What the Recovery Will Look Like
However, even with the current slowness in new fab starts, we believe that new fab activity between 1997 and 1999 will be strong. Strategic Marketing Associates' International Fabs on Disk, marketed by SEMI, counts at least 133 new fabs or new fab lines that will open during this time. Of these, 117 have been announced. These fabs, when fully equipped, collectively will bear a price tag of more than $90 billion in facilities and equipment. Fifty of these fabs will cost $1 billion or more. Indeed, $1 billion fabs are becoming the vin ordinaire of the industry: at least 14 of these fabs will cost $1.5 billion or more when fully equipped (See Table 2).
Table 2
$1.5 Billion Plus Fabs
(1997-1999)
Company Location
Advanced Micro Devices Dresden, Germany
Chartered Semiconductor Singapore
Hyundai Ichon, South Korea
Hyundai Dunfermline, Scotland
Intel Leixlip, Ireland
Intel Kiryat Gat, Israel
LG Semicon Newport, Wales
LG Semicon Chongju, South Korea
Motorola West Creek, Va.
NEC Kyushu, Japan
Samsung Kiheung, South Korea
Samsung Austin, Texas
Texas Instruments Dallas, Texas
White Oak Semiconductor Richmond, Va.
Source: Strategic Marketing Associates (November 1996)
$1.5 billion is a lot of money to pay for a fab, and so is the $1 billion vin ordinaire. Not too many companies can afford to build fabs of this magnitude. One response of semiconductor companies, both big and small, to these hefty price tags is to form joint ventures. Such agreements will account for more than 20 percent of the new fabs in the next three years. By far most of the planned joint ventures are DRAM fabs. However, foundries and joint ventures involving fabless semiconductor companies also account for almost one-third of the planned joint ventures.
The Western Rim of the Pacific: Where the Markets and Fabs Are
In spite of the tumble that DRAM prices have undergone in the last year due to overcapacity, DRAM fabs will account for almost 50 percent of the industry's new capacity in the next three years. Much of this new DRAM capacity will be added in the Asia-Pacific region. Some companies in this area, such as Hyundai and LG Semicon, are striving to gain market share. Other Asia-Pacific companies see DRAMs as their entrance ticket into high-tech manufacturing.
But Asia-Pacific is not just DRAMs - it is also foundries, as companies like TSMC, UMC and Chartered Semiconductor continue to build leading-edge capacity. TSMC, for example, is building a $1.3 billion joint-venture fab (Wafertech) in Camas, Wash.
Indeed, more fabs will be built in Asia-Pacific countries (South Korea, Taiwan, Singapore, Malaysia, Thailand and China) than in any other region, including North America or Japan. This is only natural as more and more electronics are consumed in the Asia-Pacific region. By 1999, according to the latest forecast by the Semiconductor Industry Association, consumption of chips in the area is projected to surpass that of Japan. Factories go where the markets go. Ask Motorola: It is building an 8-inch, 0.5-micron fab in Tianjin, China. Or ask SGS-Thomson: It is building a $1 billion 8-inch, 0.5-micron fab in Singapore. Or ask NEC, which is in a joint venture in China with Shougang Electronics to produce 16 Mbit DRAMs. Or ask Philips or Northern Telecom, joint-venture partners in ASMC, a new foundry in Shanghai. Or ask Texas Instruments, which has joint ventures with partners in Taiwan, Thailand and Singapore.
In the next three years, Asia-Pacific will account for an astounding 40 percent of all new capacity coming on-line. Again, that's where the markets are. However, many of the fabs to be built in Asia-Pacific will be either owned by offshore companies, such as SGS-Thomson in Singapore or Motorola in China, or will be joint-venture fabs with major partners from Japan, North America or Europe. Examples of these include Mitsubishi, which has a 15 percent equity stake in Powerchip and Siemens, partnered with Mosel-Vitelic in ProMos. Texas Instruments has partnered with a Thai entrepreneur, Cham Uswachoke, to form a DRAM company, Alpha/TI. Still, when these joint ventures and offshore ownerships are factored out, Asia-Pacific companies will still account for more than 25 percent of the world's new capacity in the next three years, more than U.S. companies or Japanese companies.
In Conclusion
The sun has set. It is still winter and rain. But by the end of 1997, our industry will build more than 133 new fab lines. Fifty of these fabs will cost more than $1 billion. New fab activity is at its low point now, but by summer it will have begun recovery. Even now, Asia-Pacific shows more activity than any other region. The semiconductor industry, besides its continuing technological revolution, is witnessing the emergence of a fourth industrial power: Asia-Pacific. Indeed, the countries of Asia-Pacific have targeted the semiconductor industry as a key steppingstone to their summer in the post-industrial, information-age sun. |
