Malaysian IC Wafer Fabs Yet to Start Operating

Posted on December 17, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

December 17, 1998 (KUALA LUMPUR) — Two government-backed advanced wafer fabrication plants at the Kulim Hi-Tech Park in Malaysia have yet to get off the ground.

Sources close to the projects said they were affected by the global chip market downturn and the inability to raise local or foreign funding.

Such delays underline the severity of Malaysia’s battered economy and its souring investment climate.

The two fabs, costing over US$2 billion, were supported by the government investment arm Khazanah Nasional Berhad. Atmel Corp. and VLSI Technology Inc. of the United States are technology partners in the fab projects.

Announced amid much fanfare in October 1997, the fabs were expected to make Malaysia a force in front-end microchip manufacturing. The country’s relatively inexpensive labor costs already make it a popular manufacturing site for back-end assembly and testing.

Construction had been set to begin in early 1998, and the fabs were planned to be operational by the third quarter of 1999, with each fab producing 25,000-28,000 units of 200mm wafers monthly using 0.25 micron technology.

However, construction of the fab facilities has yet to begin.

Donald Colvin, Atmel’s chief financial officer and vice president, said the company had not decided to pull out yet, but that financing was “rather tight” due to the depressed microchip market and worldwide credit squeeze.

“The semiconductor sector is in the middle of its worst down period in the last 35 years, and this has pushed out the market need for this new fab. Atmel does not need to build a fab that the market does not require,” he said.

Colvin explained that a revised plan with joint-venture partner Khazanah Nasional is still on target to meet expected market requirements, but that it is subject to obtaining funds.

He did not say when the project is scheduled to begin but suggested that 2000 is not a “drop dead deadline.”

Atmel had a 60 percent stake in the venture and Khazanah Nasional the remaining 40 percent. The joint venture had an initial capital layout of US$830 million of which US$275 million was to be funded by equity.

The San Jose, Calif.-based Atmel is a producer of nonvolatile memory chips, microcontrollers and programmable logic devices. It underwent a restructuring in the middle of this year, and laid off 650 staff. Also, it cut production at its fabs in France and Colorado Springs, Colorado.

Sunil Mehta, vice president and treasurer of VLSI Technology, indicated that a lack of financing also was hampering the other large fab project, led by local start-up Wafer Technology Malaysia Sdn Bhd (WTM). It is expected to cost US$1.2 billion.

“One of the conditions of our involvement requires WTM to be able to obtain third-party financing for the project. Currently, we do not have any indications that bank financing has been arranged, so no firm contracts have been drawn up,” Mehta said.

WTM CEO and president Cyril Hannon said that the fab remains on course despite the delay.

“Malaysia’s interest in the fab has not deteriorated, but we’ve taken time to rationalize the project as we move forward,” Hannon said.

Hannon noted that the company is aiming for 0.18 micron technology. He said the fab is scheduled to start by the latter half of 2000. Hannon added the projected costs of US$1.2 billion for the fab may have “incremental rises for equipment and tools.”

A source close to the WTM and Atmel projects explained that the fabs are unlikely to be operational until 2001 because of the time needed to construct and equip advanced wafer fabs.

WTM had been expected to convert and upgrade an older fab facility to serve as a pilot line for training, process development and customer qualification.

On the collapse of previous fab ventures in Malaysia, Hannon said: “The market made the decision. There were several irons in the fire and it’s prudent that market forces determined who should survive.”

Published in Asia BizTech, Dec 17, 1998

by Julian Matthews, Asia BizTech Correspondent

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