September 21, 2006 – Despite a slow first quarter, chip production is expected to return to seasonal patterns with a strong 2H06 to deliver a total 12% increase in output this year, with utilization rates climbing to 95% for the final quarter, according to data from VLSI Research Inc.

Chip production fell nearly 1% in 1Q06 but rebounded 4% in 2Q, and VLSI expects “steady quarterly growth through the rest of the year,” given historical patterns for holiday demand ramp-up. The firm cited WSTS data that 77.8 billion IC units were shipped from January to July, 24% higher than the same period a year ago, with some segments well above that pace — NAND flash, for instance, has seen shipments soar 55% above 2005 levels.

However, chip capacity has not kept pace with production, growing 1.7% and 2.8% in 1Q06 and 2Q06, respectively, and chipmakers are expected to add only 2.5% capacity during the second half of the year, according to the firm. On an annual basis, chip capacity will increase about 6% vs. 2005 levels, to 6377 millions of sq. in., the firm stated.

The rise in output vs. slowing capacity additions means utilization rates are on the rise — hovering just above 90% through most of the year, VLSI projects rates will climb to 95% for the final three months of 2006.

Worldwide chip production and capacity (millions of sq. in. [MSI])

……….Worldwide ……….Worldwide ……….Frontend capacity
………….production……….capacity…………utilization rate