Capital investments by chipmakers will grow 42% this year to $43.6 million, nearly an all-time high, but the most aggressive spenders are to be found in the foundry sector, according to a recent report from Strategic Marketing Associates (SMA), Santa Cruz, CA.

Foundries’ spending in 2004 will more than double to $10.4 billion, accounting for 24% of overall chipmakers’ spending, up from 16% in 2003 and 21% in 2002. (SMA’s original tally of $9.9 billion was bumped up in the past month due to two additional foundries coming online in China.) While chipmakers’ spending levels still are far short of the $61 million peak reached in 2000, foundry spending is at record levels both as dollar figures and as a percentage of total spending.

After being noticeably quiet during 2003, the top three foundries — TSMC, UMC, and Chartered — have flung their wallets wide open in 2004. However, despite year-on-year spending increases of 82%, 187%, and 217%, respectively, the “top three” will be outspent by the rest of the foundry industry, which is projected to double its collective investment in 2004 to $5.6 billion, roughly 54% of overall foundry spending. That’s a far cry from 2000, when TSMC, UMC, and Chartered accounted for 81% of the overall $9.5 billion in foundry funding. Meanwhile, China’s foundries, barely a blip on the radar screen in 2000, spent as much as the big three in 2003, and also are projected to double their spending in 2004, accounting for a solid 40% of total foundry spending.

Nearly 80% of foundries’ total spending will go toward 130nm and 90nm capacity, according to SMA, with most of that coming from TSMC, UMC, and Chartered, primarily for their 300mm fabs. SMA anticipates as many as six foundries will come online in 2005 (four for 300mm operations), boosting capacity of 200mm-equivalent wafers by 243,000 wafers/month, and possibly fueling another period of overcapacity in early 2005. With six major domestic foundries adding capacity, China is expected to increase capacity by 64% this year, adding 140,000 in equivalent 200mm-wafer capacity — nearly two-thirds of which coming from SMIC.

Although China’s growth potential initially has been tied to demand at higher nodes, SMA president George Burns thinks that the region soon will have a presence in leading-edge process technologies. SMIC is building two 300mm fabs in Beijing (for those keeping score, that’s two more than Silicon Valley) and is involved with DRAM production for Infineon and Elpida, as well as foundry work for Texas Instruments. Smaller foundries such as Grace “right now are not leading-edge, and they’re not trying to be,” said Burns, but they will look toward more advanced processes once they establish their niche. “If I were TSMC and UMC, I’d stay awake a few nights by the competition posed by the China fabs,” he added.