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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Return to Sender who wrote (1081)	8/25/2001 12:05:21 PM
From: Didi	Read Replies (1) \| Respond to of 95596

Excellent article, Return. Many thanks. The below info might be of interest to astute investors and engineers here. Enjoy... Di ================================= icknowledge.com >>> How has the current downturn effected foundry costs? The current semiconductor industry downturn has significantly reduced utilization rates at wafer foundries. Wafer News Confidential has projected approximately 40% utilization for UMC and 50% for TSMC as lows expected in the second and third quarters. Others have reported lower projections and some foundries may bottom out at 35% or less. Since Wafer Fabs are high fixed cost facilities, and wafer cost increases dramatically as utilization declines, the low utilization rates will hit profits hard. By using the IC Knowledge 2001 IC Cost Model we can look at exactly how hard profits may be hit. According to the Fabless Semiconductor Association as quoted in Silicon Strategies on May 15th, 2001, the average selling price for a 200mm - 250nm minimum linewidth wafer is $2,569/wafer. By assuming the average wafer is a CMOS logic wafer with 6 layer aluminum, we can model wafer cost versus utilization. Furthermore, for this example we have selected Taiwan as the home country to the Fab we are modeling. Taiwan allows 3 year depreciation schedules and so most 250nm Fab equipment is fully depreciated lowering costs. For a 95% utilization rate such as might have been seen a year ago, we calculate a 50% gross margin, at 50% utilization the margin drops to 24%, and at 35% utilization a negative margin is calculated. Please note that net income is gross margin minus below the line costs so that even a 24% gross margin may result in negative net income. Update: No sooner had we posted this article than the FSA announced new figures for average wafer prices (see Silicon Strategy 8/21/2001). The new figures for 200mm - 250nm wafer cost is $1,958 for IDMs and $1,857 for Fabless companies. Based on these new numbers we calculate that a 95% utilized Fab would have margins of 33%, at 50% utilization margins would be -3% and at 35% utilization margins would be -35%. Even assuming that 250nm equipment is now fully depreciated (which may be true in Taiwan), then at 50% utilization margins would be 32% and at 35% utilization margins would be 15%. We believe that even in Taiwan at less than 50% utilization margins are near zero.<<<