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Semiconductor fab capacity limits could spell boom for industry

09 April 2009 | By Mark Osborne | News > Fab Management

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Seeing through the current thick fog that shrouds over the semiconductor industry isn’t easy and few have dared to call an industry recovery just yet. However it seems there are positive signs that when a recovery starts there will be a significant lack of capacity to meet demand, fuelling a hike in IC prices and a boom for the industry, according to Malcolm Penn of Future Horizons.

Penn noted in a research report that wafer fab capacity showed a surprise decrease of 1.7% in the fourth quarter of 2008. In the same period for 2007, capacity increased 1.3%. Capacity reductions have yet to reach bottom, according to Penn.

“Given the continuing slowdown in 2009 cap ex, low levels of capacity expansion – possibly further declines – will continue throughout 2009.”

Fab utilisation rates also fell in the fourth quarter to 69.5% down from 87.5% in the third quarter. In the previous year, utilisation rates were running at 90.7%. Advanced process node fabs (0.08 micron and below) saw utilisation rates fall to 84.7%, while 300mm and 200mm wafers checked in at 83.8% (Q3 = 96.5%) and 57.3% (Q3 = 84.3%) respectively.

Penn noted that the massive decline in IC sales from September, 2008 onwards saw a quick reaction from IC manufacturers to cut production and prevent a serious inventory build that could have delayed a recovery, similar to the 12-month lag seen with the 2001 downturn that became the worst in the industry’s history.

Furthermore, this time round there has not been an explosion in capacity expansions, indeed the opposite has happened, according to Penn.

“Thankfully CapEx has been cutback significantly since mid-2007, meaning the demand slowdown is against a backdrop of contracting new capacity; typically the cutbacks come as a consequence of the downturn. This will accelerate the supply-side recovery by at least four quarters.”

Though hesitant to call when that recovery maybe, other signs exist that a boom can be expected due to rapidly rising prices as capacity constraints kick-in.

“With only a minimal net new capacity until Q3-2010 at the earliest, the current excess capacity will be quickly absorbed once the current de-stocking abates and new orders reflect real demand. If demand starts to accelerate, in line with an economic recovery, capacity will simply not be able to keep pace.  2009’s CapEx, an estimated US$20 billion, is barely one third its 2000 US$60 billion peak. This is a fab shortage waiting to happen.”

Penn said that other conditions existed that would prevent new capacity coming on-stream quickly, potentially prolonging a price recovery and sparking a boom. He noted that few new 300mm fabs are currently under construction or plans in place for new fabs in 2009, pushing any impact of that capacity on oversupply at least 2-years away. Indeed he doubted that it would have any impact as there were so few new fabs in that scenario.
Noting the job losses across the industry and especially in the equipment sector, meant that delivery lead times would be extended, further supporting a capacity lag. Even currently installed tools made idle as demand declined wouldn’t be ramped as quickly as people my think. He cited the spare parts cannibalism that is rife in the industry, which meant that idle tools would need parts replacements before returning to production.

As utilisations rates bottom and any sustainable demand for IC’s returns, the lack of new capacity and the time taken for new capacity to be introduced is the key catalyst for price rises and a new boom period for the industry is almost certain. The timing of that boom is not yet known.

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Reader comments

Would you please let me know the scope in the attached picture? For example, does it include IDM companies?
By Vicky on 13 April 2009
It's true. Fabs fired people. Vendors fired a lot of people. The people that stayed are not so happy. Less people less work, more breaks smile Delivery time is going down. Tools down time is going up. Parts avail/deliv down. Respond time down. At some point we will need new technology ready tools, processes, qualified experience engineers. Hiring frozen for 6/12 months. Next year 2010 some of them will be hiring again. If not then nobody will return to old employers smile to be true only fabs, vendors are losing smile
By VeryHappySemi;) on 12 April 2009

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