Dongbu Forges On

Electronic News, June 18, 2001 by Tom Murphy

Korean foundry ramps up amid massive economic downturn

It was a dark and stormy night when Dongbu Corp. brought forth its latest endeavor into the world.

One of Korea's largest corporate conglomerates launched a capital-intensive foray into the dedicated IC foundry business amid one of the sharpest declines in demand for chips that the technology sector has ever experienced.

Undaunted, the backers of Dongbu Electronics Co. Ltd. of Seoul, South Korea, announced volume production in its Class 1 cleanroom on April 4 during a time when established pure-play foundry players were seeing utilization rates at their own fabs drop below 50 percent.

Despite the downward pressure on wafer prices to be expected from such a fallout, Dongbu also announced three customers who were having wafers "fabbed" at its shiny, new, 622,000-square-foot facility. They include a U.S.-based fabless semiconductor company that designs chips for workstations, servers and routers; a Korean fabless semiconductor company; and Tokyo's Toshiba Corp., the world's second-largest semiconductor company.

Dongbu finds itself in the same boat as other fledgling foundry companies such as First Silicon and Silterra, both of Malaysia. San Jose-based Gartner Dataquest foundry analyst Jim Hines said the prospects for these companies are good in the long-term, when customers get locked out of the larger foundries because demand is so intense and capacity runs out. Such was the case in 2000, but now each of the smaller players will have to prove they have the fortitude to survive during a period where demand has dropped off dramatically.

"What it comes down to is the commitment of the investment bankers and if they can weather this period of slow demand," Hines said. "If they can, the prospects for companies such as Dongbu and Silterra (Malaysia Sdn. Bhd.) look attractive. Dongbu has some customers, and with Toshiba as an investment partner as well as an investor in technology, they have an interest in taking up some capacity. The trick is for them to branch out and get customers beyond that relationship, and in the short term it will be difficult."

Peter Hillen, executive vice president of worldwide marketing and sales for Dongbu, said the company is definitely oriented toward the long-term as it views opportunities a few years away as holding more promise for the company than those in its immediate future.

"Unless you're a niche player in the semiconductor market, such as Liner Technology, I really don't think you can shelter yourself from the (boom-bust cycle of the industry)," Hillen said. "The foundry business is not a niche business. We are going to be driven by macro economic trends."

Dongbu hopes to capitalize on the growing "fab lite" trend, where traditional integrated device manufacturers look to outsource their semiconductor wafer production, Hillen said. That trend emerged as a real and enduring phenomenon during the last upswing in demand.

With that in mind, Dongbu wants to reserve a significant portion of its capacity for fabless companies, Hillen said. There are 80 fabless companies in Korea that Dongbu hopes to market to, Hillen said, as well as the hundreds of fabless companies abroad.

Aside from its Malaysian and Chinese counterparts, Dongbu will be offer political stability and an existing manufacturing infrastructure that is already serving 26 fabs.

Dongbu will offer CMOS, mixed signal and embedded flash processes from 0.25-micron technology to 0.13-micron technology. Dongbu has also taken on Toshiba as its technology partner, a move intended to bring the company up-to-speed quickly in the wafer processing business, according to Hillen. Toshiba has invested $50 million into the foundry and made another equity investment in return for capacity at the foundry.

The company then plans to offer process technology that is compatible with Taiwan Semiconductor Manufacturing Co. (TSMC). Many companies design their wafers to TSMC's design rules, so when the giant Taiwanese fab runs out of capacity, Dongbu can offer a competitive process, Hillen said.

Now producing just 5,000 eight-inch equivalent wafers per month (wpm), Dongbu hopes to ramp up to 20,000 wpm by the end of the year and 45,000 by early 2003.