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Time to Spend! Strategic expansion and demand response


There's no question that semi fabs are the phoenix of the recent recession.  With significant reserves as a result of well-timed, early and lasting CAPEX cuts, historical utilization lows, dramatic labor reductions, and similar far-reaching and extremely effective cost management during 2008-2009, fabs have money to spend now.

As reported by ElectronicsWeekly, with nine major fabs spending over US$1.4billion each to improve capacity quickly, there's considerable movement occurring in the semiconductor industry (cf. the recent Samsung CAPEX post here).

Some worry that the well managed inventory and resulting strengthening of ASPs may be hurt when all these new builds come on line.  Not so, say many industry analysts because not only was there a dearth of spending for many quarters, but even with these high spend CAPEX figures coming out this quarter, we're still below 2007 averages.  Furthermore, while expansion of existing lines is included in many of the spend plans, new architectures and 200mm wafers as well as new lines to support new market sectors represent critical, strategic aspects of these fab expansions: naturally memory is to be well supported, but also networking, automotive and medical are seeing important capacity upgrades globally.

Perhaps even more interesting is where many of these new builds are being located.  As mentioned in a recent MarketWatch Commentary post, the expansion is not in all the usual places.  China's Chengdu design center is experiencing a significant boom in occupancy by many big names.  Interestingly, not only are new 45nm networking chips coming on line as well as a variety of RF power transistors, 200mm IC fab, and some IC-packaging and testing facilities.

While China has been experiencing well-noted labor issues (i.e., strikes, labor shortages, pay increases, among other events), the 17% VAT on chips imported to China coupled with the growth in consumer electronics demand, translates into serious strategic considerations for plant locations.  If one is selling to China, it's best to be in China.  Witness also recent talk around the ProMOS-Elpida JV for a manufacturing plant in Chongqing, Sichuan province (cf. DigiTimes 6/8/10), an important expansion and notably not in Taiwan (NB, this is not to the exclusion of other expansions in Taiwan and elsewhere).

The question is not if but when additional moves to new Chinese provinces and SE Asia, to eventually reach Africa and the Middle East?  Check back in early July for the next MarketWatch Quarterly where we'll be focusing on the wider SE Asian geo-economic landscape for semi.

Lisa Ann Cairns, Ph.D.
Written on Wednesday, 16 June 2010 08:10 by Lisa Ann Cairns, Ph.D.

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