Dataquest Predicts 2008 Foundry Capex Decline

David Lammers, News Editor -- Semiconductor International, 11/5/2007 8:46:00 AM

Gartner Dataquest (Stamford, Conn.) predicted Monday that 2008 capital investments by the four largest foundries will decline 9.6% year-on-year to $6.3B, partly because of a relatively slow rampup in leading-edge processes.

The forecast, contained in the market research firm’s “Semiconductor DQ Monday Report” for Nov. 5, said that Taiwan Semiconductor Manufacturing Corp. (TSMC, Hsinchu, Taiwan) and United Microelectronics Corp. (UMC, Hsinchu, Taiwan) posted quarterly revenue gains of 19.4% and 24.%, respectively, in the third quarter compared with the previous three months.

However, the expectation is that fourth quarter revenues will be “lackluster” for TSMC, UMC, Semiconductor Manufacturing International Corp. (SMIC, Shanghai) and Chartered Semiconductor Manufacturing Ltd. (Singapore). As a result, 300 mm fabs operated by the major foundries are likely to continue running at “the lower-end spectrum of their companies’ average utilization rates. Most of the equipment that was delivered in the second half of this year was not hooked up fully, but will be used for 2008 production runs instead,” the Dataquest report said.

Also, Dataquest said while 2008 is likely to be a good year, momentum may slow in 2009. “Therefore, any further capacity expansion plan in 2H08 is likely to be constrained.”

TSMC is likely invest $2.6B in 2007, dropping to $2.275B next year, while UMC will cut spending from ~$1B this year to $750M next year. SMIC and Chartered also will reduce investments next year, but at a less steep rate of decline.

Bob Johnson, in charge of capital investment research at Dataquest, said the foundries have been scrambling to meet demand for trailing-edge technologies, buying used 200 mm equipment that can service that need. That may indicate a sea change in the overall semiconductor industry, he said, as the allure of cutting-edge process technology begins to pale in the face of rising design costs for 65 and 45 nm designs.

Dataquest sees spending and capex intensity (investments compared with revenues) declines in 2008.

"When was the last time that foundries were trying to increase capacity for the older linewidths and not so much the leading-edge processes?" Johnson said during the recent ISMI Symposium on Manufacturing Effectiveness on manufacturing effectiveness.

A transcript of TSMC’s third-quarter conference call with financial analysts contains references to TSMC’s plans to wring more productivity from its lithography tools next year, although executives, understandably, were vague as to how that will be accomplished.

Lora Ho, chief financial officer at TSMC, said that total installed capacity for the third quarter was ~2.2M 8-inch-equivalent wafers. “We slightly reduced our fourth quarter capacity, bringing our total expected 2007 capacity to be about 8.3 million 8-inch equivalent wafers, a 17% increase year-over-year. We spent $756M in capex during this quarter. We now expect our full year 2007 capex to be around $2.6B, which includes the $82M purchase of 8-inch equipment from Atmel.”

TSMC CEO Rick Tsai said the $2.6B in 2007 capex was “a lot of money” that will provide “a large chunk of the capacity that we will need in 2008.”

Tsai said TSMC “probably” will not need new 90 nm capacity next year, but “will continue purchasing equipment for 55 nm and 45 nm.”

“The key point here is that a large part of the capacity for year 2008 will be covered already by the $2.6B capex spend in 2007,” Tsai said, adding that, “We have worked very hard over the year on the productivity improvement of all the tools that we have purchased, especially the 12-inch tools. We have improved, certainly, the productivity to the extent that also will help the lessening the need for the capex for year 2008.”