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Will soaring chip industry do it again: expand too fast, creating overcapacity?
Not this year, but maybe in 2001
By J. Robert Lineback
Semiconductor Business News
(03/02/00, 06:01:25 PM EDT)
Everywhere you look these days in the semiconductor
industry, companies are tearing up their market forecasts and
coming up with higher estimates as orders continue to soar.
That's good news for chip production-equipment makers, which
are revising upwards their own sales forecasts.
VLSI Research Inc., a leading research firm
for the equipment end of the business, is now
upgrading its forecast from a growth rate of
29% to 42% over the 1999 total. Leading the way in boosting
their orders for chip production gear are foundry giant Taiwan
Semiconductor Manufacturing Co. and Europe's
STMicroelectronics N.V.
The big question now is: Will this explosion of equipment
orders result in a repeat of the feast-or-famine chip business?
There seems to be little danger of overcapacity this year if IC
revenues grow at 25-to-30% as expected, according to
industry observers.
The industry already is running flat-out, at virtually full
capacity. With that kind of growth, it's been estimated the chip
business could absorb a 50% increase in tool spending this
year.
But if the equipment business keeps growing at the same rate
next year as it is expected to rise this year, the chip industry
could be looking at a dangerous overcapacity situation.
"The year we have to be watching is 2001," declares analyst
Bill McClean, president of IC Insights Inc. "If the increase in
capital spending repeats another 50% increase," that would
mean, "wow! here we go again," comments the Scottsdale,
Ariz. market researcher. He is referring to the industry's
history of adding too much capacity during boom times, which
ends up pushing the industry into a downturn.
There's no doubt
the global chip
industry is
running flat out.
The
Semiconductor
Industry
Association said
in late February
that worldwide
fab utilization
was running at
93.6% of
capacity in the fourth quarter -- the highest level since the start
of the current semiconductor downturn four years ago. At the
end of 1999, capacity utilization for MOS process technologies
below 0.3-micron was the highest ever, reaching 97.6%.
"This is incredible considering the big jumps in wafer starts,"
notes McClean "This shows the industry is flat-out sold out."
But the only market this year that appears to be at risk of
overshooting demand is flash memory, according to IC
Insights. "Suppliers probably will not catch up with demand
this year but there are some big companies seriously chasing
this business--Intel, Hyundai, STMicro, NEC, Mitsubishi, AMD
and others," notes McClean. As a result, he says, "flash is
ripe" for Overshooting.
It's no wonder the chip industry is looking for a lot more
production equipment this year. The new Semiconductor
International Capacity Statistics (SICAS) shows all MOS wafer
fabs were operating at 94.3% of their capacity in the fourth
quarter last year vs. 91.5% in the third quarter and 82.9% in
the fourth quarter a year ago.
Even bipolar wafer fab utilization hit a four-year high in the
fourth quarter, working at 88.8% vs. 86.3% in the third quarter
of 1999 and 74.1% in the fourth quarter a year ago, according
to SICAS.
Chip makers processed 517,100 eight-inch equivalent MOS
wafers a week during the fourth quarter, an 8% increase over
the third quarter when MOS fabs were starting 479,900 wafers
a week, the SICAS report said. Fourth quarter MOS wafer
starts were 17% higher than in the same period a year ago.
The sharpest increase in wafer starts came from the finer
geometry processes, or 0.3-micron and below category. The
SICAS report shows those wafer starts increasing 29% to
461,900 a week in the fourth quarter compared to 358,100 a
week in the third quarter.
Leading the rush to expand their chip production are the
pure-play foundries. "They have certainly put a stake in the
ground and are now responding to the huge demand," points
out Risto Puhakka, vice president of operations at VLSI
Research.
The pure-play foundries are attempting to use the current
recovery cycle to greatly expand their business with large
semiconductor makers, which historically has fabricated most
if not all of their own wafers. Many of these integrated device
manufacturers (IDMs) began shifting their wafer fabrication
strategies toward third-party foundries as a way to reduce
expenses and risk in 1998 and 1999, but now they're
becoming increasingly concerned about the availability of
capacity.
"The goal of the foundry companies is to convince the IDMs
not to build that next fab," comments IC Insights' McClean.
When expenses for "brick and mortar" are taken out, he
believes that capital spending for chip production gear could hit
nearly $40 billion this year vs. $26.4 billion in 1999.
More than ever, the percentage spending boosts for new gear
vary throughout the industry. In fact, a real shocker in the
latest capital expenditure plans indicates that Intel Corp. could
be dethroned as king of capital spending in the chip industry if
Taiwan Semiconductor Manufacturing Co. (TSMC) does what it
says it plans to do. The foundry giant expects to greatly
increase its capital spending--from $1.7 billion last year to $4.7
billion in 2000.
Intel, on the other hand, has earmarked $5 billion for capital
expenditures this year, but that includes at least $200 million
of non-semiconductor investment, it is estimated. What's
significant here is that TSMC is now at a run rate that would
make it a $4 billion-to-$4.7 billion company this year, while
Intel is expected to push past $30 billion in sales. That means
TSMC's capital spending will be 100% of its sales, McClean
notes. That's is extremely aggressive, even for a fast-growing
chip maker.
During the late 1990s, Intel annually spent at least a couple
billion dollars more than any other chip maker on capital
investments. TSMC is now pouring on the gas in a major
gamble to grow market share by serving more of the needs of
the large IDMs. Already, TSMC is pulling away from the No. 2
foundry, United Microelectronics Corp., in both capital
spending and foundry revenues, IC Insights' McClean points
out. During the last half of 1999, both companies steadily
increased their capital spending targets as the global chip
recovery built up steam. While UMC said in October that it
was going to spend "slightly more" than TSMC in 2000, TSMC
responded by more than doubling its total capital spending
targets.
Another surprise this year is that STMicroelectronics is turning
out to be one of the more aggressive spenders. The European
chip maker plans to increase capital expenditures by 63% to
$2.2 billion from $1.4 billion last year, points out IC Insights'
McClean.
TSMC is expanding its capacity in other ways too. It has
announced plans to acquire Worldwide Semiconductor
Manufacturing Corp. (WSMC), Taiwan's third largest foundry
as well as reaching an agreement to take full ownership of a
joint-venture fab, TSMC-Acer Manufacturing Corp. A handful of
other vendors also expect to raise their capital spending
budgets by more than 50% in 2000, he adds. "We must watch
Samsung, Micron, Hyundai, Infineon, and others ... if everyone
jumps on the bandwagon, then we'll have problems."
So far, price-battered DRAM makers are being more cautious
than the foundries. Micron Technology Inc., for example, is on
record to raise its capital spending by 36% to $1.2 billion in
2000, up from $900 million in 1999, McClean notes. For now at
least, Samsung Electronics Co. is increasing its capital
spending by just 33% to $2.4 billion from $1.8 billion last year. |
