Wafer processing capacity worldwide took a sudden and somewhat unexpected jump in the third quarter, based on new data released by the Semiconductor Industry Association.
The SIA's quarterly capacity report shows wafer starts in chip-fabrication plants surging 6.8 percent in the third quarter from volume run rates in the second quarter, putting this year on a record pace for increased unit output, industry observers said. The chip industry's capacity was 2.171 million six-inch equivalent wafer starts per week in the third quarter vs. 2.034 million in the prior three-month period, according to the new Semiconductor International Capacity Statistics (SICAS) report.
The strong increase in wafer fab capacity comes at a difficult time for chip manufacturers, which are attempting to deal with cutbacks in new orders by major customers and inventory adjustments in key end-user markets, said analyst Bill McClean, president of IC Insights Inc.
"If this rate of increase continues in the fourth quarter, we're looking at wafer starts increasing 25 percent this year," McClean said. "In 1995, the last boom year for chip growth, wafer starts increased 22 percent. This year could be a record for wafer-start capacity increases."
The SICAS report also shows total IC fabs running at their highest capacity utilization rate since the mid-1990s. In the third quarter, IC fabs were operating at 96.4 percent of their installed capacity, compared with 95 percent in the second quarter and 90.9 percent in the third quarter of 1999. The low point in IC fab capacity utilization hit the industry during the third quarter of 1998, when the rate was down at 80.8 percent.
The surprising jump in third-quarter capacity comes at a time when relatively few new major wafer fabs are coming on line, according to McClean. Capital spending by semiconductor companies is at an all-time high in 2000, climbing nearly 80 percent from last year, but much of those investments in fabs and new equipment will not be felt until next year or 2001.
"We have had some inventory concerns in PCs and cellular phone segments, and overall economic concerns, and now capacity concerns," said McClean, who is based in Scottsdale, Ariz. "The third quarter capacity came in very strong, which is now bad timing. ... Six months ago that capacity would have been a welcomed site, but six months from now new capacity might be very unwelcomed."
McClean has cut back his forecast for capital spending in 2001 -- based on meetings with chip makers -- to 10 percent or less from 79 percent in 2000.
"Just like the IC manufacturers jump in with both feet in capital spending this year, we will see capacity spending turned off pretty quickly at the first real sign of weakness," he said.
McClean said he believes the strong third-quarter capacity growth can be traced to existing chip plants squeezing out more unit volume with extra work shifts and new tools that have higher throughput rates.
"I was disappointed in the numbers," said McClean, about the additional capacity coming from existing fabs. "We're still trying to get a handle on where all these wafer starts are coming from -- they could be from fabs moving to seven-day work weeks with three shifts or higher equipment throughput."
The SIA report -- based on statistics collected worldwide by the SICAS organization in Vessem, the Netherlands -- shows strong increases in wafer-processing capacity in MOS IC fabs. Capacity in MOS fabs jumped 7.3 percent, to 1.949 million eight-inch equivalent wafer starts per week in the third quarter from 1.816 million in the second quarter, the SICAS report said.
In the world's most advanced MOS fabs, capacity surged 15.7 percent, to 720,700 eight-inch (200-mm) equivalent wafer starts per week in the third quarter from 623,100 in the second quarter, the report said. In nearly all segments of MOS-chip processing, capacity increases were more than double the growth in the previous quarter.
Bipolar wafer starts increased at a more moderate rate of 2.2 percent, to 320,400 five-inch equivalent wafer starts in the third quarter from 313,600 in the second quarter, said report, which was released last week by the SIA.
Capacity utilization in bipolar fabs was at 90 percent in the third quarter, down slightly from 90.7 percent in the second quarter, according to the SICAS report. In the third quarter of 1999, bipolar fabs were operating at 86.1 percent of their installed capacity. In the third quarter of 1998, bipolar fab capacity utilization was at 76 percent and the rate bottomed out in the fourth quarter of 1998 at 74.1 percent during the last industry downturn.
MOS IC fab capacity utilization in the third quarter kept climbing, hitting an astonishing 97.1 percent rate, the SICAS report said. That's up from 95.5 percent in the second quarter and 91.5 percent in the third quarter of 1999.