IHS iSuppli: IC inventories hit record levels in Q3

hip inventories reached record highs near the end of 2012, and according to IHS iSuppli, semiconductor revenue will decline in Q1, prompting new concerns about the state of the market.

Overall semiconductor revenue is expected to slide three percent between January and March 2013, on top of a 0.7 percent decline in Q4 2012. What's more, inventory reached record levels in Q3 2012, amounting to 49.3 percent of revenue, more than at any point since Q1 2006. IHS iSuppli believes the uncomfortably high level of inventory points to the failure of key demand drivers to materialize.

The PC market remains slow and hopes of a Windows 8 renaissance have turned into a nightmare. Bellwether Intel saw its revenue drop three percent in Q4, with profit tumbling 27 percent, and the trend is set to continue. AMD is expected to announce its earnings Tuesday afternoon and more gloom is expected across the board. The only bright spot in an otherwise weak market is TSMC, which quickly rebounded after posting the lowest revenues in two years a year ago. TSMC now expects to see huge demand for 28nm products in 2013 and many observers point to a possible deal with Apple.

In addition, TSMC plans to invest $9 billion in capital expenditure in 2013, and it will likely spend even more in 2014, as it moves to ramp up 20nm production. However, Intel's plans to increase capital spending to $13 billion, up $2 billion over 2012 levels, have not been welcomed by analysts and investors. Unlike TSMC, Intel is not investing to increase capacity in the short term, it is making a strategic bet on 450mm wafer technology, which promises to deliver significantly cheaper chips compared to existing 300mm wafers. However, 450mm plants are still years away.

TSMC's apparent success has a lot to do with high demand for Smartphone's and tablets, which are slowly eating into the traditional PC market. Semiconductor shipments for the wireless segment were expected to climb around four percent in 2012 and positive trends were visible in analog, logic and NAND components. However, the mobile boom can't last forever, and we are already hearing talk of "Smartphone fatigue" and "peak Apple".

IHS iSuppli estimates the first quarter of 2013 will see growth in industrial and automotive electronics and other semiconductor markets will eventually overcome the seasonal decline, so a rebound is expected in the second and third quarters.

Semiconductor revenue could grow by four percent in the second, and nine percent in the third quarter. However, the assumptions are based on a wider economic recovery, which is anything but certain at this point. If demand evaporates, semiconductor suppliers could find themselves hit by an oversupply situation, leading to more inventory write-downs throughout the year.

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SEMI Industry spending $32.4B this year on IC gear

Fab equipment spending saw a drastic dip in 2H12 and 1Q13 is expected to be even lower, says SEMI, which reckons that the projected number of facilities equipping will drop from 212 in 2012 to 182 in 2013.

Spending on fab equipment for System LSI is expected to drop in 2013. Spending for Flash declined rapidly in 2H12 (by over 40 %) but is expected to pick up by 2H13. The foundry sector is expected to increase spending in 2013, led by major player TSMC, as well as Samsung and Global foundries.

Fab construction:
While fab construction spending slowed in 2012, at -15%,  SEMI  projects an increase of 3.7 % in 2013 (from $5.6bn in 2012 to $5.8bn  in 2013).

The report tracks 34 fab construction projects for 2013 (down from 51 in 2012).  An additional 10 new construction projects with various probabilities may start in 2013. The largest increase for construction spending in 2013 is expected to be for dedicated foundries and Flash related facilities.

Many device manufacturers are hesitating to add capacity due to declining average selling prices and high inventories.

However SEMI reckons flash capacity will grow 6%  by mid-2013, with nearly 6 % growth, adding over 70,000wpm.

SEMI also foresees a rapid increase of installed capacity for new technology nodes, not only for 28nm but also from 24nm to 18nm and first ramps for 17nm to 13nm in 2013.

SEMI cautiously forecasts  fab equipment spending in 2013 to range from minus 5 to plus 3.

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Inside TSMC – A FAB Tour

An up to date and current overview of semiconductor manufacturing technology from TSMC in Taiwan. Nicely produced and informative if you tune-out the voice-over slightly. Better access than any Fab tour.
Recommended if you have any interest in how semiconductors are made/manufactured in volume right now.

In the microelectronics industry a semiconductor fabrication plant (commonly called a fab) is a factory where devices such as integrated circuits are manufactured.

A business that operates a semiconductor fab for the purpose of fabricating the designs of other companies, such as fabless semiconductor companies, is known as a foundry. If a foundry does not also produce its own designs, it is known as a pure-play semiconductor foundry.

Fabs require many expensive devices to function. Estimates put the cost of building a new fab over one billion U.S. dollars with values as high as $3–4 billion not being uncommon. TSMC will be investing 9.3 billion dollars in its Fab15 300 mm wafer manufacturing facility in Taiwan to be operational in 2012.

The central part of a fab is the clean room, an area where the environment is controlled to eliminate all dust, since even a single speck can ruin a microcircuit, which has features much smaller than dust. The clean room must also be dampened against vibration and kept within narrow bands of temperature and humidity. Controlling temperature and humidity is critical for minimizing static electricity.

The clean room contains the steppers for photolithography, etching, cleaning, doping and dicing machines. All these devices are extremely precise and thus extremely expensive. Prices for most common pieces of equipment for the processing of 300 mm wafers range from $700,000 to upwards of $4,000,000 each with a few pieces of equipment reaching as high as $50,000,000 each (e.g. steppers). A typical fab will have several hundred equipment items.

Taiwan Semiconductor Manufacturing Company, Limited or TSMC is the world's largest dedicated independent semiconductor foundry, with its headquarters and main operations located in the Hsinchu Science Park in Hsinchu, Taiwan.

Facilities at TSMC:

1. One 150 mm (6 inches) wafer fab in full operation (Fab 2)
2. Four 200 mm (8 inches) wafer fabs in full operation (Fabs 3, 5, 6, 8)
3. Two 300 mm (12 inches) wafer fabs in production (Fabs 12, 14)
4. TSMC (Shanghai)
5. WaferTech, TSMC's wholly owned subsidiary 200 mm (8 inches) fab in Camas, Washington, USA
6. SSMC (Systems on Silicon Manufacturing Co.), a joint venture with NXP Semiconductors in Singapore which has also brought increased capacity since the end of 2002

TSMC announced plans to invest US$9.4 billion to build its third 12-inch (300 mm) wafer fabrication facility in Central Taiwan Science Park (Fab 15), which will use advanced 40 and 20-nanometer technologies. It is expected to become operational by March 2012. The facility will output over 100,000 wafers a month and generate $5 billion per year of revenue. On January 12, 2011, TSMC announced the acquisition of land from Powerchip Semiconductor for NT$2.9 billion (US$96 million) to build two additional 300 mm fabs to cope with increasing global demand. Further, TSMC has disclosed plans that it will build a 450-mm fab, which may begin its pilot lines 2013, and production as early as 2015.

To 20nm and beyond: ARM targets Intel with TSMC collaboration

The multi-year deal sees ARM tie itself even closer to TSMC, its chip-fabber of choice, as it looks to capitalise on the company's technology to help it maintain a lead over Intel for chip power efficiency.

ARM is ramping up its push to get its highly efficient low-power chips into servers by signing a multi-year agreement with Asian silicon manufacturer TSMC.
Under the deal, the Cambridge-based chip designer has agreed to share technical details with TSMC to help the fabricator make better chips with higher yields, ARM said on Monday. TSMC will also share information, so that ARM can create designs better suited to its manufacturing.

"By working closely with TSMC, we are able to leverage TSMC's ability to quickly ramp volume production of highly integrated SoCs [System-on-a-Chip processors] in advanced silicon process technology," Simon Segars, general manager for ARM's processor and physical IP divisions, said in a statement.

"The ongoing deep collaboration with TSMC provides customers earlier access to FinFET technology to bring high-performance, power-efficient products to market," he added.

The move should keep ARM's chip designs competitive with Intel's in the server market. TSMC's FinFET is akin to Intel's 3D 'tri-gate' method of designing processors with greater densities, which should deliver greater power efficiency and better performance from a cost point of view. 

By tweaking its chips to TSMC's process, ARM chips should deliver good yields on the silicon, keeping prices low while maintaining the higher power efficiency that comes with a lower process node.
ARM's chips dominate the mobile device market, but unlike Intel, it doesn't have a brand presence on the end devices. Instead, companies license its designs, go to a manufacturer, and rebrand the chips under their own name. You may not have heard of ARM, but the Apple, Qualcomm and Nvidia chips in mobile devices, as well as Calxeda and Marvell's server chips, are all based to some degree on based on ARM's low-power RISC-architecture processors.

64-bit processors

As part of the new deal, ARM is expecting to work with TSMC on 64-bit processors. It stressed how the 20nm process nodes provided by the fabber will make its server-targeted chips more efficient, potentially cutting datacentre electricity bills.

"This collaboration brings two industry leaders together earlier than ever before to optimise our FinFET process with ARM's 64-bit processors and physical IP," Cliff Hou, vice president of research and development for TSMC, said in the statement. "We can successfully achieve targets for high speed, low voltage and low leakage."

"We can successfully achieve targets for high speed, low voltage and low leakage" — Cliff Hou, TSMC

However, ARM only released its 64-bit chips in October, putting these at least a year and a half away from production, as licensees tweak designs to fit their devices. Right now, there are few ARM-based efforts pitched at the enterprise, aside from HP's Redstone Server Development platform and a try-before-you-buy ARM-based cloud for the OpenStack software.

Production processes

AMD, like ARM, does not operate its own chip fabrication facilities and so must depend on the facilities of others. AMD uses GlobalFoundries, while ARM licensees have tended to use TSMC. However, both TSMC and GlobalFoundries are a bit behind Intel in terms of the level of detail — the process node — they can make their chips to.
Right now, TSMC is still qualifying its 20nm process for certification by suppliers, while Intel has been shipping its 22nm Ivy Bridge processors for several months. Intel has claimed a product roadmap down to 14nm via use of its tri-gate 3D transistor technology, while TSMC is only saying in the ARM statement it will go beyond 20nm, without giving specifics.

Even with this partnership, Intel looks set to maintain its lead in advanced silicon manufacturing.
"By the time TSMC gets FinFET into production - earliest 2014, it's only just ramping 28nm [now] - Intel will be will into its 2nd generation FinFET buildout," Malcolm Penn, chief executive of semiconductor analysts Future Horizons, told ZDNet. This puts Intel "at least three years ahead of TSMC. Global Foundries will be even later."

Intel has noticed ARM's rise and has begun producing its own low-power server chips under the Centerton codename. However, these chips consume 6W compared with ARM's 5W.
At the time of writing, neither ARM nor TSMC had responded to requests for further information. Financial terms, if any, were not disclosed.