelerated their migration to smaller feature sizes.
Meanwhile, supply of 0.18-micron feature sizes is still abundant, but it, too, will come under pressure toward the end of 2000, with the gap approaching 1 million wafers by 2003, Semico predicted. However, the shortage will be short-lived, Itow said.
"We expect to see projects come on in 2003 when markets emerge to support these wafers," she said.
What's gobbling up the wafers? Micrologic, according to Semico. In 2000, the segment--which includes microprocessors, microcontrollers, and peripheral chips--will account for 34% of total semiconductor unit production. Microcontrollers alone represent 20% of all production, or 5.3 billion units, primarily at 0.35-micron and above, Itow said.
Another growing consumer of wafers is flash memory, which will represent 5% of all semiconductors produced in 2000. That's up 30% from 1999's forecast of 1 billion units. Today, the majority of flash ICs are produced on 0.35- and 0.40-micron features sizes, but are rapidly moving to 0.25-micron, Itow said.
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