David Lammers

Capex Decisions May Boost Richardson, Luther Forest
November 7, 2007

The cutbacks in foundry capital expenditures (see Dataquest Predicts 2008 Foundry Capex Decline) may increase chances that new fabs will be built in Richardson, Texas and at the Luther Forest technology park near Albany, N.Y.

Texas Instruments has built its business relationship with cellphone maker Nokia partly on TI’s ability to never miss a shipment. TI is on the fence about whether it will equip its empty Richardson shell for production at the 32 nm generation. One TI technologist says Richardson will never be equipped.

If TSMC and UMC go ahead with plans to sharply reduce capital spending next year, it could give TI cause to rethink how much it can rely on the foundries to meet its volume cellphone IC shipments. One logical course would be to sell the Richardson shell to a foundry so TI and other foundry customers can share the huge volumes needed to support a 300 mm fab.

TI’s thinking about the Richardson fab connects with AMD’s own considerations. AMD has said it will make up its mind soon about whether or not to build a fab at Albany. It probably will, given the huge subsidies being offered by the Empire State.

AMD is evaluating TI’s ability to make the UltraSparc processors for Sun Microsystems at UMC. If TI can use foundries, meet performance goals for servers, and keep Sun happy, that will influence AMD’s long-range thinking as well. The next-gen Fusion product lineup from AMD will stay within a moderate performance envelope that the leading foundries can make just as well as an internal AMD fab. And much of the Fusion production will be on bulk wafers, not the trickier SOI wafers. 

One caveat is that AMD's patent agreement with Intel allegedly contains provisions that the X86 silicon, or much of it, must be made at AMD's own fabs.

If the foundries do go ahead and slash capex spending next year, and if the world demand for chips spikes, even big foundry customers like TI and AMD could face rising wafer costs, tight supplies, and unhappy customers. It could happen. Look at September chip sales. The Semiconductor Industry Association reported worldwide sales in September were $22.6 billion, a second month of unexpectedly strong gains. The pessimism borne of excess inventories early this year and declining memory ASPs is rightfully influencing capex decisions. However, shooting behind the duck never puts food on the table.

While the foundries have their pulse on demand better than anyone, executives in Asia historically underestimate the ability of the U.S. economy to rebound and grow. That happened to the Japanese DRAM vendors, who looked at U.S. budget deficits and other social ills, then vacillated on investments.

Will Taiwan’s executives similarly underestimate demand? IDMs require a comfort zone of excess capacity to keep their customers happy, and that requires steady capex investments by the large foundries.

If TI goes ahead with Richardson, and AMD builds at Luther Forest, it would indicate that the IDM to foundry relationship is finding a new balance point.

Posted by David Lammers on November 7, 2007 | Comments (0)