Foundries surge, the fabless fret

Taipei, Taiwan — Asian foundries are running flat out to keep up with strong demand, and with orders looking good for the current quarter, small fabless companies should gird for a Darwinian struggle to lock in wafer supply.

The three top Asian foundries — TSMC, UMC and Chartered — last week turned in profits that were, respectively, up, up and surprisingly existent, as Chartered Semiconductor Manufacturing Ltd. reported its first profitable quarter in three years.

More good news is expected when results for the current quarter are reported. United Microelectronics Corp., Chartered and Semiconductor Manufacturing International Corp. (Shanghai, China) all said sales would be flat or up slightly. Much the same was expected from Taiwan Semiconductor Manufacturing Co. Ltd., which did not offer guidance by press time.

Because most of the foundries are running at full capacity, with the exception of Chartered, at 81 percent, executives predicted that higher sales would be derived from moderate capacity additions and higher average selling prices. The latter will probably mean price hikes for some technologies.

Now the bad news. Startups that scraped through the downturn are beginning to feel the double-edged sword of good times. In early April, a handful of fabless companies complained that lead times ranged from four months to more than six months in the extreme.

"The worst thing for a small company that survived the worst downturn in the history of the industry is to not have product to ship," said the chief operating officer of one small California-based fabless company that supplies storage devices.

While the industry still has capacity on trailing-edge 0.25-micron, 0.35-micron and larger lines that were in place when the downturn hit at the end of 2000, underinvestment in leading-edge capacity — for 0.18-micron, 0.13-micron and, soon, 90-nanometer design rules — is being blamed for today's capacity crunch.

Even in Asia, where connections are coveted, fabless companies with strategic ties to foundries — such as DVD IC maker Mediatek Inc., which has an arrangement with UMC — are having to look elsewhere to get all the capacity they need.

"This year is particularly challenging, not only for small fabless companies but also for the large ones," said Jeremy Wang, Asia-Pacific director of the Fabless Semiconductor Association. "Foundry lead times are suffering a few weeks, but that is still acceptable. A key factor in longer delays will be back-end testing and packaging capacity; that is a big concern."

It's the familiar story of an upturn in action — of the boom-time shortages that lead to frenzied buildouts and, eventually, the specter of oversupply. All the major foundries are waving dollar bills at equipment makers. TSMC is spending $2 billion; UMC has $2.1 billion; Chartered's budget is $700 million; and SMIC has set aside $1.9 billion, of which $800 million will be spent this quarter.

'A bit delayed'
Still, it seems equipment makers can't hustle their gear out the door fast enough. SMIC said that its 300-mm wafer fab in Beijing will be delayed because of longer equipment lead times. "The facility is on schedule, the clean room is on schedule, but the manufacturing equipment is . . . a little bit delayed, probably four to six weeks," said president and chief executive officer Richard Chang. "We will do our best to catch up."

Last year, SMIC was targeted by competitor TSMC as the bogeyman of the next downturn because of its aggressive ramp-up schedule. Yet all the foundries are pouring it on as fast as they can, especially TSMC, which said last month that it would boost capacity of mature technologies.

That's spurring analysts to ponder just how far away the next downturn may be. In an April report, IC Insights Inc. president Bill McClean noted: "Since 1978, the worldwide semiconductor market has never grown more than 8 percent in the year following a year when worldwide semiconductor industry capital spending increased greater than 50 percent."

McClean estimates that this year's capital expenditure growth will hit 53 percent. He is forecasting a 5 percent decrease in the semiconductor market next year.

That's hardly a bust, but it's also a sign that the go-go days of early 2000 remain elusive.

— David Lammers in Austin, Texas, and Peter Clarke in London contributed to this story.