Atmel's Fab Might Be Worth Something Someday?
SLACK FAB SPENDING SOUNDS ALARM
Analysts say few companies are heeding warning signs
by Bolaji Ojo, EBN
Silicon Strategies
08/12/2003, 7:22 AM ET
Alarm bells are ringing in the corridors of many electronics companies as spending on semiconductor manufacturing equipment shrinks to levels that industry observers say could trigger widespread supply shortages if the market strongly rebounds in the next year. Few chipmakers appear to be heeding the warning, however.
Preoccupied with deep losses or minuscule profits, low revenue growth, and pricing weakness, most industry leaders are waving off signals that capex rates are at dangerously low levels.
And even those few apprehensive executives who are warily watching the trend can't muster enough boardroom votes to support anything but the barest increases. For IC suppliers and OEMs alike, global geo-political uncertainties dominate business decisions, stubbornly refusing to yield to the steadily improving economic news, according to observers.
"We're jumping up and down trying to tell everyone that if you are not concerned about the electronics capex situation, you will be caught napping because there are supply constraints coming," said Michael Kirschner, president of consulting firm Design Chain Associates LLC, San Francisco. "Not all of the OEMs are taking notice. They're going to wait and put themselves in a reactive stance when everybody is going to be fighting for capacity."
"All of our models indicate that there is a looming shortage, but decisions are being based on concerns about and lack of confidence in the future," said Risto Puhakka, an analyst with VLSI Research Inc., Santa Clara, Calif.
"The natural result from this is that we will see higher component prices."
Indeed, parts suppliers were so mauled in the last downturn that many are expected to resist adding capacity until rising prices help restore profit margins, Puhakka noted. Semiconductor capex has fallen by more than half since peaking at approximately $60.5 billion in 2000. Needham & Co. Inc., New York, estimates 2002 chip industry capital expenditures at $28.1 billion, a 31% drop from $40.7 billion in 2001, and sees zero growth this year. In 2004, capex will climb to $35.3 billion, up from a very low base, said Needham analyst Cristina Osmena.
"It's a very familiar scenario," said George Burns, president of Strategic Marketing Associates, a Santa Cruz, Calif., research firm. "The industry is not very good at predicting when the recovery will start, but right now there is a real tightness in advanced processes and we may not be able to meet demand if the market turns abruptly."
Early signs
There are signs the market is already turning. Most companies reporting second-quarter results confirmed that unit shipments rose, although the increases were offset by weak average selling prices. Last week, the Semiconductor Industry Association (SIA) observed that capacity utilization at 0.15-micron and below has risen to 95 percent, while the rates for 0.18-micron were in the high 80s [percentage] and 0.25-micron rates rose to the low 80s [percentage], according to Doug Andrey, principal industry analyst for the SIA.
"The capacity utilization situation is tightening, starting with leading-edge technology," Andrey said. "As the cycle reaches its peak, just as in 2000, you will see all the technology nodes get to 90 percent or better."
Industry analysts said that due to the high-churn, mass-volume nature of their businesses, DRAM, flash memory, and some microprocessor manufacturers are usually first in the line of fire when plants begin to run at full capacity.
Perhaps for this very reason, DRAM suppliers have been in the vanguard of adding new fabs -- especially of the 300-mm variety -- and together with silicon foundries are expected to account for 80 percent of all new fab construction in 2003, according to Strategic Marketing.
"We expect there will be an increase in DRAM, foundry, and microprocessor fab activity," said Strategic Marketing's Burns, in a research report issued last week.
"New DRAM fab projects expected to start work or restart work from being on hold this year include Samsung's double-cleanroom line 12 and Hynix's Fab B1, both in South Korea, Powerchip's Fab 3 in Taiwan, and possibly Micron's Virginia or Utah fab. All of these will be 300-mm."
As the market downturn deepened, many suppliers, including Agere Systems, Motorola, and National Semiconductor, turned to foundries for a major portion of their wafer requirements, embarking upon a "fab lite" strategy that apes fabless chipmakers' total dependence on foundries.
"Other than Intel, there is no company that generates the kind of revenue that can support a $3 billion fab. It takes a foundry with multiple customers to fill a 300-mm fab," said Kevin Meyers, vice president of worldwide marketing and services for foundry Chartered Semiconductor Manufacturing Ltd., Singapore. "In the older technology, what customers want is value-added service that allows them to close older fabs and migrate the process technology."
Not enough spending
The increasing dependence on foundries means that even the top pure-play wafer providers such as Taiwan Semiconductor Manufacturing Co. Ltd. may not be spending enough at the moment, according to Needham's Osmena.
"With the exception of TSMC and Inotera Memory -- the joint venture between Infineon and Nanya -- which have adequate sources of funding for capital spending plans, companies such as Powerchip and ProMos do not have the cash to support their capacity expansion plans," Osmena said. "These companies need to tap the capital markets."
Foundry executives countered, however, that their spending plans would be enough to satisfy immediate and future needs.
"We have to invest ahead of our customers' needs," Chartered's Meyers said. "If you want to be one of the top foundries and you want to be a part of the higher ASPs at the fabless and fab-lite, then you have to invest in 300-mm; otherwise you are relegated to commodity chips."
However, the concentration on leading-edge technology, while understandable, may also pose a problem to any OEMs with products that use mainly legacy parts, according to analysts. Among these are communication equipment manufacturers whose suppliers have abandoned the sector in droves or pared capex at a sharper rate than the rest of the industry.
"Capacity is diminishing at the lower-end geometries, anything greater than 0.25 micron," said Design Chain's Kirschner. "There are a lot of products that require older technologies, but many of the suppliers are shuttering these fabs and turning to foundries, which are mainly investing in leading-edge fabs." |
