IN GENERAL WE'RE PRETTY MAXED OUT ...
TSMC Has Wafers -- If Customers Make It Sole Supplier
by Anthony Cataldo
EE Times
05/12/2004, 7:46 AM ET
PALO ALTO, Calif. " Chip manufacturing capacity is getting tight, but Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) says it still has wafers for sale. The only catch is that customers must promise not to send a design to one of its competitors.
At chip packaging specialist Amkor Technology, there's nothing preventing the company from bringing up more capacity to meet surging demand. But customers had better come to the table with a reliable demand forecast.
Such is the price of doing business in the semiconductor industry today. While those in the semiconductor supply food chain say they can't put a stop to the boom-to-bust industry cycles, they've learned a thing or two about demand management, according to industry executives speaking at a panel discussion hosted by eSilicon.
Perhaps most importantly, companies like TSMC and Amkor said they have learned to be more skeptical. With double ordering and reckless capacity expansions a distant memory, the companies said they are being more circumspect this time as the chip industry heats up again.
Indeed, though sales and orders are on the upswing at chip companies over the last several quarters, most are still cautious about the outlook. Ronnie Vasishta, vice president of technology marketing at LSI Logic, said double bookings haven't become a problem yet. "Everyone is still saying they have limited visibility," he said.
Eelco Bergman, vice president of sales and marketing at Amkor, agreed. "The level of the turns business has decreased, but people are still cautious in their forecasting."
Still, the specter of double bookings is very real among some chip companies. Programmable logic vendors, for one, have watched their backlogs swell since March. So far, however, managers are hesitant to use it as a guide for sales potential for fear of getting burned again. "I think we've kind of seen this movie before," said Xilinx chief financial officer Kris Chellam in a recent call with financial analysts, when asked about the company's backlog.
One reason is that foundry capacity appears to be tapped out. Ed Ross, president of TSMC North America, said chip customers "need more than the industry is able to provide right now."
Still, Ross said there are ways for TSMC customers to gain access to capacity during the shortage. One way is by agreeing not to send chip designs to a rival foundry. Any chip company that makes such a pact will be considered a preferred customer. "The companies that make the commitment to let TSMC be a sole source are in the top tier," Ross said.
Others maneuvers include entering into long-term supply contracts or promising that a big portion of volume for a product line goes to TSMC. The company will even provide preferred pricing and capacity to startup companies that show promise. "What we really want to do is be a good partner and have good partners over the cycle," Ross said.
But not everyone is ready to embrace TSMC's sole-source model. Mobashar Yazdani, ASIC manager at Hewlett Packard, agreed that forming partnerships with foundries is desirable, but it would not preclude his company from seeking other foundry suppliers as part of "due diligence."
"If a design is big we'll second source for sure," he said. "Dual source doesn't mean you don't have a good relationship. It's needed because they may not be able to supply the volume."
There could be even more tension building in the supply chain in the coming months. Bryan Lewis, chief analyst at Gartner Research, said the industry may be on pace to grow more than the 22.6 percent his firm had predicted for 2004.
"In general we're pretty maxed out right now," he said.
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