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Technology Stocks : C-Cube -- Ignore unavailable to you. Want to Upgrade?

To: Stoctrash who wrote (50747)	4/10/2001 4:50:02 PM
From: John Rieman	Read Replies (2) \| Respond to of 50808

Fab capacity to get tight again......................... eet.com Capacity shortage looms on far side of downturn By Will Wade EE Times (04/10/01, 3:44 p.m. EST) SAN JOSE, Calif. — The current semiconductor market downturn could suppress capital investment and set the stage for a shortage of production capacity two years hence after demand has resumed, according to the Fabless Semiconductor Association (Dallas). The shortage will be aggravated by the increasing dependence of major semiconductor players on foundry production, the trade group said. With the cost of a cutting-edge fabrication facility approaching $3 billion, "the list of companies that can afford to build a fab is getting smaller," said Jodi Shelton, executive director of the FSA (Dallas). Though the semiconductor market has hit a speed bump, the trend of suppliers to rely on external production is picking up speed, and when demand resumes it is likely to kick in at a double-digit pace, Shelton said. That could catch the foundry suppliers short. "The growth of the fabless market, coupled with the transition from the integrated device manufacturers, could pose a problem for the foundries," Shelton said. "There could be a major problem with the wafer supply in 2003." Foundries are finding the current climate for business a bit cooler than last year. Jim Kupec, president of U.S. operations for UMC Group, said UMC's fabs in Taiwan were running at about 75 percent capacity last quarter, and will struggle to remain at that level this quarter. This contrasts with last year, when UMC and its foundry competitors were reporting utilization rates over 100 percent, and were turning away business due to an inability to produce more wafers. UMC can remain profitable at utilization rates as low as 50 percent, Kupec said, but such rates do not allow for capital investments. Thomas Weisel Partners, an investment banking firm, pinned current fab utilization rates at close to 60 percent. Whatever the precise rate, foundries are trimming their capital budget this year from their original plan of $2.9 billion, to a more modest $1.5 billion, the FSA said. UMC invested $2.8 billion in fabs last year, but has put on hold all of its projects involving 8-inch fabs, while moving forward with plans for three 12-inch fab sites. "With the confluence of the return of demand, as well as fab projects around the world that have been cancelled or pushed out, it is likely that there will be a wafer shortage about six months after we see a return of demand," Kupec said. "That could happen in 2003; it's not an unusual scenario, although most people believe that demand will return sooner than that." Jim Hines, foundry analyst for Gartner Dataquest (San Jose, Calif.), said the shift to foundries by integrated device manufacturers (IDMs) has been picking up steam. "We are at a point now where the foundries are a viable manufacturing solution for the IDMs," he said. "We are starting to see some of the mid-tier IDMs adopt a fabless or nearly fabless business model." Dines said demand for foundries will increase at a moderate pace for the next few years, but could spike in 2003. Even though foundries are aware of the extra demand that could come from IDMs, "there is a very real risk of a shortage in 2003," he said. Foundries' 80 percent increase in capital spending in 2000 was unusual, so Dines put their projected 20 percent decrease in spending this year in perspective. "The fact is, the foundries are still spending money," he said. "And for every dollar spent, there is an increase in total wafer capacity." Kupec noted that capacity shortages are a normal part of the semiconductor cycle, and said that in the absence of a 90 percent fab utilization rate, "we would prefer a shortage situation to an overcapacity situation. Although we generally stay at that 90 percent rate for about a nanosecond as we move into an upturn, and for about that long on the other side as we move into a downturn."