As demand threatens to spill over the dam, other first- and
second-tier foundries are hoping to avoid the knee-jerk
reactions and quick-hit orders from suppliers scrambling for
capacity. ?That's the last thing we need,? said Steve Morgan,
director of North American sales for Tower Semiconductor
USA Inc., the San Jose-based subsidiary of Israel's Tower
Semiconductor Ltd. ?We're looking for longer-term
relationships.?
ebnews.com
Foundries pour on capacity
to keep apace of wafer
demand
By Mark Hachman and Mark LaPedus
Electronic Buyers' News
(10/22/99, 05:42:16 PM EDT)
With the financial perils associated with excess wafer
capacity still fresh in their minds, wary chip-design houses
are continuing to outsource their manufacturing. But a
resurgent industry has quickly gobbled up available supply,
and the world's foundries are again being pressed to meet
demand.
In response, top-tier found- ries such as Chartered
Semiconductor Pte. Ltd., IBM Corp., Taiwan Semiconductor
Manufacturing Co. Ltd. (TSMC), and United Microelectronics
Corp. (UMC), are sharply ramping wafer capacity through
significant capital investments.
The possibility of a widespread wafer shortage is prompting
some customers to buy insurance in the form of guaranteed
supply. Conexant Systems Inc. last week signed a $150
million deal to secure wafers from TSMC's Fab 6 in Tainan,
Taiwan, in a move to outsource commodity CMOS products
to its foundry partners.
?We're not going to build another fab ourselves,? said Dwight
W. Decker, chairman and chief executive of Conexant,
Newport Beach, Calif. ?Conexant will have access to a
significant supply of wafers for a fraction of the cost of
building a fab of our own.?
Chip makers, from Intersil and Lucent Technologies to
Motorola and any number of vendors in Japan, are shedding
the burden of fab start-up costs, although many still
handcraft their treasured specialty lines. Indeed, in a move
to protect their highest-margin ICs, a few integrated device
manufacturers (IDMs) have reversed course and are staffing
custom fabs that were on the block before the industry
battled its way back from recession.
Even as it struck its deal last week with TSMC, Conexant
said it would retain and expand its internal gallium-arsenide
production. And in September, National Semiconductor
Corp. said it was taking the for-sale sign down from its
Greenock, Scotland, analog-IC manufacturing facility
because of market demand.
However, by passing on new fab development, OEMs are
becoming more dependent than ever on foundries to fulfill
their everyday production needs. As a result, pure-play
foundries will increase their share of capital expenditures
from 15% in 1998 to about 20% of the estimated $35 billion
that will be spent worldwide this year on semiconductor
manufacturing, according to George Burns, president of
Strategic Marketing Associates, Santa Cruz, Calif.
IDMs such as Motorola Inc. are expected to increase their
manufacturing outsourcing to foundries from 15% of output
today to as much as half of all production by 2002,
according to Dataquest Inc., San Jose.
Burns said indicators like Microsoft Corp.'s recent earnings
report, which unexpectedly characterized PC demand as
?awesome,? typify the demand cycle. But IDMs and
foundries alike have maximized the capacity gains they can
reap through process shrinks, and now must increase the
manufacturing infrastructure itself.
Top-tier foundries such as TSMC and UMC are aggressively
expanding capital- spending plans, while Chartered
Semiconductor will float an initial public offering in the United
States and in its homeland of Singapore to finance capacity
expansion. IBM, also considered to be among the world's
foundry leaders, is similarly expected to ramp capacity,
although company executives declined to discuss their
plans.
According to analysts, the supply/demand imbalance will
weigh most heavily on top-tier foundries, the volume
suppliers of leading-edge processes. In a report earlier this
year, Phoenix-based Semico Research Corp. predicted
demand for 8-in., 0.25-micron-processed wafers would reach
3.2 million units in 2000, but with an available supply of only
3 million wafers.
?What's happening is that everybody is continuing to go to
the top three suppliers,? said Joanne Itow, a Semico analyst.
?They're easier to go to, experienced, and with good
long-term relationships. There's other capacity available in
second-tier companies, but it hasn't been tested.?
Even if chip designers determine they must shop for new
production sources, it won't be easy to move from one
foundry vendor to another. It takes months before a chip
maker can get its products qualified at a new site, according
to Dataquest analyst Jim Hines.
At an industry event hosted this week by the China External
Trade Development Council (CETRA), foundry executives,
not surprisingly, said they saw the upsurge coming as early
as last year. Magnus Ryde, president of TSMC USA, San
Jose, has more than doubled the company's December 1998
forecast and now says TSMC will make the equivalent of 1.9
million 8-in. wafers this year and 2.7 million in 2000.
To meet its aggressive forecast, TSMC will invest $1.6 billion
this year in capital goods, an increase of $1 billion since
June. Ryde said wafer demand is now about 80% higher
than in 1998. The company's supply strategy is to exceed
demand by 10%, although this will be difficult to accomplish
in the near term, Ryde admitted.
?Next year, we anticipate greater demand than supply,? he
said. ?There will be shortages next year, so the current
demand picture looks very strong. There's a fair number of
assumptions around that. First, the significant impact on
memory prices has not been fully comprehended, as well as
the impact on our customers. I would imagine there will be
price increases in the industry, although maybe the constant
price erosion on microprocessors will stop.?
More than half of TSMC's 1999 capacity will be at line widths
of less than 0.35 micron, about the same percentage that
will shift to 0.25 micron in 2000, Ryde said.
TSMC has increased capacity most heavily at its WaferTech
joint venture in Camas, Wash., beefing up planned output
this year by 107%, to 248,000 8-in. wafers. Decker said
Conexant's cash infusion will be used to help bring up Fab 6
in Tainan, which is scheduled to produce finished wafers by
February 2000.
UMC also plans sweeping capacity increases that are just
slightly more modest than its rival's. UMC said it will ship
the equivalent of 1.76 million 8-in. wafers this year, 2.4
million in 2000, and 2.9 million in 2001, including output from
joint ventures. The corresponding investment levels have
been pegged at $1.7 billion this year and $2.1 billion in 2000.
In 2001, UMC's capital outlays are expected to jump to $2.9
billion, before leveling off to $3 billion in 2002.
?We have been telling people since June that we plan to ship
over 1.2 million 0.25-micron-and-below 8-in. wafers next
year, as a minimum,? said Jim Ballingall, vice president of
worldwide marketing for UMC Group (USA) in San Jose.
?This is 50% of our total capacity next year.?
UMC will bring two fabs online in 2000: UMC5 in Hsinchu is
projected to ship 100,000 8-in. wafers, and a second fab at
United Semiconductor Corp. is expected to ship 85,000
wafers at process technologies approaching 0.1 micron.
Singapore's Chartered Semiconductor and Armonk,
N.Y.-based IBM remained mum about their plans. Chartered
is attempting to raise more than $400 million through an
initial public offering to add manufacturing.
According to a prospectus filed with the Securities and
Exchange Commission, the company is expected to spend
about $620 million on new production this year and as much
as $770 million in 2000. During the first half of 1999,
Chartered shipped 327,300 8-in. wafers while using 94.8% of
its available capacity.
A spokesman for IBM Microelectronics, Fishkill, N.Y., cited
a long-standing company policy of not disclosing capacity or
capital-spending levels.
As demand threatens to spill over the dam, other first- and
second-tier foundries are hoping to avoid the knee-jerk
reactions and quick-hit orders from suppliers scrambling for
capacity. ?That's the last thing we need,? said Steve Morgan,
director of North American sales for Tower Semiconductor
USA Inc., the San Jose-based subsidiary of Israel's Tower
Semiconductor Ltd. ?We're looking for longer-term
relationships.?
And even had they welcomed the new business, most
second-tier foundries are finding that demand has left them
with little excess capacity. ?It's very tight right now,? said
L.T. Guttadauro, sales director for Amkor Wafer Fabrication
Services, Santa Clara, Calif.
Last month's earthquake in Taiwan, while apparently
shrugged off by the island's larger foundries, has left some
smaller manufacturers struggling to regain their balance.
Hsinchu-based Worldwide Semiconductor Manufacturing
Corp. (WSMC) was running at full capacity when the temblor
struck, and two days later was devastated again when its
emergency power generator overheated and caught fire.
Though the blaze was quickly contained, WSMC's fab is
only past the 50% capacity mark now, and doesn't expect
full production to resume until the end of November,
according to president Richard Chang. The company lost
10,000 of the 100,000 wafers it expected to manufacture this
year, although it will bring up two new 8-in.-wafer fabs next
year, boosting overall capacity to 420,000 wafers.
To meet demand, WSMC has been forced to push one of its
customers aside. The company had been building DRAM on
a foundry basis for Fujitsu Ltd., but stopped manufacturing
the devices to make room for non-DRAM products, Chang
said.
Speaking at last week's CETRA event, Taiwan's foundry
representatives gave what they said were final
quake-damage estimates. Ryde said TSMC lost the
equivalent of 80,000 8-in. wafers, about 28,000 of which were
in the manufacturing process. Losses were concentrated at
TSMC's Hsinchu fabs, which were closest to the quake's
epicenter.
Arthur Kuo, a director at Hsinchu-based UMC, said his
company lost 53,000 to 64,000 wafers, including about
16,000 that were in-process.
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