Report from China: Fab planning active, but hinges on funding

by James Montgomery, News Editor

Many of China’s chipmakers are laying out investment plans to upgrade their facilities and capabilities over the next year or so — some with more ambitious plans than others — but most of the progress will rely heavily on timely financial support from government or public financing, according to an analyst who recently toured the region.

Semiconductor Manufacturing International Corp. (SMIC) is clearly at the forefront with planned fab expansions in Wuhan and Chengdu, and a “substantial” buildout at its 300mm fab in Beijing, noted Christian Dieseldorff, senior analyst at Strategic Marketing Associates (SMA), who called SMIC “the most progressive Chinese company I’ve ever seen.” But there are questions about how dependent those plans are on continued government support. SMIC’s Wuhan site was completely paid for by the government (~$1.2 billion), and the Chengdu 200mm site likely receives government assistance as well. Plans include filling out the firm’s 300mm/90nm megafab in Beijing, building a new cleanroom at Fab 4B with plans to equip in 2Q07, and a 300mm Fab 8 in Shanghai expected to start operations in late 2007 — an awful lot of work under an announced 2007 capex budget of just $700 million, he noted. “There’s no way they can do that for $700 million,” he said, suggesting that the company appears to be depending upon much more funding than anticipated.

Dieseldorff also was impressed by Grace Semiconductor Manufacturing Corp., which has brought in leadership from outside (e.g. Chartered, TSMC, and UMC), and has laid out “quite aggressive roadmap plans” — investing in 0.13-micron technology starting at the end of 2006, followed by 0.11-micron sometime in 2H07, and 90nm by the end of 2008-early 2009, he said. Grace also is looking to equip a second 200mm/0.15-micron module in its existing fab, and has a Fab 3 shell already built and also possibly ready to accept 300mm equipment, though how it would fund the larger wafer expansion is still unclear, Dieseldorff noted.

Taking the public funding route is He Jian Technology Corp., which is relying heavily on a planned IPO next year to fuel much of its expansion activity. The chipmaker’s plans for 2007 include expanding output at its Fab1B from its current 10,000 wafers/month rate to around 30,000 wafers/month (which would still total only 75% of that site’s capacity), and starting construction on its 300mm Fab 2, which SMA estimates will have capacity of 30,000 wafers/month. But all these plans depend on that successful IPO launch, noted Dieseldorff. “If they don’t get it, they have a big problem.”

Hua Hong Semiconductor also wants to install a 300mm line, but is awaiting a government decision about which of its parent group units will be approved to use the cleanroom in Shanghai. Dieseldorff noted that if sister business Hua Hong NEC gets the nod it will make it a 200mm site, and Hua Hong Semiconductor will have to look elsewhere for any 300mm expansion. Having already canceled equipment orders last winter while awaiting the approval (for a projected 45,000 wafers/month 300mm line), that could mean Hua Hong Semi could disappear completely, Dieseldorff said. He pointed to a similar fate for IC Spectrum, which this spring broke ground on what it hoped would be a 200mm/0.35-0.18-micron fab with 35,000 wafers/month capacity in 2007, but has ground to a halt pending desperate need for government funding and technology partners, Dieseldorff said, giving the business only a 30% confidence rating.

Also noted for its ambitions is CSMC Technologies Corp. (CSMC), which has hired a former US exec to head up international sales, an indication that the company is trying to branch out, according to Dieseldorff. CSMC’s plans are less aggressive than those of Grace or SMIC — most of its fabs are 150mm — but it does have a 200mm Fab 2 that was built for 0.18-micron processes, with first silicon projected for 1H07.

Other domestic chipmakers, including Shougang NEC and ASMC, are maintaining more conservative plans. ASMC’s Fab 3 (200mm) is putting out 0.25-micron devices, with plans to move to 0.18-micron in about two years and achieve maximum output two or three years out, Dieseldorff said.

A common theme heard among the companies pursuing more advanced technologies, especially SMIC, was a lack of experienced manpower, noted Dieseldorff. Nearly half of all workers have 2-4 years of experience, with another 25% having <1 year experience or are fresh out of grad school. Fabs can generally build a small core of key technology experts surrounded by a staff of less experienced workers, he noted, "but right now we have this sudden rush of new fabs coming up -- where are the people going to come from?" He applauded SMIC's efforts in trying to attract and retain workers, with programs geared toward families, e.g., providing housing, and even private schooling starting with kindergarten, with an international staff of teachers from Singapore, US, Europe, Shanghai, etc.

Another common complaint is that increased government involvement is slowing down the approvals process, particularly with respect to changing state assets to personal assets. Dieseldorff said that Hua Hong Semiconductor and Grace both have experienced problems with this, which can lead to missing ramps to meet customer demand. — J.M.


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