Shrinking linewidths could cause shortage in foundry capacity
By Mark LaPedus and Sandy Chen
Electronic Buyers' News
(12/04/98, 02:01:26 PM EDT)
After a year of sluggish demand and sometimes empty fabs, IC-wafer foundries are finally seeing an uptick in orders-with possible shortages of leading-edge capacity occurring as soon as the second half of 1999.
Eventual shortages of capacity could be the result of delays or technical problems among some foundries in shifting their IC production from linewidth geometries of 0.35 micron down to 0.25 micron, according to some analysts.
Other analysts have different theories. For example, Joanne Itow of Phoenix-based Semico Research Corp. said chip makers with their own fabs-sometimes called integrated device manufacturers (IDMs)-will shift a larger percentage of their total IC output to foundries over the next year, thereby possibly causing a 0.25-micron capacity crunch.
Currently, IDMs are outsourcing only 5% of their total IC output to outside foundries. But if they were to increase that to 10% by 2002, the demand for foundry services would outstrip wafer supply, possibly producing shortages of foundry wafers as early as 2000, Itow said.
This is an ominous sign for chip makers and their OEM customers. Shortages of 0.25-micron capacity could cause wafer prices to soar, to the dismay of chip makers that have grown comfortable in the ability to obtain an ample and cheap supply of these products from foundries over the past year, analysts noted.
Foundries, meanwhile, are somewhat upbeat about the market in 1999 and beyond, despite declining wafer prices and what seems to be persistent and considerable overcapacity, mostly in Taiwan.
“Taiwan is still swamped with fab capacity,” said F.C. Tseng, president of Hsinchu-based Taiwan Semiconductor Manufacturing Co. Ltd. “During the third quarter [of 1998], we did see a rebound for the Christmas season, but the rebound did not seem that strong, perhaps because of the Asian financial crisis.”
“Orders are already coming in for the first quarter [of 1999], but the capacity overhang is still there,” said Thomas Gurnee, president of Milpitas, Calif.-based Chartered Semiconductor Manufacturing Inc., the U.S. sales subsidiary of Singapore's Chartered Semiconductor Manufacturing Pte. Ltd. “However, it's my personal opinion that we could have a tightening of capacity during the second half of next year, or beyond that.”
Others agreed. “Next year, there won't be an abundance of both 0.25- and 0.35-micron foundry capacity,'' warned Alan Ross, chairman of Hsinchu-based Worldwide Semiconductor Manufacturing Co. Ltd., a relatively new wafer foundry just recently in production.
One of the biggest problems is that many, if not all, Asian foundries have experienced some technical problems in ramping up their 0.25-micron processes, according to sources.
But at least one foundry denied those assertions.
“We began to ramp our 0.25-micron technology last October, which is several months ahead of our competitors,'' said Jim Ballingall, vice president of worldwide marketing for Hsinchu-based United Microelectronics Corp. “A year from now, I also see ourselves being the leaders in providing 0.18-micron technology.”
About 15% of UMC's total IC production is at 0.25 micron, but the company will increase that to 50% next year, according to Chris Hsieh, an analyst at Nomura Securities Co. Ltd., Taipei.
UMC's rival, TSMC, will boost its total 0.25-micron chip capacity to 25% by the end of 1999, up from 1% to 7% at present, Hsieh said.
IBM-the dark horse in the foundry business-will start volume production of wafers at 0.2 micron in the first quarter of 1999, with 0.18 micron slated for the second quarter, according to David Chang, Taiwan sales manager for IBM Microelectronics.
Not to be outdone, TSMC and UMC claim they will have their respective 0.18-micron process technologies available in limited production in the first quarter of next year.
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