02/01/2002
Pieter "Pete" Burggraaf, Senior Technical Editor
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overview
Leading executives comment on current foundry capacity utilization and how key companies are prepared for the pending change in business with 0.18µm or better technology and 300mm wafer processing. All Asian foundries believe they are at the bottom of the industry down-cycle and see various positive signs that the recovery will begin this year.
In our last semiannual foundry watch, Asian silicon wafer foundries were encouraged for the long term, but sitting on a short-term busted rosy view, in fact the worst slump ever — a 5.7% downturn — in the short history of the silicon wafer foundry business [1]. In that report, an encouraging sign was that foundry-processed wafer prices were holding. Most foundries were looking for a recovery in the second half of 2001 with the likelihood of a boom period starting in 2002, driven, most likely, by both communications and PC systems. The major foundry players were still going ahead with 300mm fab-building plans.
To get an updated reading on the state of the Asian foundry industry, one needs only to turn to recent quarterly reports from Hsinchu City, Taiwan, foundry powerhouses Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC).
TSMC
The "1000 words" from "one picture" shown at TSMC's 3Q01 institutional investor's conference characterizes the state of many Asian foundries if not the entire semiconductor industry (see "Total IC industry capacity trends"). The same chart shows TSMC's fab utilization in excess of 100% for all quarters in 2000, but dropping precipitously (and unprecedentedly) in 2001 to 70% (1Q01), 44% (2Q01), and 41% (3Q01) [2]. TSMC's 3Q01 41% capacity utilization compared to 107% the previous year; for the quarter, resulting net sales were down 43% and unit shipments of 200mm equivalent wafers down 53% to 448,000 units shipped in 3Q01. One "uptick" in the TSMC quarterly report was that net sales from 2Q01 to 3Q01 increased 2% while wafer shipments remained flat.
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Showing TSMC's optimism for the future for its overall fab plan (Table 1), its 3Q01 operating expenses increased 31% compared to 3Q00, principally due to higher R&D expenditures for advanced technology and start-up expenses associated with its 300mm Fab 12. As a percentage of total sales, operating expenses rose to 18% in 3Q01 from 8% in 3Q00. TSMC's 2001 capital expenditures remain unchanged at US$2.2 billion with >50% committed to 300mm wafer fabs that will contribute toward capacity in 2002 and beyond. Total installed capacity managed by TSMC is expected to reach approximately 4.379 million 200mm equivalent wafers in 2001.
In TSMC's 3Q01 operations highlights, the company announced delivery of 130nm devices "with production-worthy yields" on 300mm wafers from its Fab 12. It is also "revitalizing" its ramp to 300mm for Fab 14 in Tainan. Reportedly, R&D expenditures in 3Q01 increased due to research efforts in 300mm, 150nm, 130nm, 100nm, and copper low-k process technologies. There is justification in this advanced research in that TSMC's year-to-year foundry business shows a shift to smaller geometries (Fig. 1).
TSMC spokesman Dan Holden told Solid State Technology, "For 4Q01 we are looking somewhere in the mid-40% [utilization] range, across all fabs and technologies. However, significantly more of this increasing capacity will use 0.18µm and smaller geometries, which increases revenues proportionately. In fact right now, our capacity at 0.18µm and below is about 80% utilized."
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One has to marvel at how Asian foundries stay prepared with the latest, most advanced wafer fab technology. For example, says Holden, TSMC has "the industry's only" open 100nm technology alignment initiative. "We are currently discussing design rules and other parameters with our leading partners and should have production processes at this node by the end of 2002. In addition, we are accelerating the development of process options at this node, including embedded high-density memory, embedded flash, low-voltage, and low-power options," he says.
TSMC also has customer-qualified products delivered on an all-copper, 130nm process using low-k dielectric options. "We expect to receive more than 100 designs at this process node by the end of 2001," says Holden.
 Figure 1. TSMC's 2Q01 to 3Q01 sales were up, showing an ongoing shift to smaller geometries, particularly 150nm. |
Noting that business is improving for TSMC, Holden said that TSMC's earnings have improved on a monthly basis since June and that executives expect this to continue incrementally at least through the end of the year. "At this point, we see no reason to expect that Q1 sales will be any lower than Q4," he stated.
Holden says, "We anticipate that our customers will deliver a number of exciting new system-on-chip-based products on several fronts, especially in the PC and consumer products segments, in the next few months. Innovation continues at a brisk pace in other segments,
including communications and networking, while the inventory burn expires and demand begins to resurface. We have said for the better part of this year that we are seeing tremendous innovation in our customer base, and this gives us great reason for optimism."
And, at UMC . . .
The 3Q01 financial report from UMC reveals much the same story [3]. UMC vice chairman Peter Chang said, "This was another challenging quarter for UMC and the entire semiconductor sector, during which we saw our capacity utilization down to a historical low of 36%." In 3Q01, UMC shipped 323,000 units of 200mm equivalent wafers, compared with 345,000 units for 2Q01 and 443,000 units for 1Q01. (These numbers do not include shipments from UMC-Japan, formerly Nippon Foundry Inc., a dedicated foundry in Japan that is 51.5% owned by UMC.)
For 3Q01, UMC's year-to-year net sales were down 59.4% and down 20.3% from 2Q01. Chang said, "The deterioration in net sales for the quarter mainly reflected the worse-than-expected semiconductor industry downturn and slow economic recovery. Average selling price [ASP] for the quarter declined quarter to quarter ~14% mainly due to the continued decline in demand from our communication customers that is the most significant portion of sales for 0.18µm and below technology."
Chang said, "On the positive side, we believe that this was the bottom for us in 2001 and expect to see a quarter-over-quarter improvement in sales in 4Q01. Furthermore, even in the worst quarter, our financial position continues to be particularly strong with cash inflows from operations and cash on hand."
Like its across-town rival TSMC, UMC is also planning for a future spurt in business in the not-too-distant future. Operating expenses for 3Q01 increased year over year by 55.6% or 31.1% of net sales for the quarter, from 8.1% for the quarter a year ago and from 20.8% for 2Q01. R&D expenditures continued to represent a large portion of operating expenses, as UMC views R&D as an integral part of its strategy to maintain advanced technology. In 3Q01, R&D expenditures, as a percentage of net sales, amounted to 19.4%.
 Figure 2. Inside view of SMIC Fab 1. (Courtesy of SMIC) |
At the same time, throughout 2001 UMC has been implementing cost-cutting programs to battle the deteriorating market and at least partially limit its impact on short-term profitability. For example, in conjunction with 2Q01 results, UMC decided to begin reducing its 200mm capacity by ~33%; this will be completed by 2Q02.
UMC remains committed to its 300mm expansion plan; a majority of its capital expenditures for 2001 have been destined for 300mm-processing equipment (in addition to some advanced copper modules for 200mm). The construction of its 300mm fab in Singapore (UMCi) "remains on schedule" despite an undetermined operations start date and will be the third such production facility available to the company (Table 2).
Chang said, "This downturn, for as sharp as it has been, is an opportunity for us to enhance our competitiveness. In fact, our investments in R&D as a percentage of revenues have remained well ahead of the rest of the industry. While we realize that this has not helped our short-term financial performance, we are confident that our commitment to accelerating the development of advanced technology will continue to make us the foundry of choice for the best companies."
On the business side, in 2001 UMC acquired more than 80 product tape-outs from over 40 customers that adopted its 130nm process. Also, successful pilot production in Fab 12A showed that 300mm wafer production can deliver better yield rates than 200mm wafer production. "The cost savings of 300mm wafer production will benefit our customers and UMC, when we reach the economies of scale associated with high-volume production," said Chang.
Elsewhere in Asia
What is the foundry capacity utilization message from other companies (Table 3) in Asia? Much the same. While all foundries are forecasting substantial improvement in 2002, the current utilization numbers are quite low. "Currently capacity utilization is 15%," says Steve Della Rocchetta, executive VP of sales and marketing at Silterra in Kulim, Malaysia.
Michael Buehler-Garcia, VP of worldwide marketing and business development at Chartered Semiconductor in Singapore, says, "We expect utilization levels to be in the low to mid 20s for 4Q01 after capacity utilization declined to 22% in 3Q01." Like others, however, despite the current downturn, Chartered continues to focus on the long term with ongoing investment in additional leading-edge capacity at 130nm and 100nm levels (Table 4).
Malaysia's 1st Silicon finds itself in the somewhat enviable position of being "able to adjust ramp plans to demand as we started volume production this year," says S-Y. Tan-Stahel, VP of marketing. "We are fortunate not to have to sit on idle capacity built up years ago, like other fabs."
L.T. Guttadauro, director of sales development at Amkor in Buchon, Korea, says, "Utilization is improving and is a function of each process line. For example, 0.35µm and 0.25µm are in moderate utilization, but 0.18µm is in heavier utilization."
Overall, the indicators are favorable from Asian foundries. Amkor's Guttadauro says, "We were 16% ahead quarter to quarter for 3Q01 and the outlook is positive for the remainder of the year."
 Figure 3. SMIC office/support building. (Courtesy of SMIC) |
While no one has a crystal ball and 2002 forecasts in general are still unclear, Chartered does indeed see signs of a recovery. Buehler-Garcia says, "We are especially encouraged as we look at the movement of our top 30 customers who comprise 80% of our revenue base. Back in 1Q01, two thirds were sequentially down from 4Q00. In 2Q01, that figure rose to 85% of the top 30 reporting sequentially down. It abated some in 3Q01 to a sequential decline of about 50%. For 4Q01, 18 of these same 30 customers have projected modest increases in their revenue and just eight have projected lower revenues. We believe the positive outlook of our current customers is a good indication that the industry is poised for recovery."
Buehler-Garcia also notes that he has seen an increase in design activity, including discussions and formal design reviews. "Although we have yet to see that translate into significantly more released tape-outs, the increased design activity suggests companies will be ready to move quickly when the market turns," he says.
1st Silicon's Tan-Stahel, says, "While our visibility is narrower, customer 'loadings' following product qualifications are continuing and increasing at our fab, and we have tape-outs being qualified right now. So, we do see business being booked following qualification. However, we don't believe it's a representation of worldwide demand. Based on the increasing utilization rate reported at major foundries and the continued three to four months sequential growth in sales at these foundries, we believe the global demand for wafers is improving."
 Figure 4. Two workers discuss operations at SMIC Fab 1. (Courtesy of SMIC) |
Clearly, the message is that Asian foundries are preparing themselves with the latest wafer fab technology that will be needed as the semiconductor industry once again turns on. Tan-Stahel says, "We expect that everyone is using this slow-down period to focus on next-generation technology and technology development." Guttadauro says, "We are aggressively telling customers and prospective customers to qualify alternate sources of production now because during an upturn it will be too late to qualify and foundries will be too busy with production. I suspect a shortage of 0.18µm capacity and below."
Buehler-Garcia, says, "Foundries in general have really taken a technology leadership position in many areas of manufacturing." Chartered, for example, is very far along an aggressive roadmap that includes advanced processes down to 100nm, state-of-the-art manufacturing capabilities such as 300mm wafers, and innovative materials usage such as low-k dielectrics. "But moving forward, success will require more than leading-edge technology. Success will depend on foundry relationships.
And, the "turn-on" IC will be . . .
1st Silicon's SY Tan-Stahel says, "Although there have been reports of some expectations of nearer-term volume demand in the DVD, PC replacement, and communications products markets, there aren't any obvious killer applications in the industry at the moment. We see many new designs in 0.18µm and some pushing the technology envelope of 0.13µm."
Della Rocchetta at Silterra says, "Bluetooth will be big and so will 2.5 and 3 "G" cell phones. Communications will continue to grow and will make up a large percentage of our product mix."
According to Chartered's Buehler-Garcia, "It probably won't be a single product, but in general, we believe that the convergence of communications with computing and consumer products will be the growth engine for the semiconductor industry. More and more, devices need to communicate, and communicate at higher bandwidths, with the outside world either through high-speed connections or wirelessly."
References
- Pieter "Pete" Burggraaf, "Slow Business Doesn't Discourage Asia's Silicon Foundries," Asia Pacific: A Supplement to Solid State Technology, pp. S9-S34, August 2001.
- 3rd Quarter Earnings, p. 12, October 26, 2001, www.tsmc.com.tw/investor/pdf/conference3q01.pdf.
- UMC Reports Third Quarter 2001 Results, www.umc.com/english/pdf/013q_report.pdf.
Pieter "Pete" Burggraaf has more than 25 years of experience in the semiconductor industry, including work at Motorola, Siemens, and ASM. He can be reached at 875 S. Yucca Dr., Wickenburg, AZ 85390; ph 928/684-1265, fax 928/441-3139, [email protected].
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Total IC industry capacity trends
IC Insights, Scottsdale, AZ, keeps a close watch on IC capacity trends as an indicator of future IC average selling prices (ASPS) and overall IC industry strength. The volatile nature of the IC industry is reflected in the large swings in annual wafer starts. The figure shows annual worldwide IC capacity utilization rates for 1993 through 2001 compared to the change in IC ASP. High utilization figures (i.e., 93% or greater) indicate a booming market and rising IC ASPs, whereas utilization rates <93% typically reflect a weakening market and sometimes declining ASPs. The 2001 utilization rate is forecast to be only 71.7%. This extremely low capacity utilization figure will be directly reflected in the record 16% IC ASP decline forecast to occur in 2001. (Source: November 2001 update to The McClean Report 2001 Edition, IC Insights Inc., www.icinsights.com)