Recently in Supply & Demand Category

The people from GlobalFoundries travelled to Taiwan to let number-one foundry TSMC know that the youngest foundry is ready to keep on spending in what has become a capacity war in that business. It follows soon after TSMC’s own decision to push harder on capacity expansion with the building of its own Fab 15.

Although all this expansion might look like a one-way bet in the current market conditions, where you can pretty much sell everything you can make, by the time all of this capacity is meant to come onstream it could well be a different story.

Already trying to fill the second phase of its fab in Dresden as fast as possible with chipmaking gear, GlobalFoundries said at the Computex trade show in Taipei that it will build another section - once grants from Germany turn up - over the next two years. This will add 20,000 wafers per month, increasing Dresden’s capacity by one-third when that expansion has finished. Given that they have not started building the extension yet, this is a very aggressive schedule for filling a fab.

However, the schedule for the Malta, New York fab has slipped slightly. Originally slated to go into volume production in 2012, this is now not expected to happen until 2013. By the end of 2012, it will just be pilot production. However, Malta does not miss out on the capacity splurge. Fab 8’s peak capacity moves up from 42,000 wafers per month to 60,000 - eventually. Based on previous estimates from GlobalFoundries, this is unlikely to happen before the end of 2015.

Pushing the volume ramp at Malta back a bit may, if current market projections prove correct from analysts such as Future Horizons and IC Insights, help GlobalFoundries avoid walking straight into a capacity glut in 2012, and still capitalise on a recovery in 2013. However, things rarely work out that neatly in this business.

There’s more. GlobalFoundries’ owner ATIC said it would build a 3km2 ‘technology cluster’ in its home of Abu Dhabi. There is no firm news of a fab being built there other than strong hints: “GlobalFoundries is committed to partnering with ATIC to share best practices and expertise in cluster creation in the near-term and putting a significant technology and manufacturing presence in the region long-term.”

Cadence Design Systems has decided that semiconductor intellectual property (IP) is important to the chip design and so has bet fairly big on its $300m cash acquisition of Denali together with a plan to pre-integrate IP from other suppliers.

Let’s have a look at the rationale. Design costs keep going up - in proportion to the number of gates you can squeeze onto an integrated circuit (IC).

“The only thing that scales is IP. You can’t move to the stratosphere in terms of abstraction. You have to use IP…The SoC battle is won or lost over the quality of IP…IP reuse will go up to and beyond 90 per cent of the die. But having multiple IP vendors for one chip design brings challenges, so you will qualify IP vendors rather than individual IP cores. Everything points to consolidation.”

Oh no, wait. That wasn’t Cadence. Those were the words of Raul Camposano in mid-2004, who was then Synopsys CTO. Sounds a lot like the Cadence rationale doesn’t it? But it doesn’t say a lot for Cadence’s new found strategy rewriting the rules of EDA. It’s easy to see how an EDA-plus-IP strategy can develop because you only have to look at what has happened at Synopsys, the only major EDA vendor so far to have made a living at IP. Mentor Graphics had a go but that did not turn out so well and the company got out of the business.

Since the Internet bubble, the share of Synopsys’s revenues from IP has hovered around 6 to 8 per cent according to a succession of 10K annual-report filings. The share was as high as 10 per cent in 2001 but this was before the company acquired Avant, when the IP share slid to 5 per cent.

Synopsys’s 2003 revenues totalled $1.2bn. In 2009, they came to $1.4bn. IP revenues averaged about 7 per cent of the total in 2003, providing Synopsys with $84m just before Camposano made his prediction about the rise of IP. Now, they amount to $140m. That’s about 9 per cent per year, about the same as the semiconductor industry’s long-term average growth. It’s not transformative growth by any means. This wasn’t because Camposano was wrong - far from it - just that the increased use of IP does not necessarily translate into massive sales.

As chip capacity increases - which pulls in more third-party IP - design starts go down, slowing down the growth of the IP suppliers. You could argue that maybe Cadence has entered the market at just the right time. But it takes time to establish a reputation as a stable, reliable IP supplier as Synopsys chairman and CEO Aart de Geus pointed out in the company’s most recent results conference call. Buying Denali gives Cadence greater credibility in the market than simply bootstrapping its own operation but it will take time for the company to see a return on its $300m, if it sticks at it.

TSMC is to break ground on its third major 300mm (12in) fab in the middle of this year, the company said as it released slightly better than expected results for the first quarter of 2010. With the existing 300mm plants, Fab 12 and Fab 14, nearing their planned maximum capacity of 100 000 wafers per month, it’s time for a new one.

As it will take at least a year to build the shell, Fab 15 - which was originally earmarked for Tainan rather than its revised location of Taichung, roughly midway between TSMC HQ in Hsinchu and Tainan, before the chip market imploded in 2001 - will not play much of a role in TSMC’s production before 2012.

When it gets going, chairman and CEO Morris Chang, said Fab 15 will support capacity expansion for the 40nm process and will add 28nm before moving onto the 20nm technology and beyond.

In the meantime, TSMC is rushing to get more equipment into Fab 12 and Fab 14, pushing 300mm production up by 35 per cent by the end of the year. However, Chang said these fabs are nearing their planned maximum capacity of 100 000 wafers per month. The company plans to use the majority of its capital expenditure for 2010 in the first half of the year to ensure much of the extra capacity is in place by the end of 2010.

Older 200mm fabs are not to be left out of the expansion - Shanghai, in particular will see new equipment for the “more than Moore” programme the company adopted to keep its older fabs running.

TSMC saw a modest rise in sales from the fourth quarter of last year to the first quarter of 2010 rather than the expected post-Christmas dip.

CFO Lora Ho said: “Contrary to expectations, first quarter revenues and wafer shipments slightly increased.” The growth was driven by communications and consumer products, coupled with stronger demand on the recently introduced 40nm process, helped by improving yields.

Chang said yields on the 40nm are now as good or better than those encountered on the previous 65nm process at the same stage of its development. In the first quarter, the foundry sold $411m worth of wafers to customers made using the 40nm process – revenues from the 65nm process passed the $400m point two years ago.

“Combined revenue from 40nm and 65nm processes accounted for 41 per cent of total wafer sales,” said Ho.