SMIC pushes out 90-nm, blames loss on rivals

Silicon foundry provider SMIC (Shanghai) also blamed its losses on a price war that has been fueled by its competitors, rather than the Chinese foundry startup itself.

And the company on Thursday also said that it has elected Yang Yuan Wang as its new chairman, replacing Richard Chang, who will remain chief executive.

The move comes on the heels of another loss at SMIC. While moving to boost its capital spending in 2005, the company said sales increased 12.3 percent in the second quarter of 2005 to $279.5 million, compared to $248.8 million in the prior quarter.

Net loss increased to $40.4 million in the second quarter of 2005, compared to a loss of $30.0 million in the first quarter of 2005. SMIC missed its forecast based on one projection (see July 28 story).

Overall, the silicon foundry industry remains embroiled in a subtle but damaging price war for select products and processes. This in turn will cause foundry wafer prices to drop for the remainder of 2005, according to a report from Semico Research Corp. Some analysts point to the Chinese silicon foundry startups as the main culprits in the foundry pricing wars (see July 28 story).

During the conference call on Thursday, Chang dismissed the notion that SMIC is fueling the price war in the industry and blamed the situation on its rivals. “The price pressures are coming from our competitors,” he said.

Prices for mature technologies, such as 0.18-micron processes and above, are said to be falling fast in the foundry industry. Even 130-nm technology is under price pressure, but Chang that margins for the process are “coming back.”

SMIC’s woes are mainly due to its exposure in DRAMs, which are currently in the down cycle. The company makes DRAMs on a foundry basis for Infineon Technologies AG and Elpida Technology Inc.

The Chinese company is scrambling to ramp up its higher-margin, non-DRAM processes, while simultaneously reducing its exposure to DRAMs. “In Q3, our DRAM position will decrease,” Chang said. “It will also decrease in Q4.”

Process delays

It is also moving full speed ahead with its 90- and 65-nm process development programs. Late last year, SMIC said it would be offering 90-nm process technology in the first half of 2005 (see Sept. 1, 2004 story ).

SMIC appears to be tardy in its efforts to ramp up the process. During the conference call, Chang said the foundry provider would finish qualifying its 90-nm SRAM and logic processes by the end of the third quarter of 2005.

Revenue shipments for 90-nm designs are scheduled to start in the “fourth quarter,” Chang told analysts. Texas Instruments Inc. is reportedly one of the first customers for SMIC’s 90-nm process.

Initially, the Chinese company is ramping up its 90-nm process within its 200-mm fabs in Shanghai. It is also developing the process within its 300-mm plant in Beijing, with revenue shipments due by the end of the fourth quarter, he said.

In any case, the deal would signal the further erosion of a post Cold War-era pact -- known as the Wassenaar Arrangement -- set up to limit the dissemination of technology that could have potential military use.

Tools capable of processing 0.25-micron wafers had been the perceived limit under U.S. controls, but a number of chip-making startups, joint ventures, and major semiconductor manufacturers in China have announced plans for 0.18-micron and below processes.

To confuse matters, the U.S. Department of Commerce has all along contended there are no restrictions in selling U.S. fab tools into China with linewidth geometries below 0.25-micron. Last year, however, officials from the U.S. Department of Defense confused the issue, by announcing the U.S. government would began granting licenses for tools that are capable of processing 130-nm designs, starting in 2004.

Vendors must obtain a license for such exports and are granted the proper papers on a case-by-case basis, which is where the problems surface.