INTC--Outlook debated after Intel's fab delay, UMC-Infineon 300-mm venture
Will it be a 'soft landing' or big pullback in capital spending?
By Paul Kallender and Anthony Cataldo
EE Times
(12/15/00 14:50 p.m. PST)
Intel delays $2 billion fab in Ireland
SAN JOSE -- Intel Corp.'s decision to push back production at its new fabrication facility in Leixlip, Ireland, by one year is prompting some industry observers and analysts to proclaim the arrival of a slowdown, while others point to positive capital-spending moves by Infineon Technologies and United Microelectronics Corp. as evidence that the industry is hardly ready to make a full-scale pullback.
Others believe that the industry is driving toward a soft landing, and predict that next year chip vendors will spend just slightly more than they did this year on new equipment.
An Intel spokesman said the postponement of production at its Fab 24 inLeixlip to late 2002, announced Wednesday (see Dec. 13 story), better suited the company's two-phase approach to moving Pentium 4 production onto a 0.13-micron process in the middle of next year, and then onto 300-mm wafers a year later. The Leixlip facility will be brought on line as a 300-mm (12-inch) facility.
Soon after Intel announced its plan, United Microelectronics Corp. (UMC) and Infineon said they would build a 300-mm fab in Singapore starting next year.
According to VLSI Research of San Jose, next year the chip market should grow 11% while the semiconductor equipment market should grow 4.5%. This year, the semiconductor and equipment sectors grew more than 30% and 89%, respectively, according to Semico Research Corp.
"So far we are saying it's going to be a soft landing," said Risto Puhakka, an analyst with VLSI Research. "We're not going to have negative growth rates" in equipment spending.
Intel's decision to change its fab plans may have been prompted by softening demand, but getting better cost efficiencies for its latest Pentium 4 also was a big factor.
"The addition of a second 300-mm production fab to our factory road map will significantly improve our asset utilization and improve our production capacity for future generations of products," said Mike Splinter, executive vice president and general manager of Intel's Technology Manufacturing Group, in a statement on the delay in the fab opening. Intel is currently constructing a 300-mm production fab in Rio Rancho, N.M.
Historically, whenever Intel moves to a new microarchitecture -- as in the case of the Pentium 4 -- the first generation of processors takes up a large die area, causing die-per-wafer yields to suffer. Die size was such a concern with the Pentium 4 that designers were forced to scale back their plans twice before settling on the current configuration.
"When moving from 200- to 300-mm wafers, the cost advantage is huge," said Puhakka of VLSI Research, who has evaluated manufacturing-cost comparisons for high-end logic devices. "If you can execute it properly, you easily see a 25% decline on cost per die. You're looking at billions of dollars in possible cost saving."
The $2 billion fab in Ireland, which has 135,000 square feet of clean room manufacturing space, will be Intel's first high-volume, 300-mm facility in Europe. Apart from the Rio Rancho facility, Intel currently has a dedicated 300-mm development fab in the final stages of construction in Hillsboro, Ore.
Delayed gain
With all those fabs online, the company will then be able to realize 30% cost savings on Pentium 4 production as the processor reaches peak demand, an Intel spokesman said. "Our 300-mm capacity will represent about 40% of the whole industry. We'll be right on the cutting edge with high volume and a great cost structure," he said.
Postponing the 300-mm rollout will give Intel flexibility and help ensure a smooth transition, said Prudential Volpe Technology Group analyst Hans Mosesmann. But pushing out of the Irish fab could be part of a rapid, sudden and potentially massive change of tack for the company in the face of slumping demand, he cautioned.
In a report released the same day as the Intel announcement, Mosesmann said Intel recently placed a hold on the bulk of its 2001 semiconductor equipment orders, including equipment it had ordered or was considering ordering for the Irish fab.
That freeze could be part of as much as a 40 percent drop in capital expenditure by Intel for 2001 over 2000, said Shekhar Pramanick, a capital-equipment analyst at Prudential Volpe. Pramanick estimated Intel will earmark about $4 billion for semiconductor capital expenditure in 2001. Such a drop may sound huge, he said, but it was not out of the ordinary, considering Intel's massive capital spending of about $10 billion over 1999 and 2000.
"The bottom line is that . . . if you are starting production in 2002, you don't have to order until 2001. That means the capex [capital expenditure] of that fab has been pushed back," Pramanick said.
Intel will refrain from commenting on the Prudential report specifically or its capital-expenditure plans in general ahead of its fourth-quarter results, said a spokesman.
The company will spend $1.5 billion on a flash memory fab in Colorado; $2 billion on a clean room at the company's Fab 22 in Arizona; it is also enlarging its logic Fab 17 in Massachusetts and installing a 300-mm capability in New Mexico, the spokesman said. "Now, does that look like we are cutting back?" he asked.
Mosesmann countered, "Things are happening in ways Intel has never foreseen." He said he would not be surprised to hear of more delays in the company's 300-mm rollout.
Rising inventory
UMC also said demand for its foundry services is starting to slow because of rising inventory levels among its customers. "Demand has fallen a little and we do see a softening in Q1," said Jim Kupec, president of UMC USA. "There was an expectation of higher growth rates that helped build up inventory to a higher level. Last year everything being built was being shipped as fast as it could."
After increasing its capital spending from $1.9 billion in 1999 to $2.8 billion this year, UMC will keep spending flat at $2.9 billion next year and $3 billion in 2002. That should be in line with a more moderate 12-to-15% growth in semiconductors in 2001.
The 300-mm fab UMC plans to build in Singapore will be its 11th wafer fab, and its third to produce 300-mm wafers. UMC will have a majority stake in the fab, while its process technology partner, Infineon, will have a minority share. The Singapore government will also contribute grants to fund the project.
Singapore was chosen for the site because of the its government's willingness to support the IC industry, and because it was an opportunity to expand into a new region. UMC was concerned about the small base of engineers there, but many jobs can be filled by workers from outside Singapore, Kupec said.
Jim Feldhan, president of Semico Research Corp., said that even if capital spending in other areas was to slow next year, foundries' investment strategies follow a different cycle.
"Historically, the time to invest is in a downturn so you are up and running when demand recovers," he said.
Groundbreaking on UMC's new fab is expected to begin in the next quarter, and the first equipment should move in by the third quarter of 2002. The fab will produce chips based on 0.13-micron and 0.10-micron design rules with copper interconnects and low-k dielectrics, a process that was developed by IBM, Infineon and UMC. Volume production should start in 2003, Kupec said.
Slow learners
Intel's slowing its fab construction plans is "ultimately, a good thing for the industry," said chip analyst Bill McClean, president of market research firm IC Insights Inc. In 2000, capital spending in the worldwide semiconductor industry was up 79%, he said, whereas 1999's capital spending was only 8% above the previous year. And worldwide MOS IC wafer capacity increased 24% in 2000, McClean said. Couple that with a falling economy, Nasdaq jitters and high interest rates, and it would appear the IC industry bit off a little more than it could chew in 2000.
"The industry needs to offset that 79% growth by the end of 2002, and I'm sure many companies will react quickly to the downturn," said McClean, who is based in Scottsdale, Ariz.
"They'll step on the brakes pretty quickly, resulting in a big capital-spending decline in 2001," he said. "I always hope that the industry learns something from the past, but then I see 79% capital-spending growth in 2000, and I realize we haven't learned anything." |
