Underutilized Foundries Add Capacity
By Dylan McGrath
Despite rampant overcapacity within the silicon foundry sector of the semiconductor business, the world's largest dedicated foundries continue to load on additional capacity in preparation for an economic upturn.
Although analysts estimate that overall foundry capacity utilization for 1998 will be only 60-70 percent, the world's three largest dedicated foundries, Taiwan Semiconductor Manufacturing Co. (TSMC), United Microelectronics Corp. (UMC) and Chartered Semiconductor Manufacturing, all confirmed plans last week to add additional capacity.
TSMC announced last week that it will partner with Royal Philips Electronics and EDB Investment of Singapore to build a $1.2 billion, joint venture fab on the island nation's Pasir Ris Wafer Fab Park beginning in 1999. The companies expect the still unnamed joint venture foundry to begin production in the second half of 2000, ramping up to full production in 2003.
The facility is supposed to begin production as a 200mm fab, but Rick Cassidy, TSMC VP of North American business operations, said it could be upgraded to 300mm when the equipment is available. Equipment purchases for the facility are expected to take place during the first half of 2000. The facility is expected to produce logic chips in feature sizes of 0.25-micron, 0.18-micron and below under 7,000 square meters of Class One cleanroom.
"Our projections show that by the time this facility comes on line late in the year 2000, the market for logic chips will be strong," said Arthur van der Poel, chairman and CEO of Philips Semiconductors.
Philips will be the largest shareholder in this venture with 48 percent of the shares. TSMC will hold 32 percent of the shares, and EDB Investments the remaining 20 percent of the shares. Philips and TSMC will be able to call on 60 and 40 percent of the capacity, respectively.
Philips and TSMC have had a relationship since 1987. Philips was one of the major founding shareholders of TSMC and now holds 27.6 percent of TSMC shares.
"Philips Semiconductors has been our long-term partner and customer for many years. We're pleased to be building on our already strong relationship with Philips Semiconductors," said Morris Chang, chairman of TSMC.
The JV is the second that TSMC has entered into outside of Taiwan. TSMC also owns a majority stake in Wafertech, its Camas, Wash.-based JV with Altera, Analog Devices and Integrated Silicon Solutions. Wafertech produced its first revenue wafers in June (EN, June 29).
Despite the fact that a TSMC spokesman said the overall company is currently running at about 75 percent capacity utilization, TSMC appears to be positioning itself for an upturn. "I think being a leader provides certain prerogatives that allow you to look long-term rather than the immediate market conditions," Mr. Cassidy said, referring to a recent Dataquest forecast that predicts 11.8 percent growth for the semiconductor industry in 1999. "Dataquest is out there talking about expansion. That is consistent with what we are seeing among our customer base. We think the market will be picking up at a robust pace in 1999."
Meanwhile, the world's No. 2 dedicated foundry, UMC Group, took steps to expand its total capacity by acquiring a majority stake in Japan's Nippon Steel Semiconductor. UMC Group expects to take control of the operation by the middle of December. This would be UMC's first expansion outside of Taiwan. According to UMC, it purchased 56 percent of Nippon Steel Semiconductor for 1.5 billion yen ($11 million). The remaining 44 percent of the company is owned by banks (12 percent), institutions (7 percent) and public investors (25 percent).
The acquisition includes controlling interest in two fabs, both of which are located in Japan. One of the fabs has the capability to process 23,000 150mm wafers per month, while the second can process 15,000 200mm wafers per month. A UMC spokesman said the company will transfer its 0.25-micron process to at least the 200mm fab, and possibly both, soon. UMC will change the name of the operation, which it bills as the first dedicated foundry in Japan.
The decision to add the capacity in Japan came just two weeks after UMC froze a plan to invest $14.5 billion in five fabs (EN, Sept. 21) in Taiwan's second large industrial park, the Tainan Science-based
Industrial Park (TSIP). At the time, UMC said it would look to acquire existing facilities outside of Taiwan by the end of this month.
A spokesman for UMC, while unable to quantify the company's overcapacity situation, said it "varies from fab to fab." For example, he said, UMC's Fab 2 in Hsinchu, a 0.4-micron 150mm facility, is running at full capacity and "has a three-week waiting list." He said demand for 0.25-micron capacity is picking up, also.
UMC last week was rumored to be in discussions to acquire wafer capacity owned by Rockwell Semiconductor. UMC declined to comment on the report, but Rockwell issued this statement: "As part of our strategic development planning, we are studying the best way to structure our new company. We have made significant investments in our people, process technology and fab infrastructure which are critical to our success, now and in the future. We have no plans to give up ownership of these strategically important resources."
Meanwhile, Chartered Semiconductor Manufacturing Corp., the world's No. 3 dedicated foundry and No. 4 in foundry work overall (IBM Microelectronics is ranked No. 3 by Dataquest), said it was going forward with the construction of its joint venture with Lucent Technologies, Silicon Manufacturing Partners, despite rumors to the contrary.
Rob Baxter, senior VP of business operations for Chartered, said last week that the ramp-up schedule for the fab has remained intact for the last several months and that the joint venture would begin producing wafers sometime in 2Q99.
Chartered and Hewlett-Packard jointly placed their joint venture, Chartered Silicon Partners, on hold in August when it became apparent that the additional capacity was not needed and Chartered could satisfy HP's requirements with existing capacity (EN, Aug. 17).
"We, like most companies, do have excess capacity," Mr. Baxter said. "But we plan to grow our capacity dramatically this year by 30 to 40 percent, and we are experiencing 20 percent sales growth, even though we do not have fully utilized capacity."
Joanne Itow, an analyst with Semico Research, said of the developments, "When the demand is there, they want to be able to provide capacity. That's one of the reasons why their customers are so loyal_they know that TSMC (for example) is going to be there and be able to supply them whether they need 1,000 wafers per month or 5,000 wafers per month, or whatever. They have seen the market when there is a very healthy demand and they have been capacity constrained." She estimates foundry utilization at 75-78 percent.
Mike O'Brien, an analyst with Stamford, Conn.-based SoundView Financial Group, estimates capacity utilization among dedicated foundries is even lower, somewhere in the 60-65 percent range. "And that's coming up," he said, "coming off a low that maybe got into the mid-50s. We are kind of trending up. We should see some relief at the end of this year." Mr. O'Brien predicted the uptrend would continue through the end of 1998, followed by a lull in 1Q99. He said 2Q99 should see things pick up again, with utilization rates rising into the 80 percent range.
Joe Grenier, VP and director of San Jose-based Dataquest's semiconductor device programs, indicated that the foundry oversupply situation should continue to exist for some time. "The semiconductor market will continue to confront oversupply," he said. "The foundry oversupply will persist for the next 18 months and the DRAM oversupply will last until mid- or late 2000." |
