New round of fab cutbacks sweeps chip industry
By Jack Robertson and Robin Lamb
EBN
(06/01/01 14:30 p.m. EST)
A new wave of fab cutbacks is sweeping the semiconductor industry as producers scale back capital expenditures to counter the unrelenting industry slump.
From Europe to Taiwan and Japan, more chip makers and foundries are focusing solely on technology- and cost-driven upgrades and trimming other capital spending as plant utilization drops to about half of last year's levels.
Japanese and Taiwanese companies are leading the latest round of capex cuts. Taiwanese chip makers, which trimmed fab spending 44% in the first quarter, will scale back even further this quarter, according to Semiconductor Equipment and Materials International.
The industry association survey released this week indicated that Taiwan Semiconductor Manufacturing Co. Ltd. has reduced its capex projection for 2001 by 40%, to $2.2 billion, and United Microelectronics Corp. cut its capex nearly in half, to $1.5 billion.
“They stopped building immediately when capacity [utilization] fell off,” said Lucas Ward, an analyst at J.P. Morgan Chase & Co., Minneapolis. “If you're starting at a 35% base, it could be a while before you are full and have to add capacity. TSMC could double its utilization and it still wouldn't be full.”
Going by their current fab utilization rates, TSMC, UMC, and Chartered Semiconductor Manufacturing Ltd. in Singapore have ample reason to slash their capex budgets. TSMC and UMC fabs are running at about 45% of capacity and Chartered is in the 30% range, said Ward.
Japanese chip companies are not faring any better. The leading chip makers, which had sequentially increased capital spending 32% during a first-quarter splurge, will scale back in the coming quarters, according to Banc of America Securities Inc., San Francisco.
Mark FitzGerald, a Banc of America analyst, estimates that Taiwan's chip makers have cut capex spending by 50% to 60%, particularly among the foundries, while Japan will cut 18% to 20%. Overall, capex cuts average 25% to 30%. U.S. chip capex will continue to suffer a 25% to 35% fall during the rest of this year.
As if punctuating the continuing fab scale-back, Geneva-based ST- Microelectronics and Japan's NEC Corp. this week each announced further capex and workforce reductions. STMicro said it is cutting its 2001 capex 21%, to $1.5 billion from original projections of $1.9 billion, and that it will close a wafer fab in Ottawa.
NEC also said it is scaling back an expansion of its joint venture fab, Hua Hong NEC Electronics Corp., Shanghai, by cutting its fab investment this year by 43%, to $170 million. NEC will also delay a major fab expansion in Hiroshima, Japan, and a fab in Roseville, Calif.
The fast pace of capex slashing “came abruptly,” said Sue Billat, an analyst at Robertson Stephens Inc., San Francisco. “When chip makers realized they were way overbuilt, they stopped immediately and we had the fastest contraction the semiconductor industry has ever seen.”
However, the spate of capex cuts has not touched technology upgrades, according to analysts.
“Integrated manufacturers and foundries are buying equipment to move to copper from aluminum and to 300mm wafers from 200mm wafers,” Billat said. “The industry was going to move from aluminum to copper and go to 300mm wafers regardless [of the downturn]. So that change has been planned and is under way. But it was the economic downturn that resulted in the [reduction of capacity spending].”
For the foreseeable future, there will be a surplus of global capacity as fab use rates continue to fall, said Jonathan Joseph, an analyst at Salomon Smith Barney Inc., San Francisco. He expects global fab utilization in the second quarter to fall even more than the 84.2% rate the Semiconductor Industry Association reported for the first quarter. In turn, that was down from 93.4% in the fourth quarter.
“The utilization numbers are only likely to get worse in the second quarter, given that foundries like Chartered Semi are reporting that their own second-quarter utilization rates have fallen to 35% to 40%,” Joseph said. |
