Chartered Semiconductor Manufacturing Ltd (特許), Singa-pore's biggest chipmaker, started moving the first manufacturing equipment into its newest factory on Friday, as it works to upgrade its chipmaking systems.
The factory, using systems modeled on those created by IBM Corp, is the company's first to make 12-inch chip wafers, designed to produce chips in a more cost-effective manner than standard 8-inch wafers. It will also make more advanced chips that include more transistors.
Chartered, unprofitable for three years, is upgrading to compete with larger rivals such as industry leader Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which has made 12-inch wafers since 2000, and start-ups in China such as Semiconductor Manufacturing International Ltd (中芯國際集成電路), which plans to open a 12-inch factory by the year-end.
"The overall industry is heading in this direction," said Ivan Goh, an analyst with Dresdner Kleinwort Wasserstein in Tokyo, who rates the shares "add" and doesn't own them. "They have to do it."
The company, the third-largest in the world whose business is primarily producing made-to-order chips, will "probably" have to raise more money to completely equip the factory, Dharmo Soejanto, an analyst in Singapore with Kim Eng Securities, said.
The global market for chip sales may expand as much as 30 percent this year, after rising 14 percent last year, according to researcher Gartner Inc.
Chartered, which has accumulated losses of US$1.09 billion and cut more than 1,000 jobs since the end of 2000, may need to spend US$3 billion or more to fully equip the factory. It is scheduled to start test production in the third quarter.
Using IBM manufacturing systems as models will help attract more customers, Chartered said. The factory will make chips with transistors 0.13 micron and 0.09 micron apart. One micron is one millionth of a meter, and chips with more narrow widths between transistors can perform more functions faster.
Chartered is planning for one third of its manufacturing capacity this year to be capable of making 0.18 micron and lower chips, compared with 15 percent in 2002. Next week it is scheduled to close its oldest factory, which opened in 1989 and makes 1.2 micron to 0.5 micron chips on six-inch wafers.
"You need the newest technology, you need to generate enough cash flow for investment, and you need to be of a significant size to compete for tier-one customers," Soejanto said.
The Singapore chipmaker trails rivals such as TSMC, which is eight times as large in terms of sales, and Hsinchu, Taiwan-based United Microelectronics Corp (聯電), which is four times as big, according to IC Insights.
Chartered struck an agreement to develop chip-making systems with IBM in 2002, and is modeling its new factory, called Fab 7, after IBM's plant in East Fishkill, New York.
IBM and Chartered say they will gain more customers by allowing them to use factories belonging to either company without having to spend on customizing their designs for different manufacturing systems.
Earlier this year, IBM agreed to place orders at Chartered's new factory for some of its own customers that want to manufacture chips in more than one location. Broadcom Corp, Chartered's biggest customer last year, said it will also be placing orders at the new factory.
Broadcom, a maker of chips for high-speed Internet modems, has 14 products it is making on 12-inch wafers in orders that it places with Chartered's rivals, Hodgman said. Broadcom last year accounted for 15.1 percent of Chartered's revenue.
Chartered said Friday that the new plant will be able to produce 2,000 wafers at the end of this year and around 9,000 to 10,000 wafers by the end of 2005, which is the break-even level, Chief Executive Chia Song Hwee said. It will have a capacity of 30,000 wafers when fully equipped.
"This will help us tremendously, not only introducing the technology but also to grow our business at the leading edge," Chia told reporters.
The company, which will spend most of its US$700 million equipment budget on Fab 7 this year, will likely spend an amount "very similar" to that next year, Chia said.
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