Wafer fabs in Malaysia: the race has begun

Posted on July 2, 1999 
Filed Under CNET, Julian

By Julian Matthews

A race to build Malaysia’s first commercial wafer fabrication plant has begun in earnest. Three projects are in the reckoning in anticipation of a sudden spike in worldwide demand for wafers come 2001. The fabs are led by 1st Silicon (M) Sdn Bhd, Wafer Technology Malaysia Sdn Bhd and Mimos Bhd.

By a quirk of geographical fate, all three are situated a few hundred kilometers from each other, but distance accounts for nothing when one is constantly looking over one’s shoulder. Their stock reply that the market is big enough to accommodate three new players belies growing rivalry. Already they seem all geared up for battle mode.

In May, Wafer Technology Malaysia (WTM) threw its hat into the ring when it set up a sales office in Sunnyvale, California, and claimed it was ready to take orders for prototypes even though the plant would not be ready in a year.

Not to be outdone, 1st Silicon said it will set up a sales office in the Silicon Valley by the third quarter of this year.

Mimos, notably the least ambitious of the three new combatants, remained hushed about its marketing strategy except to say it was “looking at global customers”.

The jostling to secure customers has turned the heat on in an industry otherwise dampened by the fallout from the regional crisis and marred by inventory overruns.

The three pioneer fabs also herald a new age for Malaysia’s electronics industry.

In recent years, the export and import of electronic components were canceling each other out, suggesting there was little in terms of value-add in the industry.

Without the higher value-add that only an advanced wafer fab could bring, the local semiconductor industry, which is dominated by American and Japanese multinationals, seemed unlikely to grow.

Several irons in the fire in recent years have also fizzled out, aggravating the situation.

A US$800 million wafer fab at the Kulim Hi-Tech Park in the northern state of Kedah, led by Taiwan’s Hualon Corp and announced in 1994, never got off the ground.

Another US$1.2 billion foundry to be built in Sarawak went belly up when key staff of the startup, InterConnect Technology Sdn Bhd, clashed with investors over non-payment of salaries.

At the height of the financial crisis last year, semiconductor players Atmel Corp and VLSI Technology, Inc. backed out of two separate wafer fab projects costing over US$2 billion in Kulim, citing depressed market conditions and a worldwide credit squeeze.

The current projects by WTM, 1st Silicon and Mimos are indicative that the semiconductor industry will see better days in the new millennium.

Riding the next wave

As fabless chip companies become a more potent factor in the industry, and more integrated device manufacturers (IDMs) rely on outsourcing production, demand for silicon wafers is expected to rise leaving room for new entrants to cash in.

“We’ll be ready to ride the wave,” says Claudio G. Loddo, chief executive officer of 1st Silicon. 1st Silicon has taken over where InterConnect Technology left off, building a fab in rainforest-clad Sarawak on the island of Borneo. By far, it appears ahead of its two rivals, with construction well under way despite the fact that the plant is in the middle of nowhere on the global semiconductor map.

“We are on schedule. There won’t be any delays. The fab plant will be up and qualified by the third quarter of 2000 and in production by the end of that year,” said a confident Loddo.

At peak volume production, the US$1 billion plant will have a capacity to make 30,000 200mm (eight-inch) wafers per month using 0.25 micron; and later 0.18 micron process technologies licensed from Sharp Corporation which will be 1st Silicon’s main customer.

Backed by the Sarawak State Government, the plant is being built on a 39.4 hectare site in the Sama Jaya Free Industrial Zone near the state capital of Kuching. The plant will have a 8,500 sq m Class 100K cleanroom.

German technology group Jenoptik AG won the US$300 million contract to build the fab and commissioned its subsidiary Meissner + Wurst Zander AG as turnkey contractor. M+W Zander has designed and constructed other plants in Europe, Singapore, Taiwan and South Korea.

Loddo said 1st Silicon has secured a total of US$300 million in loans so far to fund its initial capital layout, of which US$200 million is from Ausfuhrkredit-Gesellschaft mbH, a consortium of German banks, and another US$100 million from another European source. The loans are guaranteed by the Malaysian government.

1st Silicon will be a pure-play foundry and count on U.S. and European customers, and possibly Malaysian-based customers with U.S. and European links. “By the time we come onstream we expect inventories to be reduced, and the market to recover,” said Loddo.

The CEO was, however, realistic of 1st Silicon’s initial market share, suggesting he would be happy with “breadcrumbs”. “Other players have extensive contracts with the IDMs. Things are not like the good old days as there is intense competition now,” he noted. 1st Silicon currently has 110 staff and expects to expand that to 200 by year’s end.

Loddo, however, challenged criticisms that Sarawak lacked the resources and supporting infrastructure to host a commercial fab. “We have consistent power supply and abundant water, and the state is building a toxic waste treatment plant.”

Trials and tribulations

Like 1st Silicon, WTM has also fought hard to keep its wafer fab project on track. Construction on the US$1.2 billion plant in Kulim was stalled for over a year-and-a-half. The company found itself scrambling after VLSI Technology, Inc. pulled out as technology partner and 10 percent equity holder early this year citing that the Kulim fab was “superfluous” in light of its own upgraded fab in San Antonio, Texas.

In May, WTM announced it had roped in San Jose-based LSI Logic Corp as its new technology partner and would pay US$120 million for rights to the latter’s 0.25- and 0.18-micron process technologies.

To build a customer base, WTM has also set up Silterra (M) Sdn Bhd to serve as its sales and marketing arm in Sunnyvale, California. Under the agreement, Silterra will have immediate access to “bridge capacity” from LSI Logic’s newly opened wafer fab in Gresham, Oregon. Silterra will also qualify customer designs, and use its premises to train employees for work in the Malaysian factory. LSI Logic will also be guaranteed capacity from the Malaysian fab, which is expected to produce less than 50 percent of the plant’s output.

WTM CEO and president Cyril Hannon said the project is still on course despite the delay because it is backed by the Malaysian government. “Malaysian interests in the fab have not deteriorated. We’ve taken the time to re-rationalize the project as we move forward,” he added.

Hannon, who was vice president of Operations for LSI Logic before climbing onboard with WTM, said the 200mm fab is scheduled to be operational by late 2000 at the earliest. The plant will have the capacity to produce 30,000 wafers per month by 2002.

Meanwhile, near the capital city of Kuala Lumpur, government-funded research house Mimos Bhd has embarked on Phase 2 of its own wafer fab project aimed at 0.5 micron, and later 0.35 micron process technologies.

“By the end of 2000, we will have an eight-inch line producing 6,000 wafers monthly of CMOS (Complementary Metal-Oxide Semiconductor) devices for the commercial market,” said Mokhtar Ahmad, managing director of Mimos Semiconductor (Misem), the strategic business arm of Mimos.

Misem set a precedent in local wafer design when it produced 16-bit Reduced Instruction Set Computing (RISC) microprocessors in May 1997, pooling the skills of foreign-trained Malaysian experts. (Malaysia had otherwise never designed an integrated circuit locally, RISC or otherwise.)

Mokhtar said Misem currently has 180 staff, all local, who have been trained in-house with the help of various technology partners. He did not disclose the capital layout for Phase 2 of the project, although it has been estimated that almost RM100 million (US$26.3 million) has been spent on the initial experimental phase.

Mokhtar believed the demand for wafers will outstrip capacity and there will enough to go around for all players. “The fab will be complementary to other fabs, both locally and abroad, and we will each have a piece of the pie,” he said.

Whether Malaysia can pull this off, like its Singaporean and Taiwanese counterparts have–and rise up the value chain–remains to be seen. Come 2001, Malaysia’s three newcomers will either be thriving or crumbling under the weight of intense competition in the cutthroat wafer business. For now, market watchers will be reading the signs closely and scrutinizing the trio’s moves to see whether the nation can–once again–prove its skeptics wrong.

Published in CNET Asia July 2, 1999: Pg 1 | Pg 2 | Pg 3

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