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To: Thomas J Pittman who wrote (3872)	1/20/2000 10:58:00 AM
From: Proud_Infidel	Read Replies (1) \| Respond to of 5867

Foundry capacity squeeze is on as demand, prices grow By Margaret Quan EE Times (01/20/00, 10:19:16 AM EDT) NEW YORK ( ChipWire) --Wafer foundry capacity is expected to be in short supply this year, leading to a slight increase in average selling prices for semiconductors in the first half of 2000. However, the price hikes will not soften demand for semiconductors, analysts contend. "Demand for foundry services has been growing and foundry capacity has been tight since the second quarter of 1999," said James Hines, principal analyst in Dataquest/Gartner Group Inc.'s semiconductor contract manufacturing service in San Jose. Hines said first-tier foundries, such as Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., reported fab utilization rates at maximum levels--90% to 100%--through 1999 and into 2000. During that time, foundries have raised prices, eliminating so-called "volume discounts," in an attempt to rebuild profit margins squeezed over the previous two years, Hines said. Those price hikes weren't enough to dampen demand for semiconductors last year. Dataquest reported semiconductor revenue grew 17.6% in 1999 to $160 billion, as silicon consumption in millions of square inches increased by more than 12%. Hines said that Dataquest expects a foundry capacity shortage this year in all process technologies with average selling price increases as soon as the first half. Higher ASPs will bolster semiconductor chip revenue in 2000. Dataquest expects silicon consumption (an indicator of unit sales) to rise at a compound annual growth rate of 10.4% 1998 and 2004. Paul Christopher, an economist at A.G. Edwards in St. Louis, Mo., said that even the anticipated U.S. near-term interest-rate hikes aren't likely to significantly change consumer or business spending for the year. While the economy continues to hum along and demand for foundry services grows, foundries are trying to add capacity and improve technology, said Joanne Itow, senior analyst at Semico Research Corp. in Phoenix. In a recent report, Semico Research estimated foundry wafer demand will grow at a compound average rate of 24% for the next five years. Itow attributed the rising demand and the capacity shortage to several factors, including the general rise in demand for semiconductors and the growing use of foundries by integrated device manufacturers (IDMs), who are delaying investment in their own manufacturing facilities. "IDMs are using foundry capacity to hold them over until they need a full fab for extra manufacturing capacity," she said. Itow said foundry use represents a change in philosophy for companies like Motorola Inc. and Lucent Technologies Inc., which have traditionally manufactured chips in their own fabs. Both companies said they will use foundries for a certain percentage of their manufacturing capacity on an ongoing basis. Foundries allow manufacturers to reduce their financial risk, as chip makers direct overflow capacity to foundries instead of spending the $2 billion to $3 billion it takes to build a fab. Foundries are also popular because they have kept up with leading-edge process technologies and provide good service, Itow said. In addition, Itow noted that fabless semiconductor companies, many of which supply communications ICs, are growing well. Also, she said more system houses are designing their own chips and taking them directly to foundries, rather than to ASIC houses. That is because the availability of intellectual-property cores, improved EDA tools and third-party design houses provide system makers with more options than in the past. These dynamics are likely to keep up the pressure on foundry capacity for the near term. One way for foundries to meet capacity needs and achieve economies of sale is to consolidate. One of the three largest foundry companies, TSMC, recently purchased two smaller foundries: a fab belonging to Worldwide Semiconductor Manufacturing Corp. that added 400,000 eight-inch wafer starts to TSMC's annual capacity, and the Acer Group's chip-manufacturing subsidiary, called TSMC-Acer Manufacturing Corp. Meanwhile, UMC has created a joint venture with Hitachi Ltd., with plans to build a 300-mm wafer fab, as well as a $2.4 billion addition to an existing fab in 2000. One startup expected to bring on new foundry capacity by the end of 2000 is Silterra, which is building an 8-inch wafer fab in Kulim, Malaysia. Volume production is to begin in 2001. The foundry is expected to reach 30,000 eight-inch wafer starts per month by 2002. Besides adding capacity, foundries are taking the lead in technology. USMC and TSMC have already announced serious 300-mm projects. Itow said many foundries are rolling out copper interconnect technology, 0.18- and 0.15-micron geometries, as well as plans to move to 0.13-micron line widths with 300-mm wafers.