News

Microchip Makers Avoid Building Plants

November 5, 2005

SAN FRANCISCO : The semiconductor industry is being forced to abandon the idea of owning their own plants as costs for new factories reach $3 billion and more, leaving manufacturing concentrated in the hands of a few big players.

Speaking at the Reuters Semiconductor Summit, many executives said that they preferred to deal with Taiwanese and other chip manufacturers that work with a variety of design firms as contract suppliers.

Some companies have begun banding together in three- and four-way partnerships to fund plants. Eventually, only the world's largest chipmakers -- Intel Corp. and Samsung Electronics -- and a handful of others like Texas Instruments may build their own fabrication plants

Specialty chipmaker LSI Logic Corp. is the latest major semiconductor maker to elect to give up factories, known fabs, for fabrication plants, as the cathedrals of the computer age are known. Instead, LSI is joining the vast majority of chip designers who have gone "fabless". It previously relied on a "fab-lite" strategy in which it contracted out most of its production to Asia while operating its sole remaining plant.

It is currently seeking a buyer for its Gresham , Oregon plant. LSI aims to keep some production at the plant after it changes hands and shift new production to foundry suppliers now mostly located in Asia , Chief Executive Abhi Talwalkar said. "The decision was pretty straightforward," Talwalkar said. "The economics around deploying next-generation process technology and building a fab (fabrication plant) requires that you have $8-10 billion dollars of revenue," he said.

Arithmetic is driving the consolidation. The latest 300 millimeter, or 12-inch-wide, silicon wafers from which computer chips are made offer 2.25 times the capacity of the prior generation of 200 millimeter wafers, analysts note.