SAN JOSE, Calif. -- California's electricity crisis is causing some chipmakers with wafer fabs and related facilities in the state to re-examine their manufacturing strategies. If California's power problems keep growing, a sizable portion of U.S. chip-manufacturing capacity could be threatened, according to wafer fab statistics.
California remains a major source of processed wafers despite trends in the 1980s and 1990s to transfer chip manufacturing to lower-cost states and less crowded regions. In fact, there are about 102 wafer fabs of all sizes in California, which accounted for 23 percent of the chip-processing capacity in the United States in 2000, said analyst George Burns, who tracks global semiconductor plants at Strategic Marketing Associates Inc., Santa Cruz, Calif.
Burns said California is currently the second-ranked state in terms of fab capacity, behind Texas, and it accounted for 4 percent of the world's fab capacity last year.
"There are a lot of fabs in California," he said. "At the same time, companies like Intel and AMD have their critical R&D fabs in Silicon Valley," added Burns, referring to the area's large chipmakers, which have moved volume production to locations outside of California.
California's electricity crisis, which made headlines earlier this month with rolling blackouts hitting Silicon Valley, has the potential to change the chip-manufacturing landscape in the state, Burns said. "I don't think the electricity crisis has had a major impact on the worldwide supply chain yet, but it's certainly a nagging issue for companies," he cautioned.
In the middle of January, central and northern California regions -- including jam-packed Silicon Valley -- were hit by two days of rolling blackouts when the state's power companies attempted to avoid uncontrolled power outages in the energy crisis. The series of temporary blackouts stopped work at businesses, disrupted technical services, and caused million of dollars in losses at the state's electronics companies, according to some estimates.
Advanced Micro Devices, Integrated Device Technology, Linear Technology, and LSI Logic were hit by the rolling blackouts. Other chipmakers -- such as Agilent, Cypress, Intel, and NEC -- said they were not affected by the power outages.
Burns and others suggest that the uncertainty about power is becoming a new factor being weighed in manufacturing plans throughout California. Although the state government is scrambling to solve the electricity crisis -- mostly with short-term fixes -- the power crunch will likely get worse, especially going into the summer months.
Exasperated over the electrical power situation, Intel Corp. CEO Craig Barrett recently called California a "third-world country." He also warned that Intel would not build another facility in the state until the power crisis is resolved. Intel maintains its major R&D fab in Santa Clara, Calif. but the majority of the company's U.S. chip production is in Arizona and Oregon.
Other chipmakers are looking to for ways to deal with the power problems in California. For example, Integrated Device Technology Inc., Santa Clara, Calif., has two fabs -- a 6-inch wafer-processing plant in Salinas, Calif., and an 8-inch facility in Hillsboro, Ore.
IDT's 6-inch fab in Salinas -- which makes 40 percent of the company's products -- was bit by one of the rolling blackouts on Jan. 18.
"Clearly, we are looking at the different options," said Dave Ct, vice president of worldwide marketing and communications application-specific standard products at IDT. "We are not looking to leave Salinas," he said. "To pull up roots and build a new fab is not a trivial event. It costs billions of dollars to build a new fab."
But at present, IDT is mulling over a plan to rebalance the production lots in the two fabs in the case of another emergency. "We are looking at the balance of our two factories," he added.
While IDT assesses its future production strategy, the company has a short- term plan. "In the short term, we are working with PG&E Pacific Gas & Electric to understand the situation," he said, referring to one of the two major but troubled power companies in the state.
But still, there has been a major communications gap between PG&E and electronic companies. For example, in the morning of Jan. 17, PG&E warned IDT that its fab in Salinas would be without power for one or so hours during the afternoon. This, in turn, gave IDT ample warning to "take the factory down," thereby preventing any damage to the chip equipment or wafers, Ct said.
Yet during the day, PG&E did not implement the blackout for undisclosed reasons. And by the time IDT resumed production in the fab later that day, the company experienced a minor loss of productivity, he said.
On the following day, PG&E gave IDT a "one hour" warning that its Salinas fab would get hit with a blackout, but IDT did not have time to bring the factory down and suffered a 90-minute power outage.
"We had a minimal loss in terms of wafers -- perhaps around $6,000," he estimated. "There was no equipment damage."
Others are also unhappy with the power companies. For example, Conexant Systems Inc. -- which has both silicon and gallium-arsenide (GaAs) fabs near its headquarters in Newport Beach Calif. -- has not experienced any power outages yet. But Conexant said it has been hit with some significant fines by the local power company for going over its electricity allocation. Several years ago, the company enrolled in a plan to reduce its energy consumption. But if it goes over its electricity allocation, Conexant would incur significant fines.
In the last quarter alone, Conexant incurred fines of about $2 million for going over its allocation, according to a company spokesman. "We've got to keep our fabs running," the spokesman said. "But the electricity crisis has impacted our bottom line. It has taken away at least a half-point on our margins."
Others have avoided any problems -- at least for now. For example, Japan's NEC Corp. has a large 8-inch wafer fab in Roseville, Calif., which produces DRAMs, logic ICs, and other products.
NEC recently set plans to build a 300-mm (12-inch) wafer facility in that location. But the company claims it has not changed its mind about building the 300-mm plant in spite of the power crisis. "Not at this junction," said a spokeswoman for NEC.
The company sees no problem with its current and future power requirements in Roseville. "We have a good relationship Roseville Electric," the spokeswoman said, referring to the local power concern in that city.
For years, many of California's homegrown chipmakers have shifted a significant amount of their fab capacity to locations outside the state -- and for good reason. Many chip managers say California's soaring costs and building codes have made it prohibitive to construct new, advanced fab in the state.
"What's the old saying? 'Don't put your eggs in one basket,'" noted a spokesman for LSI Logic Corp., Milpitas, Calif. "We have the advantage of having the majority of our fab capacity outside the state." LSI Logic has wafers process at fabs in Colorado, Oregon, and Japan. It also has relationships with various foundry concerns in Asia as well.
But LSI Logic also has a major R&D fab in Santa Clara and an IC-test plant in Milpitas. On Jan. 18, the IC-testing plant was hit by a blackout, but the event did not cause any damage or impact for customers, the spokesman said.
Meanwhile, some companies have been hit hard by the blackouts, including Linear Technology Inc. But others have been spared, such as Agilent, Cypress, and Intel.
"We've been remarkably lucky," said a spokesman for Cypress Semiconductor Inc., San Jose, Calif. Cypress' main fabs are located in Minnesota and Texas, but it has an R&D fab in San Jose.
But most, if not all, chipmakers are all bracing themselves for power conditions to get worse in 2001. There is a glimmer of hope that California lawmakers will solve the electricity crisis, but until then, chipmakers hope they can deal with the problems.
"It's not going to be fun," lamented IDT's Ct.