Chip makers press ahead in

The global semiconductor industry may continue to languish in the doldrums of a slowdown in demand but chip makers continue to press ahead with new and more advanced manufacturing facilities, albeit at a slower pace than would have been expected two years ago.

The move towards more advanced manufacturing facilities is good news for consumers, even while chip makers are faced with the burden of investing billions of U.S. dollars to construct them and equip them with chip-making equipment at a time when demand for chips has been weak. The new plants, which will be fitted with more advanced manufacturing technology and the ability to handle larger silicon wafers, will help drive down costs for chips thanks to their greater economies of scale.

The latest companies to move forward with an expansion of their manufacturing capacity are United Microelectronics Corp. (UMC), the world’s second-largest contract chip maker, and Infineon Technologies AG, which announced Tuesday that the installation of equipment had begun at an advanced joint-venture semiconductor manufacturing facility under construction in Singapore.

The announcement comes as analysts predict a recovery in demand for chips during the second half of this year and UMC is expected to report better-than-expected results for the last quarter of 2002, according to Jamie Wang, a researcher at Gartner Inc.’s Dataquest unit in Taipei who tracks contract chip makers.

However, Wang cautioned that no clear sign of a recovery in late 2003 has so far emerged for the chip industry. “The market is still very weird,” she said.

Even so, Wang expects to see UMC post better-than-expected sales figures for the fourth quarter of 2002 when the company announces its results next week.

At the end of its third quarter, when UMC posted profit of US$41 million on $548 million in sales, the company predicted that the average selling price of wafers would decline by up to 5 per cent and said it expected wafer shipments to drop by around 7 per cent with its capacity utilization rate a little under 60 per cent. But Wang expects to see the company show improved results.

“UMC’s Q4 will be better than the Q3 results,” she said, noting that the contract chip maker has seen its utilization rate rise in recent months.

The Singapore chip fabrication facility (fab), UMCi Pte. Ltd., is a joint venture between UMC, Infineon and the investment branch of Singapore’s Economic Development Board. When the plant begins pilot production of wafers during the second quarter of this year, it will be the first fab to produce chips using 300-millimeter silicon wafers in Singapore.

Expected to have a monthly production capacity of 40,000 300-millimeter wafers when running at its full designed capacity, completion of the UMCi fab has been running behind the schedule announced when construction began in 2001. The installation of equipment at the plant, originally scheduled to take place during the third quarter of 2002, was delayed by six months as a result of the ongoing slowdown in demand for semiconductors, according to UMC.

But not everyone sees this as a delay. “They’re going to move their equipment in earlier than we had expected,” said Dataquest’s Wang, adding that she expects volume production to begin at UMCi during the second half of the year with volumes approaching 10,000 wafers by the end of the year.

Despite slower demand for chips over the last two years, the semiconductor industry is in the midst of a shift to production of chips on 300-millimeter wafers, which offer 2.5 times the surface area of the 200-millimeter wafers used at many fabs. The larger wafer size allows more chips to be produced on each silicon wafer and can reduce chip production costs by 30 per cent or more, according to industry estimates.

In addition to the UMCi joint venture, Infineon and UMC are working together to develop more advanced chip-making processes. Currently, the most advanced process in commercial production is a 130-nanometer process. That figure refers to the smallest feature that can be created on a chip. Chip makers are now moving towards production using a 90-nanometer process, which means that the surface area of a chip can be made smaller, increasing the number of chips that can be made on each wafer and reducing production costs.

Inside one of UMC’s fabs in Hsinchu, Taiwan, engineers from Infineon and UMC are working on the next generation of processes beyond 90-nanometers: a 65-nanometer process and a 45-nanometer process.

The companies had also been working with Advanced Micro Devices Inc. (AMD) to develop these advanced processes, but AMD announced earlier this month plans to pull out of the project after signing a joint development agreement with IBM Corp. Under that deal, AMD and IBM plan to cooperate on the development of 65-nanometer and 45-nanometer processes.

The breakdown of the agreement between UMC, Infineon and AMD could also affect the construction of another 300-millimeter fab in Singapore, a joint-venture facility called AU Pte. Ltd., that UMC and AMD agreed to build in a memorandum of understanding signed last year. While that agreement so far remains intact, both companies have said they are re-evaluating their plans.