ATML Follows TI's Strategy ?
Texas Instruments Collects On Split Fab Strategy Bet
by David Lammers
EE Times
05/17/2004, 10:00 AM ET
DALLAS, Texas -- A manufacturing strategy that relies almost equally on internal and external capacity for 130-nanometer chip production has Texas Instruments Inc. sitting pretty.
The company, which appears to be in absurdly good financial health, saw revenue from its semiconductor operations grow by 20 percent last year, to $8.4 billion, executives said at TI's annual meeting for stock analysts and press here last week. Chip sales are still rapidly rising, though the executives declined to provide forecasts for this year.
Just over half of the company's first-quarter 130-nm production, 52 percent, to be precise, came from TI-owned fabs in Dallas, said Kevin Ritchie, senior vice president for manufacturing. The remaining 48 percent came from three foundries: United Microelectronics Corp., Taiwan Semiconductor Manufacturing Co. Ltd. and Semiconductor Manufacturing International Corp. (SMIC).
Chief financial officer Kevin March said the manufacturing mix has had a big impact on the bottom line. Had TI chosen to make all of its own 130-nm products, it would have been forced to invest twice as much in equipment and internal fab capacity in 2002 and 2003. Not doing so cuts depreciation in half, compared with the heavy depreciation burden coming from the company's much-larger investments in 1999 and 2000.
"The maturity of the foundry market," March said, is what made it possible for TI to offload almost half of its production. The company's own fabs will run at higher factory utilization rates over the course of the cycle, improving return on invested capital, he said.
By maintaining its own process technology development and building a 300-mm fab, TI has been able to maintain leverage with the capacity-strapped Asian foundries. Analyst David Wu of Wedbush Morgan Securities (Los Angeles) said TI will see declining prices for 130-mm wafers from its foundry suppliers over the course of this year, in sharp contrast to the rising prices most smaller, fabless semiconductor companies will be paying.
"Despite what the foundries tell you about their special relationship with the fabless guys, it is the big boys, the platinum customers like TI and Nvidia and the like, that are enjoying declining wafer prices," Wu said.
Asked how TI was faring on getting additional wafers from foundries, which claim they are at more than 100 percent capacity for leading-edge processes, Ritchie said, "We are qualified at multiple foundries, at multiple factories at each of those foundries, as well as at several fabs internally. Whenever we've asked them for upsides [on wafers], in all cases we've gotten the extra supply."
TI makes its low-volume products, including all of its high-precision analog devices, at its own fabs. It is the high-volume parts that are divvied up among several factories. Driven by the huge volumes in the cell phone market, TI claims that it is the largest producer of 130-nm chips, having made 217 million through the end of the first quarter, with 101 different products shipping at 130-nm design rules.
The company has earmarked about $1.4 billion for capital investments in 2004, part of which will go toward adding 4,000 wafers per month of 90-nm capacity at the 300-mm DMOS 6 fab here. "As a rule of thumb, it takes about $75 million to $80 million of investments for each 1,000 wafers per month" of 90-nm capacity, said Ritchie.
UMC at 90-nanometer
Ritchie said TI's "lead foundry for the 90-nm node," United Microelectronics Corp. (Hsinchu, Taiwan), was qualified on April 30 for 90-nm production. UMC has begun shipping 90-nm baseband processors to TI's largest customer, cell phone handset giant Nokia Corp., just a few months behind TI's internally manufactured 90-nm shipments.
TI expects to qualify TSMC and UMCi -- the UMC-operated 300-mm fab in Singapore -- later this year at 90-nm design rules. Ritchie said he expects SMIC to have its 90-nm process up and running by the middle of next year, astounding progress for a China-based foundry, although he stopped short of saying TI would qualify that process as well. At the 130-nm node, largely because of limitations on technology exports to China, SMIC takes partially finished wafers from TI and completes the metallization steps in Shanghai.
Wu, a veteran technology watcher, attributed SMIC's rapid progress at least in part to the return of expatriate engineers, including 100 from Taiwan and another 100 from nations other than China or Taiwan.
TI executives said plans are under way for the next technology node, the 65-nm process. "Over the coming 12 months, no later than by the end of 2005," said March, TI will begin construction of its second 300-mm fab, in nearby Richardson, Texas, aimed at 90- and 65-nm production.
Seven years ago, TI had 50 cents in debt for each dollar in cash reserves. Now it has $7 in cash for each dollar of debt, and March said that by late this year the company intends to pay off half of its long-term debt.
While homage was paid at the meeting to the company's cash cow, digital signal processors, far more attention was lavished on analog. Newly installed chief executive officer Rich Templeton listed what he called his "room-for-improvement" targets, telling the 160 stock analysts attending the two-day meeting that "we want to make analog larger, and high-performance analog larger than that."
Manufacturing responsiveness and "avoiding peak investments late in the cycle" were his two other near-term goals, said Templeton, who on May 1 took over as CEO from Tom Engibous. Engibous remains chairman of the board.
Analog is a $27 billion worldwide business overall, and TI wants a larger share, executives said, in part because of the 65 to 70 percent gross margins.
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