Big Three' foundries plan 116% increase in capacity by 2001, but no wafer glut expected
By J. Robert Lineback
Semiconductor Business News
(04/03/00, 08:49:31 AM EDT)
SINGAPORE -- The world's three largest dedicated silicon foundries plan to increase their combined production of semiconductors by 116% in the next two years, but company managers and analysts believe the surge in new capacity will not result in a glut of processed wafers at the end of 2001.
New estimates, collected by Semiconductor Business News here and in Taiwan, show that foundry capacity at the "Big Three" suppliers will increase 57% to 6.77 million 8-inch equivalent wafers in 2000 from 4.30 million in 1999. The three large foundries are expected to increase their capacity in 2001 by another 34% to a total of 9.10 million wafers, based on projections from each company.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC)--the world's largest pure-play silicon foundry--plans to increase its capacity to 4.7 million 8-inch equivalent wafers in 2001, which is 147% more than 1.9 million wafers in 1999. No.3 foundry supplier Chartered Semiconductor Manufacturing Ltd. in Singapore aims to double its capacity to 1.4 million wafers in 2001 from 700,000 in 1999. Taiwan's No. 2 foundry, United Microelectronics Corp. (UMC), has targeted fab capacity of 3.0 million wafers by the end of 2001, up 76% from 1.7 million last year.
The planned capacity of the Big Three foundries would account for nearly 16% of the world's processed silicon in 2001, based on TSMC's semiconductor industry forecast of 58 million 8-inch equivalent wafers next year. TSMC estimated that the entire chip industry processed about 45 million wafers in 1999, and production estimates from the three large foundries show them with a combine market share of 9.6% last year.
"Clearly there is a lot of investments planned by the Big Three and some investments by others, but I don't see a glut of new fabs being built by the IDMs [integrated device manufacturers]," said Rob Baxter, senior vice president of business operations at Chartered. "Obviously, the fabless companies are not building fabs, and they are the fastest growing segment in the world.
"I am really comfortable [with the current total increase planned by the three largest foundry rivals]," Baxter added, "but we are all keeping an eye open here."
Baxter echoed the thoughts of TSMC officials, who briefed the press and industry analysts last week about its expansion plans prior to the opening ceremonies for the company's largest and first wafer fab in the new Tainan Science-based Industrial Park in southern Taiwan. The huge fab is expected to be TSMC's last new 8-inch wafer-processing plant. The plant will also house TSMC's first 300-mm pilot production line, which will capable of processing 4,500 twelve-inch wafers by the end of 2001 (see March 30 story).
TSMC has earmarked $3.6 billion for capital investments in 2001, following this year's $4.4 billion record--a 167% increase from $1.65 billion in 1999. TSMC is aggressively increasing its capital spending in 2000 and 2001 to put the company back on track with a planned capacity "linear growth curve" of 25% a year, said Morris Chang, chairman and CEO of the foundry giant.
Chang also said strong growth conditions in the semiconductor markets were nearly certain through the end of 2001. However, overall business conditions are less certain in 2002 and 2003, he said, but TSMC is confident that foundry segment revenues will continue to increase even if there is a semiconductor slump after 2001.
Analysts generally agree that the chip industry's shift to use more foundry capacity will most likely prevent glut of processed silicon in the next several years. However, the steep increase in foundry capacity now planned by TSMC, UMC and Chartered will probably diminish the odds of shortages continuing through next year, said analyst Jim Hines of Dataquest Inc., who attended briefings by TSMC last week.
Currently, Dataquest is forecasting 49% growth in foundry revenues to $10.5 billion in 2000 from about $7 billion in 1999, based on preliminary market estimates. However, Hines said he now believes 1999 foundry revenues were higher than initial estimates. He continues to forecast a 49% increase in foundry sales this year, and 40% growth in 2001, but the total dollar revenue figures will most likely to be higher than his current $10.5 billion estimate for 2000.
Hines said the surge in investments now being planned by the large foundry companies will end shortages of overall capacity next year. "Earlier I had expected the capacity shortage to extend through next year, but with all of the additions, I do not believe there will be a shortfall in 2001," he said. "It will begin to even out. However, it will not work itself into an oversupply situation next year."
If so, that will be good news for both the foundry suppliers and customers, which have seen steady prices increase on processed wafers since the market's glut ended last year. Reports out of Taiwan indicate that prices for mainstream 0.35-micron process technologies have increased 5-to-10% in the recent months. Sources said both TSMC and UMC have turned away business this year because much of their capacity is sold out for the rest of 2000.
At Chartered, revenues from processed wafers are increasing for a variety of reasons, including higher yields in production and the renegotiations of contracts from depressed levels of two years ago. "Some of the low-priced fab-filling deals have disappeared now," said Chartered's Baxter, referring to agreements struck during the low point of the last recession in 1997 and 1998. "As contracts expire, we tend to upgrade them to what is today's price." He also noted that new technologies are also increasing the average selling prices of foundry wafers in the market.
Chartered is also being selective in adding new foundry customers this year. "We do have programs for startup accounts," Baxter said. "If you are in the right area [of the market--meaning communications ICs for Chartered], and if we feel we could have a long-term relationship, yes you would get wafers [this year]."
Estimates for increased foundry demand have settled down from the near panic situation of a year ago and last fall, according to Ronald Norris, senior vice president of sales marketing at TSMC, based in Hsinchu, Taiwan. From February to May last year, foundry customers continued to increase their forecasts every month, Norris recalled. The increases in foundry demand forecasts ebbed last summer and then picked up again in the fall of 1999. Now, forecasts for foundry demand are consistently higher, but not increasing each month, Norris said.
"The foundry market and demand are not overheated," said Norris, suggesting that the current outlook for steady growth will help to stabilize the market's outlook and avoid too much capacity being added in the next couple of years. Most other foundry managers and analysts agree with that opinion, as long as the majority of fab-operating IDMs do not significantly increase their own current capital spending in the second half of 2000 and next year.
"Is the capacity situation sowing the seed for an over capacity situation?" asks Dataquest's Hines, referring to the rush by foundry companies to fill the void. Hines said he believes the long-term answer to that question hinges on whether or not major IDMs feel comfortable with the availability of deep-submicron technologies and wafer capacity from the big foundries.
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