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iSuppli marks point of semiconductor fab utilization rate recovery

07 May 2009 | By Mark Osborne | News > Fab Management

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Having reached a low point in the first quarter of 2009, global semiconductor fab utilization rates are expected to bounce back in the second quarter and see a gradual rise through 2010, according to Len Jelinek, Director and Chief Analyst, Semiconductor Manufacturing at market research firm iSuppli Corp. Fab utilization plummeted to 49% in 1Q09, down from 71% in 4Q08 and 87% in 3Q08 as the global recession and over capacity in the semiconductor market forced manufacturers to idle tools and in some instances close fabs for periods of several weeks.

According to iSuppli, supply and demand is coming back into a better state of balance as utilization rates hit possibly an all time low in 1Q09. Total semiconductor manufacturing capacity declined to 732 million square inches of silicon in the first quarter of 2009, down from 756 million square inches of silicon in the fourth quarter of 2008.

“The expected rise in utilization rates in the second quarter signals the semiconductor industry has entered into the recovery phase,” noted Jelinek, “Semiconductor suppliers already have cut their fab workforces and have shut down pieces of manufacturing equipment that they have identified as excess gear that is not needed to serve the present low level of demand. These actions are paying off, boosting utilization rates at these fabs.”

This development will also help IDM’s and foundries in particular return to revenue growth in the coming quarters. However, pricing in the memory market would need to improve more before that sector returns to real revenue generation.

“Depending on how effectively they’ve cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow,” Jelinek said.

Fab utilization is expected to rise to 75% in 3Q09 before a slight decline Q4. After remaining flat in 1Q10, utilization will resume a sequential ascent during the following quarters, according to Jelinek.

Jelinek also discussed the phases IC manufacturers go through to manage downturns, noting there are 5 phases to a cycle and recovery.

“In the first phase of the downturn, semiconductor capacity and utilization remains at a high level, although demand for chips is beginning to decline,” Jelinek observed. “The global semiconductor industry was in this phase in the second and third quarters of 2008.

“In the second phase, amid dramatic reductions in demand and an inability among chip suppliers to forecast the time of a sustainable recovery, companies are forced into making decisions regarding factory operations. At this time, suppliers institute their first cut in the manufacturing workforce, usually in the form of reductions in machine operator staffing.”

In the third phase a number of tools are idled which causes a decline in capacity but a rise in the utilization rate of the tools still in production.

In the recovery or phase four, IC manufacturers can often experience better margins than before the downturn. This is accomplished through a judicious use of working overtime by the existing staff to cover any short-term shortfall in capacity. During this period, which Jelinek expects to occur in June 2009, fab utilization will continue to rise.

This is stage five, when capacity utilization recovers to levels seen before the downturn. iSuppli expects stage five to commence around the end of second quarter of 2010.

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