SAN JOSE -- That loud choking sound coming from the semiconductor industry is the result of a tight squeeze on production capacity becoming much tighter this summer.
Worldwide 8-inch wafer fabs, producing mainstream metal-oxide semiconductors, were operating at an astonishing 99% of their capacity at the end of the first quarter, according to the latest industry data. Chip analysts are now warning that a severe shortage of production capacity will likely hit the industry in the next couple of months.
"That number 99% capacity utilization really jumps out, but the other number that jumped out at me was the increase in wafer starts with processes less than 0.3-micron feature sizes," said analyst Bill McClean, president of IC Insights Inc. in Scottsdale, Ariz.
McClean was referring to the new Semiconductor International Capacity Statistics (known as SICAS), which show weekly wafer starts for 0.3-micron and below processes at 566,200 six-inch equivalent wafers in the first quarter. That level of production was a 22.3% increase from the fourth quarter of 1999, when semiconductor fabs were producing leading-edge ICs at a run rate of 462,800 six-inch equivalent wafers per week. In the third quarter of 1999, fabs were producing 358,300 six-inch equivalent wafers (with 0.3-micron and below processes).
"The less-than-0.3 micron capacity jumped 100,000 wafers a week in the first quarter compared to the fourth quarter, which was more than 100,000 higher than the third quarter," McClean observed. "The first quarter capacity for processes less than 0.3 micron was almost double what it was in the same period last year."
McClean believes the fast ramp of 0.3-micron and below processes was possible partly because of empty fabs and available manufacturing space put in place during the last downturn. But now the industry has "pretty much filled out all of the existing space, and there's not a lot of room left for rapid expansion," warned the veteran chip analyst. Consequently, he and other analysts expect average selling prices to begin to rise in the third quarter as shortages of ICs spread.
The new wafer fab capacity statistics were released last week by the Semiconductor Industry Association in San Jose, which today also reported record chip revenues of $15.2 billion in April (see today's story). The SIA said growth had surpassed expectations because of strong demand for devices in PCs, cellular phones, consumer electronics, and systems used in electronic-commerce over the Internet.
The SICAS capacity report, produced by an industry group in Vessem, the Netherlands, shows total IC production in wafer fabs growing 17.2% to 1,959,400 six-inch equivalent wafer starts per week in the first quarter compared to 1,672,100 in the same period last year. IC wafer starts were up a strong 9.1% in the first quarter vs. 1,796,000 per week in the fourth quarter.
Bipolar chip production was up just 4.3% at 310,000 five-inch equivalent wafers in the first quarter vs. 297,300 in the first quarter of 1999, according to the new SICAS report. MOS integrated circuit production was up 19% to 1,744,300 six-inch equivalent wafers vs. 1,465,800 in the first quarter of 1999.
Bipolar fabs were running at 88.4% of their capacity in the first quarter of 2000 compared to 89.2% in the fourth quarter of 1999, said the report. In the first quarter of 1999, bipolar fabs were at a capacity utilization just 74.4%, the report said.
The report said MOS fabs with 8-inch wafer diameters were nearly tapped out at 99% capacity utilization--the highest on record, according to many long-time observers. In the first quarter of 1999, capacity utilization of 8-inch MOS fabs was at 92.7%, and at the low point in the last downturn (third quarter 1998) it was at 86.9%, according to the SICAS report.
"The jump in capacity utilization and unit volume has put a lot of production on the market fairly rapidly," noted McClean. "So far, the upturn has been unit volume driven." With chip makers able to tap existing fabs space, new capacity has come on line quickly in the past year, but that will change as companies wait to complete new facilities, he said.
"Until this point, average selling prices are up about 1% since the start of the year while unit volumes are up in the 20% range," McClean said. "But now we are looking at ASPs kicking in at higher growth rates as demand increases faster than companies can bring new production online."
For that reason, McClean has increased his outlook for semiconductor sales growth in 2000 to 32% from a previous forecast of 23%. IC Insights expects chip sales to reach $172.2 billion in 2000 from $130.2 billion in 1999 (see May 18 story). Unit volumes are expected to grow by 24% in 2000 over last year.
When the year is over, McClean expects to see average selling prices to increase 7-to-8% over last year. "The second quarter is the 'lull' before the storm. Purchasing people buying semiconductors should be locking in favorable pricing now because it will all be over in the next six to eight weeks," he predicted.