Could 300-mm Silicon Wafers Trigger Another Round of Global Semiconductor Oversupply?

All data suggests that strong demand for PC, networking and communication equipment has gradually pushed the oversupply and demand for semiconductor components back to an equilibrium state. According to the Semiconductor Industry Association (SIA), global semiconductor sales in February 1999 increased by 3.3 percent, compared to the same period last year.

SIA forecasts that global semiconductor sales growth could reach as high as 19 percent by the year 2001. With semiconductor prices on the rebound, Mr. Daryl Delano, Economist at Electronic Business, forecasts that the dollar value of overall component shipments will rise by about 9.5 percent this year, and a bit more than 11 percent in 2000. Although there is no clear consensus among analysts how much semiconductor sales will grow, everybody seems to agree that the outlook for semiconductor business is good.

Despite the fact that the number of starting 200-mm silicon wafers used for fabrication of Metal Oxide Semiconductor (MOS) IC chips in the fourth quarter 1998 has increased by as much as 21.81 percent or 79,100 wafers per week according to Semiconductor International Capacity Statistics (SICAS), there appears to be no end in sight for overcapacity in the silicon wafer manufacturing sector.

According to Dr. John Matlock, president and CEO of Komatsu Silicon America Inc. in Hillsboro, Oregon in an interview with Semiconductor Business News, "We are still seeing significant excess capacity and our prices are very depressed". Komatsu Silicon America temporarily closed down its newly constructed $US 400 million silicon plant in Oregon. There is however, a plan to restart manufacturing in about a year, said Dr. Matlock.

Wafer suppliers were cutting prices as much as 50 percent to keep their market shares, particularly of epitaxial wafers, the fundamental building block of advanced IC chips. MEMC, the number two silicon wafer supplier in the world, reported a 23.09 percent decline in net sales for the fiscal year 1998 and a net loss of $194.6 million.

According to Semiconductor Business News, Mr. Daniel J. Rose who heads Rose Associated, a research consulting firm based in Los Altos, California, predicts that the average selling price of 200-mm epitaxial wafers could continue to decline slightly this year and then level off by the year 2000. "There will be no improvement in wafer pricing for suppliers for the next two years" added Mr. Rose. Epitaxial wafer glut is hurting not only the silicon wafer suppliers, but also companies such as Applied Materials and ASM who manufacture epitaxial reactors.

The situation for silicon wafer suppliers may not improve soon as chip makers are pushed hard to increase the ability to integrate more functions onto a single chip, and therefore less silicon wafers will be needed as chip production increases. According to Semiconductor Business News, TI has developed a new process technology which is able to produce about eight times more dies on a 200-mm wafer than those using the previous-generation process. By moving from 0.25 to 0.17-micron technology, Toshiba Corp. expects to double the amount of 64-Mbit dies per 200-mm wafer.

Silicon wafer suppliers are hoping for a light at the end of the tunnel as chip production shifts gears from 200- to 300-mm wafers, from which they expect to regain pricing power and a higher profit margin. A transition from 200- to 300-mm generation will however, not happen soon. According to Semiconductor Business News, by the time that 300-mm fabs begin turning out finished wafers, most industry managers believe critical dimensions will easily be in the 0.15- or 0.13-micron range.

With decreasing device dimensions and increasing processing area on a wafer, it is inevitable that less 300-mm silicon wafers will be needed in order to produce the same amount of dies. If silicon wafer suppliers are not careful enough, the forecasted demand for 300-mm wafers could be off by a mile, similar to what has happened with 200-mm wafers.

Due to high start-up costs and the cost of ownership, a 300-mm fab or superfab may need to produce four to five times more chips than a similar 200-mm fab in order to maintain reasonable returns on investment. Although solid growth for semiconductor components used in low-cost PCs and peripherals is forecasted, it is possible that these superfabs could overproduce, which consequently could trigger another round of global semiconductor oversupply.