IC Knowledge - Utilization Effects

How does Fab utilization effect profitability?


Introduction
With 300mm wafer Fab construction costs now exceeding $2 billion dollars, wafer Fabs are becoming even more of a fixed cost asset than in the past. IC Knowledge estimates that for 300mm wafer fabrication, 40% to 50% of fabrication costs are depreciation alone. With the expense of Fabs so high and the cost structure so fixed, it is logical to assume that Fab utilization rates would have a large effect on semiconductor company profitability, at least for those semiconductor companies that have their own Fabs. Figure 1 illustrates average Fab utilization rates versus average semiconductor company profitability for the time period 1978 until 1995. The figure clearly shows close correlation between the two with a minimum Fab utilization of approximately 50% for break even.


Figure 1. Pre tax income versus utilization for the semiconductor industry: 1978 - 1995.
Date sources: SIA, ICE.

It is interesting to contrast some recently reported utilization numbers to the data in figure 1. The industry as a whole is currently reported to be at 72.7% (Silicon Strategies, 08/22/01), suggesting 10 to 15% pre tax. Chartered is reported to be at approximately 20% utilization (Silicon Strategies 08/30/01), suggesting a 15% loss. And foundries overall are reported to be under 50% (Wafer News Confidential) suggesting break even to a 5% loss.

It should be pointed out here that increasing capital costs have in all probability strengthened the utilization - profitability relationship and may have even shifted the curve down in the last five years, requiring higher utilization to make money. Clearly industry profitability is seriously hurt by the current downturn.

Why profit versus utilization for a semiconductor company appears to be linear. This discussion is in response to questions raised about our How does Fab utilization effect profitability? post. (10/8/2001)
300mm cost comparison - comparison of 130nm technology - 300mm DRAM and microprocessor wafer costs. (8/14/2001)
Chartered announces 20% utilization, how bad is that? - what is the impact of very low Fab utilization on wafer cost for 0.25µm technology, 200mm wafers. (9/5/2001)
How has the current downturn effected foundry costs? - effect of the current downturn on wafer manufacturing costs for 0.25µm technology - 200mm wafers. (8/22/2001)