Hope dims for second-half turnaround, foundries say
By Mike Clendenin
EE Times
(08/02/02 03:47 p.m. EST)
TAIPEI, Taiwan — The post-PC era may have already arrived, but try telling that to the chip makers in Asia that are responsible for supplying a large chunk of the world's ICs. Despite a recent uptick in demand for chips used in enterprise communications equipment, storage systems and consumer electronics, sluggish PC demand is dragging down business at foundries in Taiwan and Singapore and dashing their hopes for a second-half turnaround.
Tough decisions lie ahead for Taiwan's Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. and for Singapore's Chartered Semiconductor Manufacturing, all wallowing in a capacity glut since early last year. TSMC and UMC say they will have to trim equipment purchases until the environment improves. For TSMC, that means scaling back its 300-mm-wafer production plans, even though archrival UMC says its cuts will only affect its existing 200-mm wafer fabs.
"There is a Chinese proverb that the dumb bird will fly first. So people are waiting for others to make the first move," said Harvey Chang, TSMC's chief financial officer. "Customers are not as enthusiastic as we thought they would be, which is understandable because [300 mm] is something new."
The downhill roll came to light a few weeks ago, as Intel Corp. and Advanced Micro Devices Inc. warned of lackluster sales for the current quarter and a slower-than-expected recovery. After announcing respectable first-half growth, all three top-tier foundries acknowledged that the nascent chip recovery was already sputtering. Even Morris Chang, CEO of TSMC and part-time cheerleader during the downturn, acknowledged a "pause" in demand.
At Chartered, which in the second quarter posted its sixth consecutive loss, computer revenue reached its highest point since the fourth quarter of 2000. But PC customers are growing conservative, said Chia Song Hwee, president and CEO. "So we are seeing some weakness in that area now. Wireless has been stronger than wireline, and we will continue to see that in the third quarter." Sales in communications doubled sequentially in the second quarter.
Familiar story
A similar story is unfolding at TSMC, which has seen sequential growth since it hit bottom in the second quarter of last year. There has been a weakening in graphics chips, namely from Nvidia Corp., and in PC core logic. Strong growth has come from the wireless segment, for chips used in mobile and cordless phones and in wireless LANs. Ethernet switches, network interface cards and ADSL chips also showed good growth in the recent quarter. On the consumer side, chips for DVD and VCD players, digital cameras and set-top boxes carried the day.
But the drag of the computing segment is heavy. Nvidia, one of TSMC's top customers, warned last week that its Q2 numbers would fall far short of an earlier prediction of 1 to 3 percent revenue growth from the $582.9 million reported in the first fiscal quarter. The company is feeling the pinch from Intel's integrated graphics chip set, inventory buildup from poor PC sales and tougher going in Xbox ICs.
Another top customer, Via Technologies Inc., is seeing sales erode for its core chip sets.
Such anecdotal evidence reflects growing skepticism among analysts about the prospects for a PC rebound. Recently, Gartner Dataquest amended its view of PC growth in 2002, saying shipments would rise between 2 and 4 percent. Its previous estimate was 5 percent.
Poor visibility
Even though some chip makers and design houses are predicting growth in the third quarter, the numbers aren't strong enough to justify capacity expansion. TSMC president Rick Tsai said poor visibility — only about two months, or roughly one manufacturing cycle — is a major factor in his company's decision to cut capital-spending plans from $2.5 billion to below $2 billion.
Some of that will be felt in the 300-mm wafer ramp. "We will invest mostly in 300 mm and 0.13 micron; however, the pace of our 300-mm ramp will be slower than what we planned a few months earlier," Tsai said.
TSMC expects to produce 10,000 of the 300-mm wafers per month by year's end, down from an earlier estimate of 13,000. Customer concern about maintaining equivalent yields with 200-mm wafers, and about overall costs in the early stages of 300-mm introduction, is prompting a wait-and-see attitude.
At UMC, too, a cautious customer outlook led the foundry to reel in capital spending for 200-mm wafer capacity expansion, bringing its total budget down to $1.3 billion from $1.6 billion. But UMC says its 300-mm program remains on schedule.
The company "remains committed to spend in full the amounts originally budgeted for Fab12A [300-mm-wafer] capacity expansion and 130-nanometer copper modules," UMC said. The cuts will affect expansion of 8-inch capacity at Fab 8F.
UMC said this past week that its balance sheets improved in the second quarter as demand for 0.18-micron and below grew to 23 percent of revenue from 15 percent in Q1, helping the company return to operating profitability. "Strong demand growth from our customers, in particular from the consumer and communications sectors, was the main driver," said CEO John Hsuan. "We expect to see further market share expansion in coming quarters."
UMC's fabs hit 72 percent utilization in the second quarter, vs. 50 percent in the first. But wafer shipments for the third quarter are expected to decline by some 5 percent. To balance that, ASPs are expected to rise 10 percent sequentially because of a better product and technology mix. Thus, UMC predicts that operating income should show sequential growth.
Uncertain demand
Chartered reports seeing "mixed signals" in end demand, but also expects modest overall growth in the second half and a return to "robust" growth in 2003 and '04. CEO Hwee acknowledged that he doesn't have much visibility beyond six to eight weeks. The company has no firm orders beyond that, so its guidance is based mostly on customer forecasts — which could change, for better or worse, as the fall and winter high seasons approach in the United States.
Chartered expects utilization to hover in the low 40s for Q3, including a 4 percent rise in capacity. It predicts that losses will narrow slightly, to under $90 million. Closing that gap will depend somewhat on success with ramping its advanced technology. On its 0.13-micron process, the company said it is making steady progress in catching up with competitors in Taiwan.
Currently, the foundry is working with four customers on tapeouts of five products. Chartered has so far completed about 40 test chips and prototypes on its 0.13-micron process. "Low-k material development is ongoing, and we expect to achieve production status in the fourth quarter," Hwee said.
Looking to next year, all three foundries expect to generate more respectable revenue from 0.13 micron. As a result, they said, ASPs should improve.
The hanging question is whether the industry — which is coming off its worst year ever and expects an estimated at 3.1 percent growth this year — can also turn in more attractive gains. The Semiconductor Industry Association is calling for 23 percent growth in 2003, to $177 billion, and 20.9 percent in 2004, to $213 billion. Yet under a withering barrage of bad news, the hope of such growth is fading.
"We believe that the growth for the semiconductor industry will be lower than that number," said TSMC's Tsai. |
