Silicon foundries increase prices as demand rises
A service of Semiconductor Business News, CMP Media Inc.
Story posted 5:30 p.m. EST/2:30 p.m., PST, 7/9/99
By Mark LaPedus and Sandy Chen
HSINCHU, Taiwan (ChipWire/EBN) -- A shortage of fab capacity is causing several major IC-wafer foundries to alter their pricing strategies, with some companies reportedly raising their rates for select products by as much as 20%.
Leading foundries, including Amkor Wafer Fabrication Services (AWFS), Chartered Semiconductor Manufacturing Pte. Ltd., IBM Microelectronics, Taiwan Semiconductor Manufacturing Co. (TSMC), and United Microelectronics Corp. (UMC), have all quietly halted their volume-customer discount programs for both 6- and 8-inch wafers, sources said.
In fact, larger foundries are now charging semiconductor customers full-contract rates, and in a few cases have even raised wafer prices, especially for trailing-edge, lower-margin products, according to sources. And for the first time in recent memory, foundries are nudging their chip customers to sign longer-term contracts in order to secure ample foundry capacity for the remainder of this year and beyond, they said.
"UMC raised our prices by 12%," said a representative of one multimedia-chip maker, who requested anonymity. "In general, wafer pricing will go up in the second half of this year if the [capacity] shortage situation gets worse."
Y.C. Huang, vice president of TSMC, said the foundry giant has not raised its wafer prices. Instead, TSMC is merely charging customers full-contract rates for wafers and has stopped offering discounts, Huang said.
But at United Semiconductor Corp., a joint-venture foundry of UMC and a number of fabless IC design houses, president Peter Chang acknowledged that the Taiwanese outfit has raised prices. He did not elaborate.
And a source at Chartered Semiconductor confirmed that the Singapore-based company has raised prices, but wouldn't elaborate.
Fearing they would upset their chip customers, executives at other major wafer foundries were reluctant this past week to discuss their pricing and contract strategies.
The reported actions taken by the foundries are unwelcome signs for IC makers and some of their customers. For the past two years, chip makers have been able to buy large volumes of cheap wafers from foundries, analysts said. In fact, it's been a buyers' market for wafers -- prices for 6- and 8-inch products have been dropping steadily for some time, they said.
Right now, however, prices for 6- and 8-inch wafers are beginning to stabilize, due in part to huge OEM demand, said Joanne Itow, an analyst with Semico Research Corp. in Phoenix. "Last quarter, the foundries thought they would be seeing lower wafer prices in the fourth quarter of this year, but I believe that wafer prices will remain steady for the balance of the year," she said.
Wafer prices depend on the product line. At present, for example, the average selling price (ASP) for a leading-edge 8-inch, 0.25-micron wafer is holding steady at $1,780 to $2,050 per unit, compared with $1,890 to $2,210 in the first quarter of this year, according to Semico.
But ASPs for older-generation products are steadily rising. The ASP for an 8-inch, 0.35-micron wafer is around $1,200 right now, up 20 percent to 30 percent from the beginning of 1999, said Peter Tsao, an analyst with ING Barings Securities Ltd. in Hong Kong. And the ASP for a trailing-edge 6-inch, 0.5-micron wafer is roughly $600, compared with $400 to $500 at the beginning of this year, he said.
Though some fabless vendors will no doubt feel the pinch of rising wafer prices, the likelihood that OEMs will bear the brunt is virtually nil, according to suppliers.
"In this business, the tendency to raise prices to [OEM] customers — even if we've had a cost increase ourselves — is pretty slim," said Chris Chellam, chief financial officer at PLD maker Xilinx Inc. in San Jose. "Most suppliers try to manage their rising costs through technology migrations."
Suppliers of PLDs and other standard products are less likely to pass higher wafer prices on to customers, because they can amortize processing costs over millions of units, whereas ASIC suppliers will have a harder time absorbing rising mask costs, said a spokeswoman for Altera Corp. in San Jose.
Meanwhile, within the programmable-logic community, "there will be an impact on smaller players that can't achieve the same economies of scale," the spokeswoman said.
Another concern for chip makers and their customers is getting ample foundry capacity for 1999 and beyond. In fact, after experiencing a capacity glut for the past two years, many major foundry companies have been swamped with orders since the second quarter of this year.
"There's still some foundry capacity out there," Semico's Itow said. "However, I'm guessing that the larger companies, like TSMC, are pretty full in terms of foundry capacity, but there's still some capacity at the smaller foundry providers."
Chartered, IBM, TSMC, and UMC are all running at or near full capacity within their respective fabs, sources said. New foundry demands from integrated device manufacturers, coupled with an onslaught of orders from some emerging communications-IC vendors, are among the reasons for the capacity shortage, according to United Semiconductor's Chang.
But even the emerging foundries are in a pinch. "We could do more foundry business if we had more capacity," said L.T. Guitadauro, director of sales development for AWFS, a relatively new foundry vendor and a part of Amkor Technology Inc. "I think it's going to get even tighter by the end of 1999. In fact, I think we're going to be completely full in the beginning of next year."
Therefore, chip makers should not take any chances about securing their current or future foundry capacity requirements, according to David Chang, regional sales manager for IBM Microelectronics in Taipei, Taiwan.
IBM's Chang said that chip makers should begin to forge stronger ties with their foundry vendor or vendors. "We are urging our customers to sign new contracts in order to secure capacity for them," he said. |
