IC Knowledge - Fab Costs

Can the semiconductor industry afford the cost of new Fabs?

Introduction
The capital cost to build and equip a semiconductor fabrication facility has increased exponentially over time from approximately $6 million in 1970, to in excess of $2 billion for next generation 300mm Fabs coming on-line in the 2001- 2002 timeframe, see figure 1 left axis. If the current trend in fabrication facility costs continues, the cost of a Fab will exceed $10 billion by 2007, and may reach $18 billion by 2010. The magnitude of these costs have led several observers to question whether the industry can afford to continue on the current trend line. At IC Knowledge we believe that while increasing Fab costs may change industry dynamics, it is the economics of the facilities that really determine whether these trends can continue.

Cost drivers and productivity effects
Rising Fab costs are driven by, larger average Fab sizes on a wafers-out per month basis, smaller linewidths with concomitant increases in process complexity, and larger wafer diameters. All three of these factors increase the number of components a Fab can produce. Increasing wafer volume increases output linearly with number of wafers out, wafer size increases - increase output as the wafer radius squared, and linewidth shrinks increase output as the square of the original linewidth divided by the square of the new shrunk linewidth. The economics of increasing Fab capital costs may be estimated by comparing normalized increases in capital spending to the normalized increase in output the capital investment purchases, see figure 1 right axis.


Figure 1. Facility cost trends.

From figure 1 it can be seen that while the cost of a Fab has been increasing exponentially, the capital cost per unit of output has been decreasing exponentially, i.e., the increases in capital cost are more than offset by the productivity gains. This analysis suggests that Fabs are becoming more economical. It is however a fact that the price per function is decreasing exponentially over time (see the next section) and capital costs are becoming an increasingly large component of the overall manufacturing cost of a product, suggesting that capital economics are not improving as rapidly as prices are decreasing.

Fab cost as a percentage of industry revenue
Another measure of Fab affordability is to compare the cost of a Fab to the size of the overall semiconductor industry. In 1960 the average Fab cost represented 0.125% of the total industry revenue, by 2000 the latest 300mm Fabs have reached 1.28% of total industry revenue, although the average Fab is also much bigger and this may be driven by consolidation as much as anything.

How will the cost trend affect the industry?
Even if Fabs are becoming more economical the huge costs will limit the number of companies able to afford a Fab. This suggests that very large Integrated Device Manufacturers such as Intel, Toshiba, NEC, Samsung and TI will still build their own Fabs, but that many mid tier players may be forced to foundries. Another result of the trend in Fab costs may be consolidation in certain product segments. Our reasoning is as follows. We believe that a well run Fab at an IDM or at a foundry running at similar utilizations will have similar costs. Historically foundries have enjoyed higher utilizations than IDMs due to the immaturity of the foundry business model - foundries were still capturing market share. Over time, and we may be seeing this in the latest downturn, foundry utilization should fluctuate as much or more than IDMs. This suggests to us that foundry manufacturing costs will be similar to IDM manufacturing costs and since foundries want to make a profit, foundry customers will pay more for a foundry wafer than it would cost to make the same wafer themselves. For products where design value added is high, foundries are and will continue to be an economically viable option. For commodity products such as DRAM, Flash, and even X86 type microprocessors, competitiveness will require that companies make their own product. If Fabs are too expensive for all but the largest companies, then consolidation in commodity products to large IDMs or consortiums of IDMs should occur. It should be pointed out here that of the 43 - 300mm Fabs in the IC Knowledge database that are either planned or actively underway, 13 are some kind of multi-company partnership.

Related articles

Cost per function trends - DRAM and Intel microprocessor costs per megabit and million instructions per second respectively, since 1970. (8/14/2001)