Fab-ulous New Chip Plants

Aug 23 2001

Deep inside Intel’s new state-of-the-art chip plant in Hillsboro, Ore., four workers in hooded white bunny suits and safety goggles huddle around a 10-foot-tall machine that etches circuits on silicon wafers. Overhead, a monorail plods along at four miles an hour, carrying a plastic container of 25 new, large silicon wafers. As an elevator lowers the plastic into place, the complex etcher begins carving miniature electronic patterns onto the mirror-smooth silicon.

This high-tech factory – still in the testing phase - looks similar to dozens of others around the world, but there’s a crucial difference. The new wafers in use here, 300 millimeters across, represent a major shift for the semiconductor industry. Their 12-inch diameter gives them 2.4 times more space for thumbnail-sized computer chips than the 8-inch wafers in wide use today. The last time the industry moved to larger wafers, replacing the 6-inch models with 8-inch versions a decade ago, the change allowed for a more modest 1.9 times as many chips per wafer. "It’s pretty obvious we’re talking about a big jump in productivity," says Bob Doering, a senior fellow at Texas Instruments. With that jump in productivity should come lower production costs and higher profits, at a time when the industry is having one of its worst years.

"We will not get out of this recession with old technology," says Craig Barrett, CEO of Intel, which is building new 300-mm plants while pushing additional technology to further shrink circuits into its existing plants and waging a price war with competitor Advanced Micro Devices. "The only way you come out of a downturn is with new products."

Semiconductor sales in 2001 could fall 21 percent from last year, surpassing 1985 as the deepest slide in industry history. Prices are down, profits are falling and giants such as Intel are cutting thousands of jobs. The new generation of 300-mm factories, costing up to $3 billion each, would allow the industry to produce this year’s $180 billion of semiconductors with half as many plants. Fifteen of these new facilities are being planned or built, from Taiwan to Germany. Most won’t be ready until next year. But their ripples are beginning to be felt across the industry.

For one thing, they will help the industry keep pace with its central doctrine: Moore’s Law, which states that processor speeds double every 18 to 24 months while prices remain constant. The fastest chips coming off production lines at the new plants should reach a blazing 4 gigahertz in 2003, twice as fast as today.

The facilities also will generate billions of dollars for machinery makers, triggering an upturn in that beleaguered market. Costing up to $5 million, however, the machinery could prove too costly for smaller chip manufacturers. That could hasten the demise of second-tier companies and leave an industry dominated by a few giants able to write large checks. Predicts ABN Amro analyst David Wu: "The days of a semiconductor company with less than $5 billion in revenue are numbered."

At Intel’s Hillsboro plant, brightly lit rooms with the antiseptic look of operating theaters are being readied as plastic tubing arcs above hulking equipment and robotic arms reach and recoil in precise mechanical gestures. New equipment, such as the monorail, automates the handling of finished wafers worth more than $300,000 a piece. To keep away dust, air in work areas of the 139,000-square-foot facility is cleansed seven to eight times a minute.

Facing a dramatic showdown with archrival Advanced Micro Devices, Intel has launched a high-price gamble, betting it can outspend AMD and force it to retreat from the PC chip business. Over the past two years the more nimble AMD, with its low-cost, high-performance Athlon processor, has staked out 22 percent of a market Intel once dominated.

So far this year, Intel has spent $5 billion on new plants and equipment. Barrett plans $2.5 billion more by December. With just $1 billion in cash, AMD will struggle to keep up. CEO W.J. Sanders III is looking for a partner to build and share a 300-mm plant. He hopes for a factory by 2004 or 2005 – well behind Intel’s 2002 starting date. With the cost advantage of 300-mm, Intel could undercut AMD’s prices and squeeze profits. "You don’t save your way out of a recession," says Barrett. "You fight your way out of a recession."

Intel’s plans call for plants in Hillsboro and Albuquerque, N.M. The factories will cost $2 billion to $2.5 billion and produce twice as many chips per square foot than existing plants. They also will offer a 30 percent reduction in production costs. "Anyone who doesn’t convert to 300-mm is going to be at a significant disadvantage," says Tom Garrett, plant program manager at Hillsboro.

Other big U.S. chipmakers are also building 300-mm plants. In East Fishkill, N.Y., IBM expects to produce chips at a $2.5 billion facility in August 2002. Texas Instruments’ Dallas plant will open late this year and increase revenue per wafer by 225 percent while production costs climb just 40 percent.

Among non-U.S. companies planning factories are DRAM memory chip makers, such as Samsung of Korea and Infineon of Germany. "They are going to be the early adopters" because of savage price competition and the demands for large volumes of chips, says Dave Gray, principal at investment banker Broadview.

The move to 300-mm fabs also could shift the industry’s center of gravity in the Far East. Ten years ago, the Japanese were slow to build plants using 8-inch wafers, and Korean companies Samsung and Hyundai took the lead. The new plants could push that dominance south to Taiwan, where a massive foundry business has taken hold. At least three plants are being planned on th Island by companies such as Taiwan Semiconductor Manufacturing Corp. and United Microelectronic Corp.

The factories will not only use larger wafers, but incorporate the latest production technologies, including copper wiring and machinery to shrink semiconductor wiring to a width one hundredth of that of a human hair. Already, these 0.13-micron circuits are being produced in limited quantities at older plants, including by Intel, reducing circuit size by more than 25 percent.

Machinery purchases for the 300-mm facilities should total $10 billion this year and grow to $16 billion by 2003. Overall, equipment sales will slip 30 percent this year, but 300-mm plants under construction have not seen budget cuts, Joseph Bronson, chief financial officer at equipment supplier Applied Materials said in July. "Some companies that were about to take the [300-mm] plunge may be further evaluating their position," Bronson explains. "But those who are investing are investing robustly."

Equipment supplier Novellus say that more than 50 percent of second-quarter orders were for 300-mm equipment, even as overall revenue grew just 3.6 percent.

Already AMD is feeling the pinch of a brutal price war Intel launched in the spring. The company saw second-quarter income plummet 92 percent while the averaging price of its processors fell to $75 from $90 in the first quarter. Intel says more price cuts are on the way. After several rounds of reductions of up to 38 percent earlier this year, Intel appears to readying cuts of up to 50 percent later this month. Publicly, AMD is defiant. "When you look at total cost, we believe we will have a competitive cost structure and a higher performing product," says spokesman John Greenagle.

In AMD’s favor is that its Athlon chip is smaller than Intel’s Pentium 4, so more can be crammed on a wafer. "We think we can make more efficient use of silicon than Intel," Greenagle says. However, the company has yet to sign a 300-mm partnership, even after several companies approached it with interest. "We will have a partner," vows Greenagle. The company also could turn to outside foundries – but that means taking a hit on profit margins to pay the foundry for the chips.

While industry leaders have begun embracing the new technology, there have been false starts before. The construction of 300-mm plants was first expected in 1997, but postponed because of the Asian financial crisis. "It really depends on the economy," says Victoria Rivera, marketing director at equipment-maker ADE. "We know people who are poised to sign the checks and go. But they are not going to sign the check until there is money in the bank."