Wafer Supplier Woes Continue

Electronic News, June 11, 2001 by Jeff Chappell

Wafer suppliers, having never reaped any significant benefits during 2000 despite a history-making upturn in the semiconductor cycle, are now having insult added to their injury during the current downcycle.

Semiconductor Equipment and Materials International (SEMI) reported recently that worldwide silicon wafer area shipments declined by 14 percent during the first quarter of 2001 compared to the fourth quarter of 2000 and are down 2 percent compared to the first quarter of last year. Wafer area shipments totaled 1.25 billion square inches during the most recent quarter, down from the 1.45 billion square inches shipped during the fourth quarter.

SEMI statistics also show that silicon wafer revenues were $7.5 billion last year, the highest since 1996, when revenues topped $7.1 billion, a modest growth of 6.5 percent. However, during that same period, the area of wafer shipments grew by about 50 percent. That's the key to the problem: Wafer prices haven't significantly recovered from the downturn of 1998 when wafer prices dipped below the cost of making them.

Following SEMI's report on wafer shipments. St. Louis-based wafer supplier MEMC Electronic Materials Inc. announced plans to cut 300 jobs by closing a 125mm and 150mm polished and epitaxial water manufacturing line at its plant in Sherman, Texas.

For its first quarter of 2001, MEMC reported net sales decreased 14 percent to $219.8 million, compared to sales of $255.2 million in the previous quarter. Net sales increased approximately 14 percent compared to the year-ago period's net sales of $193.1 million, but had MEMC Korea Co. been consolidated with during that time, as it was later in the year, the company's net sales would have reflected a 3 percent year-over-year decline.

MEMC isn't alone. In April, the Vancouver, Wash.-based subsidiary of wafer supplier Shin-Etsu Handotai Ltd. of Tokyo laid off 98 people, or about 6 percent of its U.S. workforce.

Beginning in the second quarter of this year, German wafer supplier Wacker Siltronic AG saw the volumes of its wafer shipments going down. This was not only at its facility in Portland, Ore., but throughout the company's wafer-making operations around the globe, explained Jim Ellis, president and chief executive officer of Wacker Siltronic Corp., Wacker's U.S. subsidiary.

"Then we started to see that with reduced volumes came more talk about price pressure," Ellis said.

Fortunately for the wafer suppliers, their reluctance to add capacity despite sometimes tight wafer supplies during the last upturn may have helped the current bad situation from being much worse.

"We've certainly learned a few lessons," said Brett A vants, director of marketing communications for MEMC. The industry has concentrated on making its existing capacity, particularly with 200mm wafers, more efficient rather than adding more.

"We'd certainly be in worse shape if the industry had added capacity like it had in the past," Ellis agreed.

To address their problems, wafer makers are currently working with each other through SEMI on adopting standards. "We're trying to work together in some precompetitive areas to help us reduce costs and do some things ... legally and precompetitively and work together and bring some order to the industry," Avants said. The key to establishing standards is to increase chipmaker involvement in establishing wafer-manufacturing standards, Ellis said. "We've still got a lot of work to do," he added.

While wafer suppliers work on standardization, some analysts predict a chip recovery next year. This begs the question: With wafer suppliers reluctant to up capacity, will the industry see a wafer shortage?

"It's certainly likely," Avants said, but noted that the industry's volatility makes it hard to predict.

Ellis doesn't see wafer suppliers adding capacity any time soon. "It's pretty hard to get shareholders to cut loose.., even for 300mm, if they don't think the return is there," he concluded.

However, MEMC and its competitors have the space in their current fabs to add additional 200mm capacity should it become necessary, Janine Orf, MEMC's director of investor relations, suggested.

                            Wafer Shipments
                      Millions of square inches of
                      silicon wafer area shipments
             Q1'00  Q4'00  Q1'01
Polished      955   1072    923
Epitaxial     254    306    264
Nonpolished   65     70     63
SOURCE: SEMI