The IC inventory correction problem, which is causing the current slowdown in the industry, is projected to last until the first quarter of 2005 — or beyond, according to foundry executives at the FSA Expo this week.

Citing inventory correction issues in the marketplace, a research firm this week lowered its estimates for first- and second-tier foundries (see Oct. 4 story). The foundry business is expected to pick up in the first or second quarter of 2005 — but then the industry is headed towards an anticipated IC downturn in the second half of next year, executives said.

"We see a slowdown now, but it's not severe," said Doron Simon, president of Tower Semiconductor USA Inc. (Santa Clara, Calif.), the U.S. marketing and sales arm for silicon foundry provider Tower Semiconductor Ltd. of Israel.

"The demand is not as high as anticipated, but it's not a catastrophe," Simon said. "I don't see the end markets collapsing."

Wafer orders are projected to pick up in early 2005, with a possible downturn slated for the second half of next year, he said. "Somewhere in Q1 to Q2 [in 2005], orders will come back," he said. "But the worst is not far away [after that]. It's about three quarters away."

Tower's fabs were fully utilized in the third quarter, but the company declined to comment on its current plant capacity. The company is in the process of ramping up its new Fab 2 wafer plant, an 8-inch facility located at its headquarters in Migdal Haemek. The plant is capable of making 14,500 wafers a month right now. Total capacity is 33,000 wafers a month.

Other foundry vendors see a similar pattern in the marketplace. "There is quite an inventory correction taking place right now," said Thomas Hartung, vice president of marketing and sales at silicon foundry specialist X-Fab Semiconductor Foundries AG (Erfurt, Germany).

"But our customers are not saying that they are going into a recession," Hartung said. "In Q1 2005, they are saying: 'We need to order again.' "

Overall, X-Fab is seeing brisk demand for specialty processes, especially its 0.6-micron, high-voltage technology. The technology is ideal for power management and related applications. "It amazes me," he said. "There are so many new things coming down our line. It contradicts what the market is doing."

X-Fab's wafer plants in Germany and Texas are fully utilized. The company's fab in the United Kingdom is only 40 percent utilized, but it hopes to fill up the plant, by deploying its new, 0.35-micron high-voltage process in that facility, he added.

Specialty foundries like Jazz Semiconductor Inc. (Newport Beach, Calif.) are also seeing a number of new designs in the pipeline despite the current lull. "We have a number of new products in qualification," said Paul Kempf, chief technology officer of Jazz, a provider of silicon germanium (SiGe) foundry services.

There is good and bad news about market conditions, however. "The visibility is not good out there," Kempf said, "but it doesn't feel like a correction like in past years."

Jazz is ramping up its fab in Newport Beach. Last year, Jazz and China's Advanced Semiconductor Manufacturing Corp. (ASMC) formed an IC manufacturing venture to which Jazz planned to contribute 0.35-micron process technology, including BiCMOS and SiGe. In turn ASMC is slated to provide capacity at its recently completed 200-mm wafer fabrication facility in Shanghai.

The Jazz-ASMC venture has been in production since late-2003. Last year, Jazz also struck a chip-manufacturing deal with China's Shanghai Hua Hong NEC Electronics Co. Ltd. Jazz licensed its 0.25- to 0.18-micron CMOS process technology to that company. Initial production from that alliance is projected to take place in Q4 of 2004 or Q1 of 2005, according to Kempf.