In Hard Times, Chipmakers and Suppliers Butt Heads

The pain the recession is currently causing the semiconductor industry has been well documented, but it may also escalate tensions between chip equipment vendors and their customers. An ongoing debate over the need to invest in the next cycle of manufacturing plants has pitted equipment vendors, such as Applied Materials, Tokyo Electron, and KLA Tencor, against their customers—primarily Intel, Samsung, and the large foundries, such as TSMC.

Every decade or so, chipmakers have switched to building their wares on larger wafers as a way to produce more chips for less money. Because of the recession, however, and the costs associated with the hoped-for change, not everyone is convinced the switch needs to happen this time. Even if it does, it certainly won't happen as fast as Intel, one of the most aggressive proponents of this transition, hopes.

Imagine the process of building chips as making a many-layered cake. Currently, advanced fabrication plants, or fabs, build 300mm cakes, but Intel and others are hoping to make bigger cakes—450mm. To do this, they need bigger ovens and bigger silicon wafers. Intel estimates such a shift will allow it to produce more than twice the number of chips processed on today's wafers. The expected savings would be about 30%.

Bigger Ovens

At the same time, the chipmakers are producing smaller and smaller chips with more transistors on them, essentially cutting smaller and smaller slices from the cake. When you see news releases extolling the shift from making 65-nanometer chips to 45-nanometer chips, semiconductor makers are trumpeting those smaller slices. (And unlike pieces of cake, smaller is better when it comes to chips.) The next step down is 32 nanometers, and chipmakers and equipment makers are spending billions of dollars prepping for that shift and subsequent moves to 22 nanometers.

This emphasis on building equipment to make smaller pieces of cake ("moving down the process node") and the pain caused by the financial crisis have left chip equipment vendors unwilling—and possibly unable—to think about making bigger ovens. The equipment suppliers estimate that redesigning the ovens and other cake-making tools will cost them more than $20 billion in R&D—money they can't afford to spend.

Jim Ellis, vice-president for global standards and technology at SEMI, says focusing on 450mm is going to have to wait. To focus on both moving down the process node (cutting smaller pieces) and making chips on larger wafers (bigger cakes) would be like fighting a war on two fronts when supply lines are already stretched. Other equipment makers contacted for this story agreed but did not want to go on record for fear of angering their customers, notably Intel, which is still pushing a plan to have a pilot 450mm production line in place by 2012.

At Loggerheads

When asked if that timeline still holds, given the economic climate, an Intel spokeswoman wrote in an e-mail: "I cannot comment on our suppliers' timelines, but the statement and release below is all we are disclosing at this time, which does still say goal of a pilot line in 2012." The International Sematech Manufacturing Initiative, a consortium of chipmakers, backs Intel's plans, and Scott Kramer, vice-president for manufacturing technology, says he thinks the suppliers are overestimating the costs associated with those plans.

Be that as it may, suppliers have concluded that the switch to 450mm isn't worth it, especially right now. A report issued by SEMI explains their perspective pretty clearly by pointing out that the investments made by equipment makers in 300mm equipment haven't been recouped yet, and that the savings to chipmakers come at a cost to the equipment makers. With a transition to larger wafers, Intel wins because its per-chip production costs go down. However, the equipment providers have to invest in the R&D to build these larger, more expensive new machines—equipment only the largest chip companies may use.

In the past few months the equipment industry has cut a few thousand jobs, and iSuppli expects sales of chip equipment to fall to a six-year low in 2009. According to iSuppli, equipment sales were $54 billion in 2007 and are estimated to be about $35 billion in 2009. Against this backdrop, it appears that equipment vendors are ready to fight their customers for survival. But so far, those customers keep insisting they are right.

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