What Does New Fab Activity Have to Say About Future Equipment Spending and Fab Materials?
New fabs starting construction means more new business for equipment and materials companies in the future. While this is generally true, it does however beg the vital questions of who, when and where. These questions are vital to anyone marketing to chip companies or even to chip companies engaged in competitive analysis. Strategic Marketing Associates' FabFutures, a multi-worksheet Excel spreadsheet now marketed by SEMI and Strategic Marketing Associates answers these questions.
There are four distinct phases in the life of a new fab. 1.) Construction begins, 2.) Equipping begins, 3.) 1st Silicon, or equipment and process qualification and 4.) Beginning of volume production. Each of these phases is shown in the Fab TimeLines figure below for eight quarters 9Q2 05 to Q1 07)
For each phase we list the value of the fab as measured by its total cost when fully equipped or ramped to full capacity. Thus, for example, in the third quarter of this year the cost of the fabs starting construction was $8.5 billion and in the current quarter we expect the value of fabs starting construction to fall to $5 billion.
This is vital information for those involved in fab construction and facilitization. We expect a fall-off of new construction lasting through the second quarter of 2006, and then a recovery. In the first quarter of 2007, the value of new fabs starting construction will exceed $10 billion.
The Fab Timeline is a dynamic graph. In FabFutures, users can click on a bar graph and see the underlying fab data for planning purposes. After a fab breaks ground, in roughly a year’s time, equipment begins to be installed. The installation of process equipment usually does not take place all at once, but is spaced out over a period of time that can last a year or longer, depending on market conditions. Thus the beginning of equipping marks the start of an equipment spending stream, associated with the ramp of a new fab. We expect the value of fabs starting equipping in the fourth quarter of this year to be $11.5 billion. This spending for hook-up and equipment and software and other associated capital expenses of an individual fab will last through all of 2006 and into 2007 in most cases. Thus with the Fab Timeline we are laying out a roadmap of future sales into individual fabs.
After equipment moves into a fab, it needs to be qualified on silicon with an appropriate process. This too is the beginning of a stream, a growing stream of material usage as the fab moves from 1st silicon into volume production. Again, the fourth quarter of this year will see peaks in new fab activity, this time for the value of fabs beginning 1st silicon and entering into volume production.
By being aware of the dates when these phases of a new fab, or milestones, are met, equipment vendors and materials companies can plan for and target future sales into particular fabs. For example in the “Milestones” figure below, in the fourth quarter of this year, 13 fabs that will being equipping, an additional 28 fabs that will begin either first silicon or volume production and 6 fabs starting
In addition to analyzing milestones crucial for planning, it is also important for suppliers to the chip industry to understand and plan for regional shifts in new capacity and new equipment spending. For the last five years, beginning in 2001, Asia-Pacific has accounted for more at least 50 percent of all new fab capacity beginning construction. In terms of 300mm capacity, Taiwan has more capacity online than the US.
We estimate that in terms of actual spending for 300mm equipment, Asia-Pacific will outspend all other regions. More than fifty percent of spending for such equipment in the second and third quarters of this year was in Asia-Pacific (see “Equipment Spending” figure below). The region’s share of 300mm spending will fall to between 40 to 44 percent as new 300mm fabs ramp up in the US, Japan and Europe.
The shift of chip manufacturing to Asia-Pacific is quite dramatic and can be seen clearly by a glance at construction trends. During the period from the second quarter of this year to the first quarter of 2007, we expect as many as 49 new fabs to start construction and 33 of these will be in Asia-Pacific. Both China and Taiwan will be tied for the largest number of new fabs starting construction, as 11 each. However, as can be seen from the “Construction Spending” figure below, construction spending in Taiwan will be more than double that in China or the US or Japan. The reason why construction spending for Chinese fabs is relatively low compared to the number of fabs starting construction there is due to the relatively low technology level of many of the new fabs there. Not all new fabs in China have larger geometries and smaller wafer sizes. SMIC, for example, plans to have 65nm in production by the end of 2006.
The roadmap laid out in FabFutures shows on a fab by fab basis that spending for equipment and materials should grow throughout 2006 and into 2007, barring a crash in the general economy. Judging by the levels of new fab activities, the fundamentals for suppliers to the chip industry look good.
Strategic Marketing Associates
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