Semiconductor Contract Manufacturing Services Worldwide, 1996

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SEMICONDUCTOR CONTRACT MANUFACTURING SERVICES WORLDWIDE 1996

TABLE OF CONTENTS

PERSPECTIVES

9601 5/20/96 1995 Fabless Semiconductor Review

9602 6/3/96 United Microelectronics Corporation

9603 8/26/96 Semiconductor Contract Manufacturing Capacity Update: Is There a Foundry Capacity Glut Looming?

9604 9/28/96 Worldwide Fabless Semiconductor Company Directory

9605 11/25/96 1996 Semiconductor Cost Model

9606 12/16/96 Semiconductor Contract Manufacturing Market Share

9607 12/16/96 Worldwide Planned IC Manufacturing Capacity Outlook

9608 12/30/96 The Year in Review: Developments in Semiconductor Contract Manufacturiag in 1996

9609 1/27/97 Legal Issued in Foundry Manufacturing

MARKET TRENDS

9601 5/31/96 Semiconductor Five-Year Forecast Trends -- Spring 1996

9602 12/23/96 Semiconductor Contract Manufacturing Wafer Price Trends

REPORTS

9601 4/1/96 Semiconductor Contract Manufacturing (Focus Report) Dataquestj T p D nr

251 River Oaks Parkway • San Jose • CA • 95134-1913 • Phone 408-468-8000 • Fax 408-954-1780

Worldwide Semiconductor Contract [Manufacturing (Foundry) IVJaricet to Triple by 2000

Dataquest has completed a comprehensive study of the worldwide semiconductor contract manufacturing (SCM) industry. SCM consists largely of traditional semiconductor foundry, with a small amount of OEM/ASIC business. The worldwide SCM market is expected to triple from U.S.$6.2 billion in 1995 to U.S.$18.5 billion by 2000. Demand for SCM services in 1996 through 2000 is projected to grow in all four regions of the world, with North America continuing to accotmt for more than half the SCM market. Table 1 shows the projections for SCM market by region for 1993 through 2000. Strong growth of North America-based fabless semiconductor companies wiU continue to fuel demand for SCM services in North America. An emerging fabless industry in Asia/Pacific is also likely to spur the growth of the SCM market. SCM growth in Japan and Europe will continue to rely on integrated device manufacturers outsourcing an increasing amount of IC manufacturing to foimdry.

Clients of Dataquest's new Semiconductor Contract Manufacturing Worldwide service should receive a copy of a Focus Report, "Semiconductor Contract Manufacturing," in the next couple of weeks. Others wishing to purchase the report should contact their regional Dataquest sales representative.

Table 1 Worldwide SCM Market Forecast by Region, 1993-2000 (Millions of U.S. Dollars) r CAGR (%) X993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Worldwide 3,222 4,565 6,219 7,555 9,329 11,655 14,731 18,525 26.3 North America 1,537 2,200 3,265 4,180 5,313 6,801 8,776 11,319 31.4 Japan 1,367 1,789 2,192 2,483 2,963 3,554 4,278 5,082 19.0 Europe 248 471 592 674 765 920 1,165 1,452 20.6 Asia/Pacific 69 105 170 218 288 380 513 672 36.3 Source: Dataquest (April 1996)

SCM Capacity Demand Exceeds Supply into Early 1997

Dataquest also surveyed a large number of SCM suppliers and users for their projected SCM capacity supply and demand. Analysis of the results reveals a likely reversal of the SCM

undersupply of 1994 through 1996 to an oversupply in 1997 through 1998. The projection of the SCM supply and demand imbalance for 1995 through 2000 is shown in Figure 1. Undersupply of SCM capacity m 1995 has been extended to 1996, resulting m a continuation of firm foundry • wafer prices. However, with the recent slowdown m semiconductor demand in specific segments, the significant increase of capacity added recently in the industry, and the possibility of rising memory-to-foundry capacity conversion stemming from the transition from 4Mb to 16Mb, there are growing signs of the formation of an oversupply in SCM capacity, specifically in the higher linewidth geometry (0.6 micron to 0.8 micron and higher). This is expected to occur durmg 1996. Leading-edge SCM capacity, at 0.5 micron and less, is expected to continue to be in short supply well into 1997. Moreover, sizable new foundry capacity is being added by existing and new SCM suppliers in response to the serious shortage of SCM capacity of recent years. Much of the added capacity — almost all with technology of 0.5 micron and less—will come into production during 1997 and 1998. Continuation of the SCM capacity ramp-up in 1997, as now planned, will likely lead to significant oversupply of 3 percent in 1998 and 7 percent in 1999. An oversupply will exert downward pressure on foundry wafer prices— a situation that may spur demand growth that will, in turn, bring more balanced SCM supply and demand by 2000.

Figure 1 Worldwide SCM Capacity Supply and Demand Imbalance Projection

Percent MSI Oversupply or Undersupply

1995 1995 1997 1998 1999 2000

Source: Dataquest (April 1996)

By Calvin Chang

Dataquest Forecasts Worldwide Semiconductor Contract IVianufacturing IVIarlcet to Tripie by 2000 New Dataquest Program Offers Exclusive Look at This Explosive Market

San Jose, CaHf., April 22,1996—The worldwide semiconductor contract manufacturing (SCM) market is projected to triple from $6.2 biUion in 1995 to $18.5 biUion by the year 2000, according to a new Dataquest report. The trend toward SCM is a megatrend similar to those that have evolved within the electronic equipment markets. The semiconductor contract manufacturing market consists largely of traditional semiconductor foundry and a smaU amount of a newly defined segment called OEM/ASIC.

"The strong grow^th of North America-based fabless semiconductor companies w^ill continue to fuel the demand for SCM services," said Calvin Chang, senior industry analyst and program manager in Dataquest's Worldwide Semiconductor Contract Manufacturing program. "An emerging fabless industry in the Asia/Pacific region is also Ukely to spur the growth of the SCM market. On the other hand, SCM growth in Japan and Europe will continue to rely on integrated device manufacturers outsourcing an increasing amount of IC manufacturing to foundry."

Demand for SCM services will continue to grow in all four regions of the world. The North America region will continue to accotint for more than one half of the SCM market through the year 2000 (see Table 1). Table 1 Worldwide Semiconductor Contract Manufacturing Market Revenue Estimates and Forecast (Milliong of U.S. Dollars) Region 1994 1995 1996 1997 1998 1999 2000 North America 2,200 3,265 4,180 5,313 6,801 8,776 11,319 Japan 1,789 2,192 2,483 2,963 3,554 4,278 5,082 Europe 471 592 674 765 920 1,165 1,452 Asia/Pacific 105 170 218 288 380 513 672 Worldwide 4,565 6,219 7,555 9,329 11,655 14,732 18,525 Source: Dataquest (April 1996)

-MORE- Dataquest Forecasts Worldwide Semiconductor Contract Manufacturing Market to Triple...Page 2

Additional information about the SCM market is available in the Focus Report titled Semiconductor Contract Manufacturing. Dataquest has spent the last year researching and characterizing the SCM and foundry markets and has issued this new comprehensive report covering business and technology trends, including wafer pricing. A supply and demand analysis through the year 2000 is also presented.

"This report represents the only body of research compiled which encompassed both fabless and nonfabless company demand in a global fashion, including Japan," said Clark Fuhs, director of Dataquest's Worldwide Semiconductor Manufacturing program. "We have performed supply analysis at the silicon wafer level to arrive at our conclusion of tight supply into 1997."

For more information about subscribing to this program, please call 800-419-DATA. More information about Dataquest's programs, descriptions of recent research reports, and fuU text of press releases can be found on the Internet at http://www.dataquest.com.

Dataquest is a 25-year-old global market research and consulting company serving the high- technology and financial communities. The company provides worldwide market coverage on the senviconductor, computer systems and peripherals, commvmications, document management, software, and services sectors of the information technology industry. Dataquest is a Gartner Group Company.

### Dataquest^ Z ^^ ^

251 River Oaks Parkway • San Jose • CA • 95134-1913 • Phone 408-468-8000 • Fax 408-954-1780

Worldwide Semiconductor Contract Manufacturing (Foundry) IVIarket to Triple by 2000

Dataquest has completed a comprehensive study of the w^orldwide semiconductor contract manufacturing (SCM) industry. SCM consists largely of traditional semiconductor foundry, with a small amoutnt of OEM/ASIC business. The worldwide SCM market is expected to triple from U.S.$6.2 billion in 1995 to U.S.$18.5 biUion by 2000. Demand for SCM services in 1996 through 2000 is projected to grow in all four regions of the world, with North America continuing to account for more than half the SCM market. Table 1 shows the projections for SCM market by region for 1993 through 2000. Strong growth of North America-based fabless semiconductor companies will continue to fuel demand for SCM services in North America. An emerging fabless industry in Asia/Pacific is also likely to spur the growth of the SCM market. SCM growth in Japan and Europe will continue to rely on integrated device manufacturers outsourcing an increasing amount of IC manufacturing to foundry.

Table 1 Worldwide SCM Market Forecast by Region, 1993-2000 (Millions of U.S. Dollars)

CAGR ("/«) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Worldwide 3,222 4,565 6,219 7,555 9,329 11,655 14,731 18,525 26.3 North America 1,537 2,200 3,265 4,180 5,313 6,801 8,776 11,319 31.4 Japan 1,367 1,789 2,192 2,483 2,963 3,554 4,278 5,082 19.0 Europe 248 471 592 674 765 920 1,165 1,452 20.6 Asi^acific 69 105 170 218 288 380 513 672 36.3 Source: Dataquest (April 1996)

SCM Capacity Demand Exceeds Supply into Early 1997

Dataquest also surveyed a large number of SCM suppliers and users for their projected SCM capacity supply and demand. Analysis of the results reveals a likely reversal of the SCM undersupply of 1994 through 1996 to an oversupply in 1997 through 1998. The projection of the

SCM supply and demand imbalance for 1995 through 2000 is shown in Figure 1. Undersupply of SCM capacity in 1995 has been extended to 1996, resulting in a continuation of firm foundry # wafer prices. However, with the recent slowdown in semiconductor demand in specific segments, the significant increase of capacity added recently in the industry, and the possibility of rising memory-to-fotmdry capacity conversion stemming from the transition from 4Mb to 16Mb, there are growing signs of the form.ation of an oversupply in SCM capacity, specifically in the higher linewidth geometry (0.6 micron to 0.8 micron and higher). This is expected to occur during 1996. Leading-edge SCM capacity, at 0.5 micron and less, is expected to continue to be in short supply well into 1997. Moreover, sizable new foundry capacity is being added by existing and new SCM suppliers in response to the serious shortage of SCM capacity of recent years. Much of the added capacity—almost all with technology of 0.5 micron and less—will come into production during 1997 and 1998. Continuation of the SCM capacity ramp-up in 1997, as now planned, will likely lead to significant oversupply of 3 percent in 1998 and 7 percent in 1999. An oversupply will exert downward pressure on fovmdry wafer prices — a situation that may spur demand grow^th that will, in turn, bring more balanced SCM supply and demand by 2000.

Figure 1 Worldwide SCM Capacity Supply and Demand Imbalance Projection

Percent MSI Oversupply or Undersupply

1995 1996 199f7 1998 1999 2000

Source: Dataquest (April 1996)

By Calvin Chang

Semiconductor Contract Manufacturing Services Worldwide Competitive Analysis

Legal Issues in Foundry Manufacturing

Abstracti This Perspective examines some important legal precedents in semiconductor foundry manufacturing. By Calvin Chang introduction The dramatically increased usage of foundries for semiconductor manufacturing provides a compelling reason to look into some of the important legal cases that have been raised concerning potential patent infringement in the context of foundry manufacturing.

Cases in Study One of the early and important legal precedents in semiconductor foundry manufacturing is the 1989 Intel Corporation's filing of a complaint against Atmel Corporation with the U.S. International Trade Commission (ITC). In this case, Intel was granted by ITC a so-called section 337 exclusion order on a finding that defendant Atmel had infringed several of Intel's EPROM circuitry patents. Atmel was using Sanyo as a foundry for the manufacture of the allegedly infringing EPROMs. Sanyo at the time held a broad cross- J licensing agreement with Intel, which gave Sanyo the right to make "any 1^4 Sanyo products" under Intel's patents. Intel argued that Atmel's using Sanyo -'•--jji to foundry-manufacture Atmel's EPROMs violated Intel's patents. Atmel ^3 pleaded that the Intel-Sanyo licensing agreement permitted Sanyo to act as a v^ foundry for other companies to manufacture products using Intel's patents. Q_ < The U.S. Federal Circuit Court, which reviewed the ITC decision, found the o > issue as one of contract interpretation and that only Sanyo-designed o < Dataquest m cc Program: Semiconductor Contract Manufacturing Services Worldwide < Product Code: SCMS-WW-DP-9609 Publication Date: January 27,1997 Filing: Perspective (For Cross-Technology, file in the Semiconductor Regional Marl

products were covered by the license. Thus, the court ruled in Intel's favor and affirmed the ITC's decision.

Another important case is 1991's Intel Corporation versus ULSI System Technology Inc. Intel and Hewlett-Packard had formed a broad cross- licensing agreement with the intent of avoiding litigation with respect to circuit design technologies. HP subsequently entered into a foundry agreement with ULSI whereby HP would manufacture ULSI's MathCo 387 coprocessor. In 1991, Intel sought a preliminary injunction against ULSI, alleging infringement of one of its patents covering an aspect of the coprocessor. The U.S. Federal District Court for the District of Oregon granted Intel the injunction. ULSI appealed the ruling with the U.S. Court of Appeals in Washington, D.C., which in 1993 reversed the lower court decision. The appellate court found the HP-ULSI foundry-customer contract provided for the chips manufactured by HP to be "sold" to ULSI. Under such a construction, ULSI argued that it was protected from patent infringement by the patent exhaustion doctrine, thus cutting off Intel's patent rights. The court concluded that the HP-ULSI foundry supply agreement did allow for a sale of chips from HP to ULSI—not just a provision for fabrication services.

Central to the ruling in the ULSI case is the doctrine of "patent exhaustion." Patent exhaustion, or "firstsale," is a judicial doctrine that states when a patented product is sold by the patent holder or by an authorized licensee, that particular product is no longer subject to the patent and can be legally used or resold. In the ULSI case, the Federal Circuit Court clarified the use of patent exhaustion in the foundry context, holding that a customer of a foundry, broadly licensed to make and sell another's circuitry patent, is protected against a patent infringement claim by the licensor.

In the ULSI ruling, the appellate court also made the distinction with the 1989 Atmel case. The court determined that the Intel-Sanyo cross-licensing agreement in the Atmel case extended only to Sanyo products and that Sanyo could not serve as a foundry for others' products. The court found that the Intel-HP agreement contained no such restriction. In its discussion, the court noted that Intel could have retained the right to restrict HP's use as a foundry for others wishing to use Intel's patents. Because Intel had received valuable consideration in its very broad cross license with HP, it could not now renege and avoid the consequences of the contract.

Interestingly, the dissent in the ULSI appellate decision registered stiong dissenting views countering the majority holding. First, the dissenting judge reasoned that the sale between HP and ULSI was for fabrication services, not for the patented invention itself. Second, because the Intel-HP cross-licensing agreement did not expressly authorize HP to manufacture under Intel's circuit patents, HP could not make an authorized sale to ULSI. Encouraged by the strong dissent in the ULSI decision, Intel appealed the appellate court's ruling with the U.S. Supreme Court, which subsequently (1994) announced that it would not hear the Intel's appeal. The Suprerne Court's refusal upheld the appellate court's ruling and rendered it final.'

The ULSI decision has effectively given the green light on the practice— some called it patent laundering—that by using a licensed foundry, a customer is protected from patent infringement claims. Despite the unfortunate connotation, patent laundering is an important practice and is sanctioned by the nation's courts.

In 1992, in a dispute between Intel and Cyrix involving Intel's patent on float-point operation design, the U.S. District Court in Sherman, Texas, ruled that Cyrix's FasMath coprocessors did not violate Intel's patent because the parts were manufactured by SGS-Thomson, which acquired rights to Intel patents when it purchased Mostek Corporation in 1985. In 1994, the same District Court found Cyrix was not violating Intel's so-called 338 system- level patent, because it was protected by the cross-licensing agreement between Intel and SGS-Thomson, which fabricated microprocessors for Cyrix. These rulings provide Cyrix with the rights to Intel's patents as long as the fabless Cyrix uses foundries that have cross-license agreement with Intel.

Dataquest Perspective Comparing the rulings in the Atmel case, where the foundry customer was found not shielded under the foundry's licenses, with the ULSI case, where the customer was ruled of having the protection of the licensed foundry, the most important conclusion is perhaps that precise and specific language stating the extent of patent coverage to foundry manufacturing should be used in the licensing agreements between the foundry and the patent holder. Similarly, precise language should also be adopted in constructing foundry supply contracts between the licensed foundry and its customers. Indeed, the Atmel case illustrated that future patent holders can adequately protect themselves by granting restricted licenses prohibiting foundry use. On the other hand, foundries should protect themselves by incorporating an indemnity clause in the foundry supply contracts with the foundry customers. The purpose of the indemnity clause is to place legal liability arising from potential infringement of a third party's design patents on the foundry users.

Finally, it is also important to keep in mind that the applicability of the ULSI decision may be limited because the technologies at issue in the ULSI case were circuitry design patents, not process patents. The application of the ULSI ruling in the context of process patent infringement may produce a different result.

For More Information... Clark Fuhs, Director and Prmcipal Analyst (408) 468-8375 Internet address [email protected] Via fax (408)954-1780 The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or Ijjl I" Jl/^1 l^-^CT disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. ^-^**- *-

Semiconductor Contract Manufacturing Services Worldwide Market Analysis

Tlie Year in Review: Developments in Semiconductor Contract Manufacturing in 1996

Abstract: TTM'S Perspective provides a summary of news in semiconductor contract manufacturing worldwide for 1996. By Calvin Chang

January Synopsys in Partnership witli TSIVIC Synopsys' Silicon Architects Business Unit announced a cell-based array (CBA) partnership with Taiwan Semiconductor Manufacturing Company Ltd. Under the terms of the agreement, Silicon Architects will make CBA libraries and design tools based on TSMC's foundry process accessible to the ASIC design market. TSMC is the latest ASIC partner to adopt the CBA UJ ID architecture. Other partners previously announced include Fujitsu N Microelectronics Inc., Matsushita Electronics Corporation, NEC Electronics Inc., Toshiba Corporation, Kawasaki Steel Corporation, and TriTech Microelectronics International. Tower Semiconductor Receives Grants o> Tower Semiconductor announced that the Investment Center of the Israeli Ministry of Industry and Trade has approved the company's application for vj 2: additional grants under the Investment Center's Approved Enterprise LU CC program. The Investment Center agreed to fund, in the form of grants, 34 =1 < percent of up to $240 million of future capital expenditure in connection with U. 2 Tower's capacity expansion plan. These grants would be in addition to the approximately $35.5 million in grants already received by Tower in I>ataQuest Program: Semiconductor Contract Manufacturing Services Worldwide Product Code: SCI\/IS-WW-DP-9608 Publication Date: December 30,1996 Fiiing: Perspective (For Cross-Technology, file in the Semiconductor Regional Markets and Manufacturing binder) Semiconductor Contract Manufacturing Services Worldwide

connection with its original $93.4 million capital investment program. A formal certificate of approval relating to the program is expected to be issued by the Investment Center next week. The receipt of grants under the program is subject to the company's compliance with various conditions under applicable laws and regulations and to various criteria that will be set forth in the certificate of approval, when issued.

Adaptec and AT&T in Wafer Pact Adaptec added another five-year term to a decade-old wafer supply agreement with AT&T Microelectronics. The five-year, extendible deal with AT&T Microelectronics is to assure Adaptec a specified supply of wafers in return for $25 million in capital upgrades to AT&T Microelectronics' wafer fab in Madrid, Spain, to handle the increase in capacity. First wafers were expected to be delivered by the end of 1996.

Intel and UMC Settle Suits Intel Corporation and United Microelectronics Corporation have settled their legal disputes regarding infringement of Intel's microprocessor patents. Under the terms of the agreement, UMC will stop making, using, or selling its version of the 486 microprocessor, will pay Intel an agreed-on sum of money to cover costs, and withdraw all challenges to the validity of Intel patents that the company had filed in Germany, France, the United Kingdom, Taiwan, Hong Kong, and Singapore. The settlement was reportedly less than U.S.$5 million.

NEC Will Manufacture Sun UltraSPARC NEC said it will manufacture a new UltraSPARC microprocessor for Sun Microsystems. The manufacturing agreement is a foundry relationship where Sun wiU develop and own the masks that produce the new microprocessor.

February Rockwell to Transfer 0.5- and O.SS-Micron to SubMicron Modem IC leader Rockwell Semiconductor will transfer 0.5-micron and later 0.35-micron process technology to SubMicron Technology Ltd. in exchange for guaranteed capacity from SubMicron's 8-inch fab scheduled to begin ^ production in the second quarter of 1997. Rockwell will receive in return up J^ to 20 percent of the foundry's total production over five years. (^ / > Quality Semiconductor Buys AWA Fab Quality Semiconductor Inc. announced that it has completed its acquisition of certain assets of AWA Microelectronics Pty. Ltd., a subsidiary of AWA Limited based in Sydney, Australia. The AW AM assets that were acquired by a new subsidiary of QSI, Quality Semiconductor Australia Pty. Ltd., include a fully operational wafer foundry business and product design center. The company has also signed a strategic alliance agreement with AWA Limited to jointly develop new products and technologies.

Chips & Technologies Signs with LG Semicon Chips & Technologies entered into a two-year foundry agreement with LG Semicon of Korea. Since December 1995, Chips has made long-term capacity arrangements with TSMC, Chartered Semiconductor Manufacturing, and Samsung. The TSMC and CSM deals were standard foundry supply contracts involving advance payment for future wafer delivery.

Catalyst in Flash Partnership with UMC Catalyst Semiconductor announced a broad flash memory manufacturing partnership with United Microelectronics Corporation. UMC will provide Catalyst with significant wafer foundry capacity for flash memory products using a 0.5-micron process to be jointly developed by the two companies. Sales of the first 0.5-micron product are expected to occur in the fourth quarter of 1996. On completion of the 0.5-micron development, the companies will undertake development of an advanced 0.35-micron flash process. In addition to the development and foundry partnerships, UMC also has purchased a 10 percent equity interest in Catalyst to strengthen the relationship between the two companies.

March Newport Wafer Fab Ltd. Receives Grants for New Fab Newport Wafer Fab Ltd. has secured nearly £60 million in grants toward the £230 million expansion of its chip plant in Wales. The centerpiece of NWL's expansion is a 20,000-square-meter building that will be built by the Welsh Development Agency and leased to the company at commercial rates. The line will process 8-inch wafers using 0.5-micron CMOS technology. First silicon from the new fab is scheduled for the end of 1997, and commercial ramp-up is targeted for the first quarter of 1998. The first phase will provide NWL with a capacity of 10,000 wafers a month, but the facility is capable of accommodating two more modules to bring the capacity up to 30,000 wafers a month. Separately, NWL is installing a new 6-inch wafer processing line using 0.5-micron technology; first silicon is expected by the first quarter of 1997. NWL is also proceeding with conversion of its 4-inch wafers to 6 inches. The company expects to cease processing 4-inch wafers by the end of 1996.

COMPASS Announces Passport Partners COMPASS Design Automation Inc. announced that Chartered Semiconductor Manufacturing has formalized its participation in the Passport Foundry Program, a program aimed at verifying foundry process and characterizing physical libraries to ensure first-time silicon success. CSM and COMPASS also armounced the signing of a three-year joint marketing agreement that encompasses mutual customer support and test chip model extraction. Under the Passport Foundry Program, CSM and COMPASS will jointly run test chips to ensure silicon performance and manufacturabiUty. Separately, Tower Semiconductor, TSMC, LG Semicon, and European Silicon Stiuctures were also participants in COMPASS' Passport Foundry Program.

(European Silicon Structures, Aix-en-Provence, France, was later acquired by Atmel.)

Crosspoint Solutions in Pact witli LG Semicon Crosspoint Solutions Inc. armounced a new relationship with LG Semicon involving both licensing and manufacturing of Crosspoint Solutions' customer-programmable ASICs. Under the terms of the agreement, LG Semicon will provide manufacturing capacity in 0.8- and 0.6-micron, two- and three-layer metal processes. As part of this agreement, LG Semicon receives a limited license to manufacture and market Crosspoint's CP20K field-programmable gate arrays (FPGAs), as well as rights to develop and market product variations based upon CP20K architecture and technology.

COIViPASS and IVIeta-Software in Joint Development COMPASS Design Automation and Meta-Software, a major supplier of IC simulation, timing, and library solutions, announced a joint agreement for the development of test chips and process modeling for COMPASS' Passport Foundry Program members. Under the cooperative agreement. Passport Foundry Program members' process performance will be traced to silicon using the COMPASS test chip that has been jointly developed with Meta- Software's Meta-Labs services.

Nintendo of America and TSMC Settle Nintendo of America Inc. and TSMC agreed to the settlement of all outstanding claims in litigation that was pending in the U.S. District Court in Northern California. The settlement ended litigation filed by Nintendo in 1994 claiming that TSMC produced semiconductor chips for its customers that infringed Nintendo's intellectual property rights. The settlement provides for long-term cooperation between the parties to ensure protection of Nintendo's intellectual property rights in the future.

Hewlett-Packard Withdraws from Wafer Fab Project Hewlett-Packard withdrew from a U.S.$1.2 billion joint venture to set up an 8-inch wafer fab in Taiwan after a major Singapore investor backed out of the project. Under the original plan, HP would have been the biggest investor in the venture, named Hwa Ya Technology, with a 30 percent stake. HP decided to drop the venture after Singapore Technologies Group, which was to hold 20 percent of the shares, pulled out on grounds that it wants to concentrate on wafer investment at home.

TSMC Selects U.S. Fab Site TSMC selected Camas, Washington, as the site of the company's first U.S. fab. The new fab, to be built by the TSMC joint venture with several of its customers, including Altera, Analog Devices Inc., and Integrated Silicon Solution Inc., planned to break ground in mid-1996 and begin production in the second quarter of 1998, reaching full production in early 2000.

April Trident IVIicrosystems in Partnersliip witli Samsung Trident Microsystems announced the signing of a manufacturing partnership agreement with Samsung Electronics Corporation. The agreement's duration is three years, and it provides for Trident's licensing to Samsung certain designs for inclusion in Samsung's ASIC library. In return, Samsiong has committed to mutually agreed-on levels of manufacturing capacity in terms of processed wafers or packaged and tested units. Trident will ship the first products of this partnership in the second quarter of 1996.

Tseng Laboratories in New Foundry Relationsliips Tseng Laboratories developed several new foundry relationships in order to secure supply sources for the company's newly introduced ET6000 advanced graphics controller chip. Foundry agreements were finalized between Tseng Labs and Chartered Manufacturing, Tower Semiconductor, and Winbond Electronics Corporation. Efforts were geared toward bringing these foundries on line by the middle of 1996.

May Xilinx Invests in Seiko Epson Xilinx Inc. announced that it would invest up to U.S.$300 million in a new semiconductor manufacturing faciUty to be built by Seiko Epson Corporation in Sakata, Japan. The agreement called for Xilinx to make incremental advance payments to Seiko Epson over the next two and a half years to help finance construction of the operation, which will manufacture 8-inch wafers using advanced 0.35-to-0.25-micron CMOS technology. The advanced manufacturing processes Xilinx will help develop will allow the company to quadruple the density of its programmable logic devices into the range of half a million gates. Production is expected to begin in early 1998. Xilinx will receive a specified number of wafers from the new line through 2002.

Cyrix Gains Capacity from IBIVI Cyrix Corporation announced an expansion of its relationship with IBM Microelectronics. In addition to the wafer capacity made available through 1999 by an April 1994 agreement, IBM will provide Cjrrix with additional wafer capacity on a foundry basis through December 1997.

TSMC Unveils 0.35-and 0.25-IVIicron Technologies In a technology workshop held in San Jose, California, TSMC unveiled the process information, design rules, and Spice models to enable designs for its 0.35-micron technology. Also, company technologists introduced their early concepts for 0.25-micron geometries. TSMC also announced that it had begun selectively accepting tape-outs for prototype runs at 0.35 micron and has produced 16Mb DRAMs, 1Mb SRAMs, and JEDEC logic devices within the last 60 days. Capacity for 0.35-micron devices was planned to ramp into production later in the year in the company's new Fab 3. TSMC's Fab 4,

which is under construction, will go into production at 0.35 micron in the fourth quarter of 1997 and migrate to 0.25-nucron technology in early 1998.

June ASPEC Technology Licenses Tools to Winbond ASPEC Technology Inc. announced that Winbond Electronics Corporation has licensed ASPEC's Open Design Implementation Technology (Open DIT), including the densest gate array architecture available, as well as the EDA design kit and custom compilers for Winbond's 0.5-micron process. Winbond uses ASPEC's Open DIT to produce PC chipsets, multimedia products, and Hewlett-Packard PA/RISC-based microcontrollers, as well as other products that were to be announced at a later date.

Catalyst Extends Relationship with Olci Catalyst Semiconductor of Santa Clara, CaUfomia, has expanded its existing 10-year partnership with Oki Electric Industry Co. Ltd. of Japan. Under an agreement that extends the partnership through March of 1998, Oki will provide Catalyst with more than double the current wafer capacity for both flash memory and EEPROM products. Flash memory products will be transferred to a 0.6-micron process, and EEPROM products will be transferred to a 0.8-micron process.

Tower and Hewlett-Packard Agree to End Supply Tower Semiconductor and Hewlett-Packard announced that they have come to terms for ending the agreement for Hewlett-Packard's purchase of wafers from Tower. Both companies indicated that they had not been able to achieve their business goals and had therefore agreed to end their agreement. HP's Integrated Circuit Business Division has been an important customer of Tower's for the last three years. Both Tower and HP stated that they have left open the possibility of business relations regarding future- generation technologies.

Kanematsu Corporation invests in Extol Japanese trading house Kanematsu Corporation established a joint-venture company in California with two U.S. partners slated to start operation in October 1996 to make microchips to order. The joint venture, named Extel Semiconductor Inc., called for equal investment by Kanematsu and its partners—Seaway Semiconductor Inc. and Impala Semiconductor Manufacturing Corporation. The venture will start producing ASIC and foundry wafers, with an initial output target of 5,000 to 6,000 six-inch wafers a month.

TSMC and Fujitsu in DRAIVI Pact TSMC and Fujitsu Ltd. announced that they had reached an agreement whereby Fujitsu would assist TSMC in developing 0.35-micron processing technology for making DRAM chips. In return, TSMC will produce 16Mb and 64Mb DRAMs for the Japanese company from 1997 through 2000.

Altera Invests In WaferTech Altera Corporation announced that its joint venture with TSMC, WaferTech, was finalized and that Altera has increased its equity investment in the joint venture. Altera increased its ownership of the joint venture from 16 percent to 18 percent. Altera will invest $140 million in WaferTech over the next two years for its 18 percent ownership. Other investors in WaferTech include Analog Devices, which will also own 18 percent. Integrated Silicon Solution Inc., which will own 4 percent, and TSMC, which will own 57 percent. Three percent will be owned by private investors. WaferTech's new 8-inch wafer fab was to break ground on July 11,1996. Wafer production is expected to begin in mid-1998 and reach full production capability of 30,000 8-inch wafers per month in late 1999. Process technology is expected to begin at 0.35 micron and move to 0.25 micron and then to 0.18 micron. WaferTech is expected to employ about 800 people when at full capacity.

July Mentor Graphics Introduces TSMC Library Mentor Graphics Corporation's IC Technology Center introduced a complete TSMC 0.5-micron library solution for integrated circuit design teams. The library is an addition to Mentor Graphics' off-the-shelf library portfolio, which already includes the TSMC 0.8-micron and 0.6-micron libraries. Mentor Graphics' systems-on-silicon library for the TSMC 0.5-micron process provides customers with standard cells, memories, data paths, and input/output (I/O) pads.

The Dll Group Buys Orbit The DII Group Inc., a global supplier of a broad range of integrated electronics products and services, and Orbit Semiconductor Inc., a Sunnjrvale, California, provider of semiconductor manufacturing and engineering support services, jointly announced the signing of a definitive agreement for a merger in which Orbit would become a wholly owned subsidiary of The DII Group.

TSMC Begins 0.35-Micron SRAM TSMC has begun to offer a 0.35-micron SRAM manufacturing process to its foundry customers. Full production of 1Mb sjmchronous SRAMs was scheduled to begin in the fourth quarter.

WaferScale Integration In Pact with Tower WaferScale Integration Inc., a privately held fabless company, signed a memorandum of understanding for a long-term technology exchange with Tower Semiconductor. Under the proposed agreement. Tower and WSI plan to mutually develop a manufacturing process using WSI's proprietary nonvolatile memory technology and Tower's 0.6-micron technology processes. As part of the agreement. Tower would guarantee WSI access to its wafer fab.

TSMC Licenses PineDSPCore TSMC has licensed the PineDSPCore digital signal processor technology from DSP Group. TSMC will integrate the PineDSPCore into an ASIC cell library and make the cell library available to its customers. The PineDSPCore is a 16-bit, general-purpose, low-power, low-voltage, high-speed digital signal processing (DSP) core designed for speech and audio processing, telecommunications, digital cellular, and embedded control applications.

August Interconnect Technology in Partnership with Sharp Interconnect Technology, a start-up semiconductor manufacturing company in Sarawak, Malaysia, announced that Sharp Corporation will be its technology partner and ongoing foundry customer. Sharp is contributing its state-of-the-art process technology, along with extensive personnel and equipment training. Sharp was also to enter into a foundry supply agreement with ICT to take a portion of the fab output, providing a base load with proven designs that will greatly facilitate a smooth ramp-up. Sharp undertook to supply process implementation and engineering support in Sarawak, Malaysia, and extensive training of ICT engineering personnel in one of Sharp's fabs. ICT's 8-inch, advanced micron manufacturing facility will be operational by the second quarter 1998 and capable of producing 25,000 wafers per month.

Peregrine Semiconductor Gains Wafer Supply from Asahi Peregrine Semiconductor, a fabless mixed-signal IC supplier, entered a six- year foundry arrangement with Asahi Kasei Microsystems. Under the terms of the accord, AKM will continue to provide wafer fabrication services to Peregrine in exchange for a nonexclusive license to Peregrine's ultrathin- silicon (UTSi) semiconductor technology.

COMPASS introduces 0.35-Micron Libraries COMPASS Design Automation annotmced availability of its 0.35-micron Passport logical and physical libraries. The 0.35-micron (3V) Passport libraries include COMPASS' Optimum Silicon (OS) standard cells, RAM and ROM compilers, high-density data path compilers, and an extensive package of I/Os, with about 100 interface functions available.

UMC in Partnership with COMPASS UMC announced a partnership with COMPASS Design Automation for the Passport Foundry Program. UMC will support all of the Passport library families, including COMPASS' 0.6-micron, 0.5-micron, and 0.35-micron library product families.

Cadence and TSMC in Joint Support for Device Model Cadence Design Systems Inc. and TSMC announced their support of the public domain BSIM3v3 device model. As part of the collaboration between Cadence and TSMC, the two companies have worked together to extract, verify, and quaUfy BSIM3v3 models for use by their respective customers.

Models for TSMC's 0.5-micron/5V process were to be available for delivery with Cadence's Advanced Spectre simulator in September 1996. BSIM3v3 models for TSMC's 0.5-micron/3.3V process were to be available for delivery in October 1996. Models for other process technologies scheduled for joint development efforts include TSMC's 0.35-micron 5V and 3.3V processes and 0.25-iiucron process.

Rambus Licenses to TSMC Rambus Inc. announced that its Rambus ASIC Cell (RAC) is available for customer designs in TSMC's 3.3V, 0.5-micron single-poly, triple-metal CMOS process.

Interconnect Announces Klaus Wiemer as President and COO InterCormect Technology annoiinced that Klaus Wiemer, former president and COO of TSMC and former president and CEO of Chartered Semiconductor, was named president and COO of Interconnect Technology.

Austria Mikro Systeme Invests in Thesys Austria Mikro Systeme International AG, a significant European foundry provider, entered into an agreement to acquire a majority interest in Thesys Gesellschaft fur Mikroelektronik GmbH. On ratification of the pact, AMS would have a 51 percent interest in the Erfurt-based manufacturer of ASICs and application-specific standard products (ASSPs). The selling shareholder was the German state of Thuringia, which was to divest 51 percent of its total holding, retaining a 49 percent share. LSI Logic Corporation of Milpitas, California, a former 10 percent shareholder, will relinquish its share in the company. AMS is the No. 1 ranked European supplier of cell-based mixed- signal analog/digital ASICs at this time.

September Interconnect Acquires IVIicroUnity Fab in United States Interconnect Technology annoiinced that it agreed to acquire a 23,000- square-foot clearuroom Class 1 microelectronics facility in Sunnyvale, Califorrua, previously owned by U.S.-based MicroUnity Systems Engineering Inc. The U.S. fab represents about a $160 million total investment by Interconnect and will allow InterCormect to begin delivering 0.35-micron, 8-inch wafers nine months to one year before its Kuching, Sarawak, Malaysia facility goes online. It will take Interconnect about six months to install and turn on the 200mm toolset, including upgrading the facility from a 6-inch line to an 8-inch line. In the fourth quarter of 1997, Interconnect was to begin producing 3,000 8-inch wafers per month in the Sunnyvale facility, with the ability to double its production within one year. Interconnect will use Sharp's 0.35-micron CMOS process in its U.S. fab as well as in Kuching.

Chartered Launches 0.35-Micron Processes Chartered Semiconductor Manufacturing has announced that its 0.35-micron polycide and salicide process technologies are now available for customer

designs. The new process offers up to 40 percent reduction in chip area over 0.5-micron geometries.

Samsung Semiconductor Rolls Out Embedded DRAM Samsung Semiconductor announced the introduction of the first in a new family of deep-submicron, "high integration" ASICs, which offers large, embedded, customer-configurable DRAM. The lead product in the family is the EDL60, which is fabricated around 0.5-micron design rules, with an effective channel length of 0.46 micron. The EDL60 provides 60,000 gates of random logic and 1Mb of on-chip DRAM. Following the EDL60 will be the single-chip integration of 100,000 gates and 4Mb of DRAM, slated to debut in 1997. From there, Samsung will quickly move to a 0.35-micron process, featuring 400,000 gates with 16Mb of embedded DRAM.

TSMC Unveils Virtual Fab TSMC announced the unveiling of the Virtual Fab, the latest in automation technology that provides customers with complete access to their production and shipping schedules. The Total Order Management system (TOM) is the first step toward the ultimate realization of the Virtual Fab. TOM provides customers with increased flexibility and control over booking procedures help, achieving the same level of information access that they would require for their own in-house fab. With the newly implemented TOM system, customers will be able to track their production and shipping schedules and make adjustments as needed to their orders, enabling TSMC to control and allocate its capacity more efficiently.

RF Micro Devices to Build New GaAs Fab RF Micro Devices Inc., a fabless semiconductor company in the wireless market, revealed plans to build its first wafer fabrication facility as well as to triple capacity from its current foundry supplier. RFMD will build a U.S.$35 million gallium arsenide (GaAs) wafer fab in Greensboro, North Carolina. The new fab will provide 25,000 4-inch GaAs heterojunction bipolar transistor (HBT) wafers per year. TRW, in Redondo Beach, California, is currently RFMD's sole manufacturing source for 3-inch GaAs HBT wafers. RFMD said it plans to invest an undisclosed sum that will triple capacity from TRW.

Cirrus Logic and Lucent Form Cirent With the official naming of Cirent Semiconductor, Lucent Technologies' Microelectronics Group and Cirrus Logic Inc. have completed a joint-venture manufacturing agreement that both comparues announced in October 1995. The new joint venture will operate as a separate entity with a five-member board of governors (three from Lucent Technologies and two from Cirrus Logic) and newly appointed president Dr. Peter Panousis, the vice president of silicon manufacturing and development for Lucent Technologies. The facility is undergoing a $600 million expansion over the next two years. Construction of a new cleanroom for the manufacture of integrated circuits on 8-inch silicon wafers is now complete, and production is expected to begin in early 1997.

October UMC Unveils 0.35- and 0.25-l\/licron Technologies At its Foundry Technology Workshop, UMC showcased its 0.25-micron and 0.35-micron process technologies, which are in the pilot engineering and production stages, respectively. UMC's 0.25-micron technology will be available to strategic customers beginning in late 1997. UMC also provides its customers with a design support center, which provides ASIC cell libraries, embedded memory technology, and megacell or intellectual property technology, as well as customer interface and technical support, design methodology consultation, and maskmaking services.

Chartered and Excellent Design in Partnership Chartered Semiconductor Manufacturing and Excellent Design Inc. have disclosed a comprehensive three-year agreement covering joint technical and marketing activities between the two comparues. Excellent is headquartered in Yokohama, Japan. Both companies have U.S. operations in Silicon Valley. The agreement calls for Chartered to deliver design rules. Spice models, and process data to Excellent, which will then create the methodology and tools to generate libraries optimized for Chartered's deep submicron process. Traditionally, this procedure is done serially: A new process was refined, then the libraries, tools, and services were developed and delivered to engineers for the design of product prototypes. Through the open exchange of data. Chartered and Excellent can help systems engineers accelerate time to production for their new products by providing early access to new manufacturing processes.

UIVIC to Become Dedicated Foundry UMC announced that it will spin off its standard product divisions and become a dedicated foundry, focusing orvly on manufacturing customers' products rather than offering its own product line. During 1996, UMC has spun off its computer and communications product divisions to private U.S. companies. The company planned to do the same with its remaining memory, consume, and multimedia product divisions by June 1997, completing its transition to a pure-play foundry and eliminating the issue of UMC's competing with its customers' products.

Texas Instruments and Anam Industrial in Wafer Pact Texas Instruments Inc., Anam Industrial Co. Ltd. of Korea, and Amkor Electronics Inc., Westchester, Pennsylvania, today announced a long-term cooperative agreement for the production of wafers for advanced logic semiconductors. Under the terms of the agreement, Anam Industrial and Amkor Electronics will establish a new subsidiary and build a new semiconductor wafer fabrication facility with a 6,000-square-meter cleanroom in the Republic of Korea. The new facility will be financed completely by Anam, with TI providing technical assistance to the new company. There are no patent licenses involved in the project. Anam will use TI's 0.35-micron CMOS technology in the new facility, which will have sufficient capacity to produce 15,000 to 25,000 200mm wafers per month. TI will have the right to purchase up to 70 percent of the output from Anam,

and Anam will sell the remaining output on the world market. Production is expected to begin in the first half of 1998.

Winbond's Fire Has No Impact on Foundry Production There was a fire at Winbond Electrorucs' new Fab 3 in Hsin Chu, Taiwan. Winbond assured its customers, including foundry users, that their products wUl not be affected because all current Winbond production is in Fab 1 and Fab 2, which were not affected by the fire. About 30 percent of Winbond's capacity is allocated to foundry manufacturing.

November ASPEC Technology Announces 0.35-Micron Libraries ASPEC Technology announced the availability of its comprehensive 0.35- micron Design Implementation Technology (DIT) to several major foundries, including Chartered Semiconductor Manufacturing, IBM, TSMC, and UMC. The release of the new ASPEC DIT marked the beginning of mass adoption of the new, advanced 0.35-micron technology for IC/ASSP companies. In addition to its patented High-Density (HD) families of gate array (HDA) and standard cell (HDC) libraries, ASPEC's 0.35-micron DIT has been expanded to include special I/O libraries and customized memory conipiler tools that support a wide range of applications.

QuickLogic in Partnership with TSMC QuickLogic Corporation, a leading supplier of FPGA silicon and Verilog/VHDL design tool solutions, announced that it has established a manufacturing partnership with TSMC. TSMC will work jointly with QuickLogic to install QuickLogic's proprietary amorphous silicon antifuse technology into TSMC's 0.5-micron, three-layer metal CMOS process and subsequent smaller geometries. By migrating devices from a 0.65-micron to a 0.5-micron process, QuickLogic is reducing its die sizes by 44 percent.

UMC Invests in DRAM Design UMC has taken a minority stake in Taiwan Memory Technology Inc., a Taiwan DRAM fabless company. Taiwan Memory has begun shipping a line of 4Mb DRAMs in volume, with 16Mb parts due early in 1997. Taiwan Memory's DRAMs will be manufactured by two foundries, UMC and TSMC.

Orbit Semiconductor Buys Paradigm Fab Orbit Semiconductor, a wholly owned subsidiary of The DII Group Inc. announced that it has significantly expanded its manufacturing capability with the acquisition of the semiconductor manufacturing assets of Paradigm Technology Inc. located in San Jose, California. This includes a 62,000- square-foot production facility with a 6-inch wafer fabrication line and a 0.6- micron process technology. The total purchase price of the Paradigm manufacturing assets acquisition is about $20,000,000, consisting of $6.6 million in cash, $7.6 million in debt assumption, and a $5.8 million short- term note. Also, Orbit has established a relationship with Chartered Semiconductor Manufacturing to provide production of 0.5-micron IC

designs for Orbit's ENCORE! gate array program. Chartered has been providing 0.8-rmcron wafer production to meet Orbit's increased capacity needs since August 1996.

December COMPASS Announces New Acting President COMPASS Design Automation announced that Jeff Hilbert, previously the vice president of engineering and development, will serve as temporary acting president. He replaces Dieter Mezger, who will continue as a consultant to the company.

Silicon IVIagic and OIci Electric in DRAM Development Silicon Magic, a fabless supplier of high-speed DRAMs, announced a joint technology agreement with Oki Electric. Under the agreement, Silicon Magic can access Oki's advanced DRAM processes and wafer fabrication, and Oki Electric will obtain unspecified product rights, as well as influence over product development and direction at Silicon Magic. The two comparues are developing a proprietary process to allow significant amounts of DRAM to be embedded with logic gates without the die-size penalty of a standard, four-poly, two-metal DRAM process. This embedded DRAM process will enable the companies to design application-specific standard products that integrate the appropriate amount of memory at the speed required by high- bandwidth applications. Potential applications include disc drive caching, audio controllers, frame buffer memories for graphics applications, and network switching.

Samsung Has Foundry Capacity According to Samsimg's U.S. foundry representative, Omni Microelectronics, Samsung has capacity of up to 20,000 6-inch wafers out per month available for foundry. Samsung plans to allocate additional capacity of 6,000 6-inch and 9,000 8-inch wafers per month over the course of 1997. Samsung offers foundry customers 0.5-micron and 0.35-micron process technologies, and 0.25 micron by the end of 1997.

Shanghai Hua Hong Microelectronics Seeks Technology Partners With financing, land and high-level government support all in place, Shanghai Hua Hong Microelectrorucs, China's U.S.$1.2 billion wafer foundry project, continues to search for foreign technology partners.

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408)954-1780 The content of this report represents our interpretation and analysis of iivformation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C. Nielsen Company Perspective

Semiconductor Contract Manufacturing Services Worldwide

Market Analysis

Worldwide Planned IC Manufacturing Capacity Outlook

Abstract: 77i»s Perspective provides a summary of the worldwide planned IC wafer fah activities from now to the year 2000, including statistics and tables. We highlight how the 8-inch wafer standard will continue to be the de facto standard, and review reasons why somefabs have been delayed and why production ramp-up is expected to he drawn out longer. This document also reviews how Asia/Pacific is projected to increase its presence in semiconductor manufacturing, and why foundry fabs are expected to gain popularity. By Calvin Chang

From Capacity Constraint to Surpius—Wliat Happened? The year 1995 was a banner year for the worldwide semiconductor indus try. Semiconductor revenue in 1995 grew 37 percent as demand outstripped supply and DRAM average selling prices (ASPs) remained firm. Represent ing nearly 30 percent of the total IC market, DRAM revenue growth reached 81 percent in 1995. However, this megagrowth came to a screech ing halt in early 1996 as DRAM ASPs begin to fall. On top of this, excess inventories, slowing end markets, and a weaker yen combined to take Dataquest's semiconductor forecast for 1996 to a 9 percent revenue decline—the first decline for the industry in 10 years. Figure 1 presents the latest Dataquest forecast for the worldwide semiconductor market.

The strong demand for semiconductor products in 1995 produced a tight constraint in the industry's overall manufacturing capacity. Chipmakers responded by boosting capital investments and launched the largest fab-construction programs in the history of the IC industry. More than 100 8-inch billion-dollar-class fabs are expected to enter into produc tion in the ensuing years. Just as the industry is embracing the era of 8-inch DataQuest Program: Semiconductor Contract Manufacturing Services Worldwide Product Code: SCI\/IS-WW-DP-9607 Publication Date: December 16, 1996 Filing: Perspective (For Cross-Teclinology, file in the Semiconductor Regional Markets and Manufacturing binder.) Semiconductor Contract Manufacturing Services Worldwide

Figure 1 Worldwide Semiconductor Market, Historical and Projection (Billions of U.S. Dollars)

Billions of U.S. Dollars 300-ri

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 9SB612

Source: Dataquest (December 1996)

sub-0.5-micron IC mass production, the long-delayed transition of 4Mb DRAM to 16Mb DRAM entered to put an instant cut on the demand of manufacturing capacity. The 4Mb-to-16Mb changeover means the 67 per cent bit growth in 1996 will require only a 7 percent growth in silicon area consumption. The 7 percent increase is more than met by an increase of 15 percent in industry wafer-processing capacity (more than 20 percent if one factors in linewidth shrink). Thus, a ballooning capacity investment on the supply side, slowing consumption and inventory correction on the demand side, unfortunately coincidenced with a DRAM transition, resulted in a surplus in the industry's manufacturing output.

Dataquest believes that for next few years, the health of the industry will depend in large measure on the management of the industry's continued capacity expansion in face of the current surplus. In the following, Dataquest presents an examination of the planned fab activities that have been put in place by the semiconductor industry. New Fabs: How Many, How Much Capacity, and Where? Dataquest has just completed a survey of planned fab projects around the world. A detailed Kst of planned fabs is presented in a table at the end of this Perspective. Based on an analysis of the announced planned fabs. Fig ure 2 shows the new fab capacity that is being added by the industry, mea sured in million square inch (MSI) of silicon processing per month. Beginning in 1993, and coming off a global economic recession, the IC man ufacturing industry worldwide has been rapidly adding new fab capacity in recent years. Table 1 shows the number of announced new fab projects in the four regions of the world during 1987 to 2000. In particular, the number of new fabs added by the industry has increased dramatically in recent years—from 30 in 1994,42 in 1995, to 48 and 47 in 1996 and 1997,

respectively. Moreover, there was also the migration of 6-inch to 8-inch wafer size that took place in 1994, the year in which the 8-inch wafer size accounted, for the first time, the majority (55 percent) of the new capacity built in a year.

Eight-Inch Wafer Rules In 1995 and 1996, nearly 90 percent of the new fab capacity has been in the 8-inch wafer standard. The 8-inch wafer has become, and will remain, the de facto standard, given that nearly all new fabs to come on line in the remainder of this decade are expected to be in 8-inch. Adoption of the 8-inch wafer size has given rise to larger fabs with ever-greater silicon pro cessing capacity. Indeed, as shown in Figure 2, the rate at which the semi conductor industry is building new fab capacity is increasing at a compund annual rate (CAGR) of 29 percent from 1994 to 1997. In 1996 alone, 48 new fabs with a combined eventual output of 33.3 MSI/month have been con structed; this is equivalent to a new capacity of 685,000 8-inch wafers out per month.

Memories of 1996 Cause Caution The year 1996 has been a difficult year for many semiconductor manufac turers, especially those that are in the memory IC market. Poor memory IC revenue, a result of an approximate 75 percent drop in memory IC ASP, has led to companies' decisions to push out the building of sonie new fab projects. There are an estimated nine push-out fabs, while a greater many more of the recently-built new fabs have pared back production ramp-up. Although construction of the 47 new fabs slated for production start in 1997 is likely to proceed as scheduled, Dataquest believes that companies build ing the new fabs will remain cautious and the actual production ramp-up will be drawn out over a greater period of time. Table 1 shows that the number of new fab projects is projected to fall off sharply in the years after

Figure 2 New Semiconductor Fab Capacity Added Worldwide (MSI per Month)

New Capacity (MSI Si/Month) ;— 1994-1997 CAGR = 29% |

2J 1987 1988 1 1990 1991 1992 1993 1994 1995 1996 1997 1998 After 1998

Note: Fab capacity is based on tine projected maximum capacity of each fab. Source: Dataquest (December 1996)

SCI\/IS-WW-DP-9607 ©1996 Dataquest December 16,1996 V) Table 1 Announced Fab Projects by Region 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998-200 o Americas 16 19 15 13 15 8 7 10 15 13 12 10 "O I CO Asia/Pacific 0 10 8 6 6 9 6 5 11 10 13 8 at (=) Europe 11 4 5 4 6 3 3 4 8 12 6 2 Japan 13 17 13 24 18 11 15 11 8 12 14 5 Worldwide 40 50 41 47 45 31 31 30 42 48 47 25 Notes: Fab projects include greenfield new tabs, new fab modules, and wafer size upgrades on existing plants. Push-out tabs are indicated as 'oii ftplpt^* Since 1994, a majority of the new tabs are 8-inch wafer standard. Source: Dataquest (December 1996)

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1997. This could be because of the limited visibility for future new fabs as plans for new fabs are usually not made public until two to three years before their scheduled production date. On the other hand, the spate of new fab buildup in recent years (1994 to 1997) could be establishing an excess in the industry's manufacturing capacity so that no significant new buildup will be required from 1998 to 2000.

Dataquest wUl continue to monitor new fab announcements, and by 1998, should be able to report on all the new capacity that will come into produc tion before the end of the century.

Asia/Pacific Gains Ground Besides the migration to the new 8-inch wafer standard, there is another important reason for the continued increase in the industry's fab capacity— the rise of the Asia/Pacific nations in becoming a significant manufacturing base of semiconductors. Thirty-three new fabs are planned during 1996 to 2000 in Taiwan, Singapore, Thailand, and other parts of Southeast Asia, on top of the continual production expansion in South Korea. Figure 3 shows the regional distribution in the industry's new fab capacity building. The major trend of the next several years on the supply-side of semiconductor manufacturing is that Asia/Pacific and North America will be the principal beneficiaries of the capital investment dollars from not just the chipmakers in their respective regions, but also from the Japanese chipmakers who are shifting investment from home to the consumption markets—namely, the United States and the Asia/Pacific nations.

Figure 3 Regional Distribution of Semiconductor New Fab Capacity

n Japan s Europe • Asia/Pacific m Americas

1 I \ \iY "T T T" 1 \ r 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 After 1998

Source: Dataquest (December 1996)

As a result, more than 60 percent of the industry's new fab capacity to be added in 1996 to 2000 will be in the Americas and Asia/Pacific, with Asia/ Pacific representing the largest, receiving more than one-third of the indus try's total new fab construction. Japan and Europe, on the other hand, will each account for 20 percent of the new capacity.

The new fabs to be built in Europe will be located in the United Kingdom, Germany, Italy, and a few in France, Israel (a member of the EEC), Ireland, and the Netherlands. New fabs in North America are concentrated in Texas (10) and Oregon (6), with the rest to be located in states including Arizona, Washington, Idaho, Virginia, and Utah. Investment in new IC capacity in Japan reached a peak level during the latter part of 1995 and the first half of 1996. However, the recent surge of investment in Japan is not expected to continue in the near term as the memory IC market remains uncertain. Moreover, the long-term outiook on Japan as an IC production base suggests a continual decrease in its share of the world's semiconductor manufacturing. This is largely because Japanese chipmakers are moving their IC production to regions outside of Japan.

New Fab Capacity by Product Type Based on new fab projects announced by November 1996,125 new IC fabs are expected to go into production starting 1996 and the few years beyond. The combined capacity of these new fabs, in terms of the area (MSI) of pro cessed wafers out per month, is 92.3 MSI per month (1,107.6 MSI armually), which is equivalent to 1.9 million 8-inch wafers out per month. Compared with the total industry output at the end of 1995, measured purely in terms of total wafer output (that is, die reduction from line width shrink and metal layers not considered), the new fabs represent an increase of 43 percent in the indusfry's total manufacturing capacity by about mid-1999. Moreover, much of the new capacity being added is leading-edge process technology: More than 90 percent of the new capacity will have 0.5-micron or smaller Unewidth technology, making advanced memory such as 64Mb/256Mb DRAM, high-end logic/ASIC and microprocessors products.

Foundry Capacity Expected to Increase Table 2 shows the segmentation of the new fab capacity by different prod uct t5^es. Memory products, including DRAM, and nonvolatile memory, remain the recipient of the largest capacity investment. The recent spate of new foundry fabs announcements, by botii existing and new enfrants, means a significant portion of the IC indusfry's nonmemory manufacturing output will be in foundry by the end of the decade. The new foundry capac ity being added will boost the percentage of the indusfry's overall capacity in foundry, which stands at about 4 percent today. Additionally, the actual available foundry in the future may well grow beyond the 13 percent of the total new capacity earmarked for dedicated foundry. This stems from the possibility of nortfoiindry new capacity fransitioning to foundry manufac turing. Memory and logic capacity can be converted to foundry production, especially at times when market demand for standard products is weak, and there is mounting pressure to keep fabs running. Such scenarios will be likely if today's market conditions persist with memory IC production remaining in surplus and ASPs staying depressed.

Table 2 New Fab* Capacity by Product Type New Fab Capacity Product Type (Percentage of Total) Dedicated Foundry 13 MPU 7 Logic, ASIC, ASSP, MCU, SRAM 19 Memory (DRAM, EEPROM, Flash) 59 Others (Analog, Power, Discrete, and Others) 2 'Based on new fabs announced to date Source: Dataquest (December 1996)

Although factors that are adding to the supply side of foundry capacity may lead to an extended oversupply in foundry manufacturing, there are reasons to be optimistic about the foundry industry. Reasons include the following:

• The continued above-average growth of the fabless companies • The proven cost-competitiveness of foundry manufacturing • The shrinking gap in foundries' process technologies from that of the industry leaders • The growing acceptance by IDMs of foundry manufacturing as the solu tion for meeting production needs Table 3 lists the new fab projects that will come into production form 1996 to 2000.

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CO o Table 3 (ConHnued) cyj New Fab Projects to Come into Production 1996-2000

Initial M o Start "O I Prefecture/ Production (Wafers/ CO OJ Company Headquarters Fab Name City State Country Products Proc^ses. Start Month) o -J Hitachi Japan N2/3F Hitachi- Ibaraki Japan 16Mb/64Mb CMOS 1996 10,000 naka-Shi DRAM Hitachi Japan N2-2 Hitachi- Ibaraki Japan 16Mb/64Mb CMOS 1996 10,000 naka-Shi DRAM Hitachi Japan U3 Irving TX U.S. MCU CMOS 1997 [litaehi Japan Chitose 2 Chitose Shi Hokkaido Japan 64Mb DRAM CMOS 1998 Hitachi Japan N3/2F Hitachi- Ibaraki Japan 64Mb DRAM CMOS 1998 naka-Shi Hitachi/ Japan Tampins Singapore Singapore 64Mb DRAM CMOS 1998 Nippon Stoel Semicondw^: Holtek Taiwan Fab 2 Science Park Hsinchu Taiwan MCU ASIC CMOS On Hold 2,000 @ Nonvolatile CO Hua Hong Microelec China Poudong Shanghai China Foundry CMOS 1998 CO a> tronics a Hua Yue Microelec- China Fab 3 Shaoxing China Consumer ICs CMOS 1998 K. b-onicsCo. Ltd, ASIC (U X3 Huajing Electrcnics China Fab 2 Wuxi China Telecom, con CMOS 1997 Group sumer, auto ICs ASIC dis. Hyundai Korea Fab 6 Ichon Kyoungki- Korea 64Mb DRAM CMOS 1996 21,000 Do Hyundai Korea Fab 7 Ichon Kyoungki- Korea 16Mb/64Mb CMOS 1997 Do DRAM Hyundai Korea Oregon Fab Eugene OR U.S. 16Mb/64Mb CMOS 1998 3,000 DRAM IBM Microelectronics U.S AMF Corbeil- France 64Mb DRAM CMOS 1997 Essonnes IBM/Toshiba u.s Manassas VA U.S. 64Mb DRAM CMOS 1997 15,000 integrated Device U.S Fab 4 Hillsboro OR U.S. Logic SRAM CMOS 1996 Technology Intel U.S Fab 14 Leixlip Ireland X86MPU BiCMOS 1996 Entei u.s Fab 15 Aloha OR U.S. X86MPU BiCMOS 1996 Intel U.S Fab 12 Chandler AZ U.S. X86MPU BiCMOS 1996

CT Intel U.S Die Ronler OR U.S. x86 MPU CMOS BiCMOS 1997 CD Acres Intel U.S Fab 18 Kiryat Gat Israel Flash Memory BiCMOS 1997 Intel U.S Fab 16 Fort Worth TX U.S. X86MPU BiCMOS 1998 CO CO 05 CO Table 3 (Continued) o C/J New Fab Projects to Come into Production 1996-2000

Initial M o Start "D I Prefecture/ Production (Wafers/ CD 05 Company Headquarters Fab Name City State Country ProdlKts • ^tSpitUf^; Start Month) o InteiConnect Malaysia Sama Jaya Sarawak Malajfsia Foundry 1998 -vl Technology Trade Zone Kawasaki Steel Japan Phase 2 Utsunomiya Tochigi Japan SRAM arrays CMOS 1997 -Shi KTI Semiconductor U.S./Japan Fab 2 Nishiwaki- Hyogo Japan 16Mb/64Mb CMOS 1997 Shi DRAM ASIC LG Semicon Korea CI Phase 3 Chongju- Chung- Korea 16Mb/64Mb CMOS 1997 City cheong- DRAM buk-do LG Semicon Korea G2 Gumi-City Kyeongsans- Korea 64Mb DRAM CMOS 1997 3,000 buk-do Linear Technology U.S Fab 3 Camas WA U.S. Linear CMOS BiC- 1996 @ MOS Bipolar CO CO I.,SI Logic U.S Fabl Gresham OR U.S. ASIC CBIC MPU CMOS BiCMOS 1997 05 MPRSRAM S- Cirrent (Cirrus Log^c/ U.S OR 2 Orlando FL U.S. DSP logic ASIC CMOS 1997 200 (U LuccntJV) -O MactOTiix Lnc. Taiwan Fab 2 Science Park Hsinchu Taiwan ROM EPROM CMOS 1997 5,000 logic Macronix Inc. Taiwan Fab 3 Science Park Hsinchu Taiwan ROM EPROM CMOS After 1998 logic Malaysian Institute Malaysia Phase 1 Johor Baru Malaysia ASIC 1996 of Microelectronit Systems Matsushita Japan FabB Tonami-Shi Toyama Japan 16Mb DRAM CMOS 1996 10,000 16-bit MCU Matsushita Japan FabC Tonami-Shi Toyama Japan 16Mb DRAM CMOS 1996 Matsushita Japan FabD Tonami-Shi Toyama Japan 16Mb/64Mb CMOS 1997 DRAM Matsushita Japan FabD Puyallup WA U.S. DRAM l^tc CMOS 1998 Microchip U.S Fab 3 Chandler AZ U.S. MCUOTP CMOS 1998 Technology a Micron Technology U.S Fabl Boise ID U.S. 4Mb/16Mb CMOS 1996 CD O DRAM, VR/UVt, CD SRAM 3 Micron Technology U.S Fab 2 Boise ID U.S. 4Mb/16Mb CMOS 1996 DRAM, VRAM* SRAM

CD Microm Technology U.S Fab 3 Lehi LIT U.S. Memory CMOS After 1998 CO Oi O) Table 3 (Continued) en New Fab Projects to Come into Production 1996-2000

Initial M Start Prefecture/ Production (Wafers/ Company Headquarters Fab Name Dly State Counhfy Products Processes Start Month) Mitsubishi Japan Shin chu Taiwan 16Mb DRAM CMOS 1996 Mitsubishi Japan D-lF-2 Kikuchi- Kumamoto Japan 16Mb DRAM CMOS 1996 1,000 Gun Mitsubishi Japan (Japan) Japan 4K/16K/64K CMOS 1997 FRAM Miteubishi Japan SAIF Saijo-Shi Ehime Japan 64Mb DRAM CMOS 1997 10,000 EDRAM Mitsubishi Japan Alsdorf Germany 4Mb/16Mb CMOS 1997 DRAM Mitsumi Japan Atsugi-Shi Kanagawa Japan Logic, power 1997 Motorola U.S MOS-17 Tianjin China Telecom ASIC RF CMOS 1997 SmartMOS Motorola US Power Rect Phoenix AZ U.S. Rectifiers 1998 Motorola U.S MOS19 Research NC U.S. MPU MCU Logic CMOSBiCMOS On Hold 480 Triangle Park Motorola u,s MOS19 Research NC U.S. PowerPC MPU CMOS On Hold 4,800 Phase 2 Triangle Park Motorola /Siemens U.S MOS18 Richmond VA U.S. 64Mb/256Mb CMOS 1998 1,000 DRAM Nan Ya Tedmology Taiwan Fabl Tao Yuan Taiwan 16Mb/64Mb CMOS 1996 2,000 DRAM National U.S Fab2A Arlington TX U.S. LAN, audio, PC CMOSBiCMOS 1996 Semiconductor products Natiortal U.S New 8" Fab South ME U.S. Log Array CMOSBiCMOS 1997 1,000 Semicondtidijr Portland NEC Japan Dif-2 Higashi Hiroshima Japan 16Mb/64Mb CMOS 1996 Hiroshim DRAM ASIC a-Shi RISC ?JEC Japan 2 Phase Livingston Scotland U.K. 16Mb/64Mb CMOS 1996 DRAM NEC Japan Kamigori Hyogo Japan 1997 NEC Japan G-Line Roseville CA VS. 64Mb/256Mb CMOS 1998 DRAM NEC Japan Beijing China MCU Logic 4Mb CMOS After 1998 DRAM ASIC New SagtOiUal^. Japan Fabl Kamihiku- Saitama Japan Analog op. amp. Bipolar 1996 oka-Shi opto. CO Table 3 (Continued) o New Fab Projects to Come into Production 1996-2000

Initial M a Start -o Prefecture/ Production (Wafers/ I Company Keadquarteia Fab Name aty Stale Country Pra ducts Pracesses Start Month) to OJ Newport Wafer Fj3? Hong Kong F21 Newport Wales U.K. Foundry CMOS 1996 C3 -Nl Newport Wafer Fab Hong Kong Newport Wales U.K. Foundry CMOS 1997 5,000 Nippon Steel Japan Nl Tateyama- Chiba Japan 16Mb DRAM CMOS 1997 Semiconductor Shi Oki Japan 52 Kurokawa- Miyagi Japan 16Mb/64Mb CMOS 1996 5,000 Gun DRAM Orbit Semiconductor U.S Fab 2 Sunnyvale CA U.S. FPhilips Netherlands Bipolar 1 Stockport England U.K. Power transistors Bipolar 1996 24,000 Cheshire CO CO Nijmegen Nether Consumer ICs C35 Piiilip^ Netherlands MOS4 CMOS 1996 10,000 lands CU I—I- Japan/Taiwan Science Park Hsinchu Taiwan 16Mb DRAM Ol Powerctiip Fabl CMOS 1996 5,000 (ElitegroupJ Promos (Mosel Taiwan ProMos Science Park Hsinchu Taiwan 64Mb/256Mb CMOS 1998 5,000 Vitelic/ Siemens ]V) DRAM SRAM Rockwell Semicon U.S Fab Vin Colorado CO U.S, DSP, analog, CMOS 1997 ductor System Springs mixed-signal ontrollere Rockwell Semicon U.S Fab IX Colorado CO U.S. DSP, analog, CMOS After 1998 ductor System Springs mixed-signal ontroUers Samsung Korea Fab 7 Kiheung-Up Kyungki-Do Korea 16Mb/64Mb CMOS 1996 15,000 DRAM Samsung Korea Fab 8 Kiheung-Up Kyur^ki-Do Korea 64Mb DRAM CMOS 1997 Samsung Korea Austin TX U.S. 64Mb DRAM CMOS 1998 10,000 Seiko Epson Japan Sakata-Shi Yamagata Japan Logic SRAM tel& 1997 com PIJDs FPGAs Semiconductor Laser U.S Endicott NY U.S. High-powered GaAs/in-V 1996 Internationa! diode lasers (HPDl.) CT CD SGS-Thomson Italy/France M5 Phase 2 Catania Sicily Italy Log lin custom CMOS 1996 smart power SGS-Thomson Italy/France M5 Phase 3 Catania Sicily Italy EFROM Flash. CMOS 1996 CO Memory CO 03 Semiconductor Contract IVianufacturing Services Worldwide 13

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Initial Ma a Start "O Prefecture/ Production (Wafera/ (W CO C5 Company Headquarters Fab Name aty State Country Products Processes Start Month) O -vl TSMC Taiwan/ Fab 4 Science Park Hsinchu Taiwan Foundry CMOS BiCMOS 1997 5,000 Netherlands Wafierteth (TSMC/ Taiwan/ Fab 6 Camas WA U.S. Foundry CMOS 1998 3,000 AliEra JV) Netherlands TSMC Taiwan/ Fab 5 Science Park Hsinchu Taiwan Foundry CMOS BiCMOS 1998 5,000 Netherlands T Winstar Japan/U.S. Twinstar Richardson TX U.S. 16.Mb/MMb CMOS 1996 10,000 Seini conductor DRAM United IC Taiwan Fabl Science Park Hsinchu Taiwan Foundry memory CMOS 1997 1,000 Corporation ASIC MPU logic United Semiconduc Taiwan Fabl Science Park Hsinchu Taiwan Foundry SRAM CMOS 1996 4,000 tor Corporation ROM logic MPU MPR @ United Silicon Taiwan Fabl Science Park Hsinchu Taiwan Foundry CMOS On Hold (£3 CO Corporation OT Hsinchu Taiwan 4Mb/ 16Mb O Vanguard Taiwan Fab 2 Science Park CMOS On Hold Intenriationai DRAM, 1Mb Sync SRAM Vanguard Taiwan Fab IB Science Park Hsinchu Taiwan 16Mb DRAM CMOS On Hold 5,000 [ntemational VLSI Technology U.S Module D San Antonio TX U.S. Arrays CBICMPP CMOS 1996 telecom ICs Winbond Taiwan Fab 3 Science Park Hsinchu Taiwan SRAM logic CMOS 1997 5,000 Winbond Taiwan Fab 4 Science Park Hsinchu Taiwan DRAM CMOS On Hold 1,000 Yamaha Japan Building 11-2 Toyooka- Shizuoka Japan ASIC MPR CMOS 1996 5,000 Mura Yamaha Japan NA Toyooka- Shizuoka Japan ASIC ASSP CMOS 1998 Mura

Notes: New fab projects include greenfield new tabs, new fab modules, and wafer size upgrades on existing plants. Year of production start Is indicated in th IVIIcron Technology's Fab 1 and Fab 2 are wafer size upgrades. Also listed are fabs that have been put "on hold." Source: Dataquest (December 1996) a CO C5 cr CD

CO CO at

• 16 Semiconductor Contract Manufacturing Services Worldwide

•

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. ^^ It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in IpOTO/^i I^Cf part to other parties shall be made upon the written and express consent of Dataquest. *^^*^ MlV^MV- iJ L ©1996 Dataquest—Reproduction Prohibited A Gartner Group Com pany Dataquest is a registered trademark of A.C. Nielsen Company V

Perspective

Semiconductor Contract Manufacturing Services Worldwide Market Analysis

Semiconductor Contract Manufacturing Marl(et Sliare

Abstract: This Perspective lists 1995 semiconductor contract manufacturing revenue and market share estimates for foundry providers worldwide. We look at the players in the young but fast-growing SCM industry—and we examine how the market is presently dominated by serveral large providers, many of whom come from Asia/Pacific and Japan. By Calvin Chang

Industry Overview The semiconductor contract manufacturing business has attracted many new players in recent years as word has spread about the profits available in the burgeoning foundry industry. Although Dataquest forecasts an overcapacity in the industry beginning as early as this year and continuing for the next few years, we believe that the escalating costs of new fabs will convince IC companies from building their ow^n. Furthermore, the continued robust growth of the fabless companies and their growing wafer demand merit optimism for the long-term outlook of foundries.

Dataquest, which began tracking the semiconductor contract manufacturing (SCM) industry this year, has completed the first-ever semiconductor contract manufacturing (SCM) revenue estimate for the foundry providers of the world in 1995. Overall, the industry is dominated by a handful of large players, many of whom come from Asia/Pacific and Japan, which we will discuss in further detail later in this report.

Dataquest Program: Semiconductor Contract Manufacturing Services Worldwide Product Code; SCMS-WW-DP-9606 Publication Date: December 16,1996 Filing: Perspective (For Cross-Technology, file in the Semiconductor Regional l\/larl

Who's Who in the Industry Table 1 lists the SCM providers and estimates of their 1995 revenue and respective market share. As shown in the table, Taiwan Semiconductor Manufacturing Company (TSMC) is the world's largest SCM provider with over U.S.$1 billion in SCM revenue in 1995. Following TSMC are three integrated device manufacturers (IDMs) who supply foundry manufacturing in addition to producing their own brand semiconductor products. In second place is LG Semicon with over U.S.$500 million in SCM sales, largely from its foundry manufacturing of DRAM for Hitachi. Toshiba, active in pursuing foundry business with fabless and system vendors, is the third-largest SCM vendor. Fourth-place IBM is a leading-edge SCM supplier of logic devices, using deep subhalf-micron and up to five-level metal interconnect capabilities. Chartered Semiconductor Manufacturing Inc., which has grown quickly since becoming a dedicated foundry in 1991, is now the world's second-largest dedicated foundry. A long-time supplier of foundry manufacturing. United Microelectronics Corporation (UMC), has announced it will focus on SCM as its sole business by spinning off its product divisions and becoming a dedicated foundry. Seiko/Epson, perhaps the best-known Japanese SCM supplier, has been a long-time foundry supplier to U.S. fabless companies. In addition to the 45 or so SCM suppliers worldwide listed in this Perspective, there are a ntm-iber of other IDMs that are believed to have revenue receipts from foundry business. These companies have been noted as "others" and their collective revenue has been estimated.

Top Players Dominate SCM Market Market share estimates presented in Table 1 also show that the SCM market in 1995 was largely dominated by the major SCM suppliers. The top six SCM vendors own 50 percent of the total SCM market. The top 10 and top 20 SCM suppliers hold 66 percent and 84 percent of the market, respectively. The relatively high concentration of market share (compared to the overall semiconductor market) in SCM does not, however, indicate a maturing of the industry. In fact the SCM industry is quite young, with the largest and the oldest dedicated foundry, TSMC, not yet 10 years old. The large market share enjoyed by today's major SCM suppliers is really indicative of the success that early entrants, such as TSMC and Chartered Semiconductor, can enjoy when they grasp the opporttmities presented by a new burgeorung market such as SCM.

SCI\/IS-WW-DP-9606 ©1996 Dataquest December 16,1996 Semiconductor Contract IVIanufacturing Services Worldwide Table 1 1995 Semiconductor Contract Manufacturing Supplier Revenue and Market Share Estimates (Millions of U.S. Dollars) SCM SCM Market Company Foundry Type Country Revenue Share (Percent) Taiwan Semiconductor Manufacturing Company Dedicated Taiwan 1,085 18.2 LG Semicon IDM Korea 547 9.2 Toshiba IDM Japan 480 8.0 IBM IDM U.S. 320 5.4 Chartered Semiconductor Manufacturing Dedicated Singapore 285 4.8 NMB (Nittetsu) IDM Japan 266 4.5 United Microelectronics IDM Taiwan 262 4.4 Seiko/Epson IDM Japan 260 4.4 NEC IDM Japan 210 3.5 Sharp IDM Japan 200 3.4 Fujitsu IDM Japan 180 3.0 Winbond Electronics IDM Taiwan 155 2.6 Mitsubishi IDM Japan 140 2.3 Hitachi IDM Japan 130 2.2 Oki IDM Japan 120 2.0 Tower Semiconductor Dedicated Israel 100 1.7 American Microsystems (Gould AMI) IDM U.S. 77 1.3 SGS-Thomson IDM France 75 1.3 Rohm IDM Japan 75 1.3 Sony IDM Japan 65 1.1 Austrian Mikro System IDM Austria 60 1.0 Kawasaki Semiconductor IDM Japan 60 1.0 Matsushita IDM Japan 60 1.0 Sanyo IDM Japan 55 0.9 IMP IDM U.S. 50 0.8 AT&T IDM U.S. 45 0.8 Ricoh IDM Japan 45 0.8 Orbit Semiconductor Dedicated U.S. 44 0.7 Yamaha IDM Japan 40 0.7 Thesys Gesellschaft fur Mikroelektronik GmbH IDM Germany 34 0.6 Samsvmg IDM Korea 30 0.5 Newport Wafer Fab Ltd. Dedicated U.K. 30 0.5 Mitel IDM Canada 25 0.4 Asahi Kasei Micro Systems IDM Japan 25 0.4 Advanced Semiconductor Manufacturing Corporation Dedicated China 20 0.3 IC Works IDM U.S. 18 0.3 Holtek IDM Taiwan 17 0.3 Standard Microsystems IDM U.S. 16 0.3 GMT Microelectronics Dedicated U.S. 15 0.3 (Continued)

Table 1 (Continued) 1995 Semiconductor Contract Manufacturing Supplier Revenue and Market Share Estimates (Millions of U.S. Dollars)

SCM SCM Market Company Foundry Type Country Revenue Share (Percent) Micrel IDM U.S. 15 0.3 Hualon Microelectronics Corporation IDM Taiwan 15 0.3 VLSI Technology IDM U.S. 7 0.1 Atmel IDM U.S. 5 0.1 Daewoo IDM Korea 4 0.1 Allegro Microsystems IDM U.S. 3 0.1 Dongsung IDM Korea 0 0 Hyundai IDM Korea 0 0 Others IDM 200 3.4 Total 5,970 100 Source: Dataquest (December 1996)

Asia/Pacific and Japan Are Popular Homes for SCM Vendors Geographically, Asia/Pacific—home of TSMC, LG Semicon, Chartered Semiconductor, UMC, and Winbond—is the largest source of SCM manufacturing. As illustrated in Figure 1, Asia/Pacific SCM vendors garnered 45 percent of the total 1995 SCM revenue. Japanese SCM suppliers, which include nearly all the Japanese semiconductor companies, earned 40 percent of worldwide SCM sales. IBM and a handful of smaller U.S. and Canadian SCM suppliers made up the 11 percent that Americas contributed to the SCM supply. European SCM providers made up the remaining 4 percent of the market. Figure 1 1995 SCM Market by Region of Supplier Base

Americas ^^ (11%) / \

/ Japan / (40%)

Asia/Pacific • (457=) m

Europe (4%) _^''^*^^^ seeese Source: Dataquest (December 1996)

Table 1 reveals that there are probably more than 50 SCM suppliers worldwide in 1995. Only seven are dedicated foundries and the rest are IDM foundries. Although representing orUy about one-seventh of the SCM suppliers, the dedicated foundries contributed 29 percent of the overall SCM revenue in 1996 (shown in Figure 2). With many new dedicated foundries, such as SubMicron Technology (Thailand), Interconnect Technology (Malaysia), Anam Semiconductor (Korea), and the UMC joint ventures— scheduled to enter into the SCM market starting in 1997 with their newly built fabs equipped with advanced processing equipment—the dedicated foundries are expected to take on a greater share of the growing SCM market.

Figure 2 1995 SCM Revenue by Foundry Type

Dedicated \ Foundries \ (29%) 1

\ IDM Foundries \ (71%)

968687 Source: Dataquest (December 1996)

For More information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408)954-1780 The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or I JOT^Oll^^St disclosure in whole or in part to other parties shall be made upon the written and express coment of Dataquest. ^^~— ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C. Nielsen Company Perspective

Semiconductor Contract Manufacturing Services Worldwide Market Analysis

1996 Semiconductor Cost Model

AbStrSCfc This Perspective presents a semiconductor cost model useful for projecting the costs of finished ICs. Following a description of the cost model, detailed examples of the 16Mb DRAM and a typical gate array cost structures, incorporating the latest component cost forecast, are presented. By Calvin Chang and Mark Giudici

Dataquest Semiconductor Cost Model Synopsis Consumers of large quantities of semiconductors, electronic system manu facturers are very concerned with the costs of the semiconductor compo nents in their electronic products. Electronic system manufacturers' procurement departments often use cost model analysis in two ways: for near-term cost/price optimization and for aiding long-range system cost analysis. Electronic system vendors also use semiconductor cost models during years of technology transition (for example, DRAM product config uration crossover) to position their procurement strategies in line with a company's system offering. The Dataquest semiconductor cost model uses 15 variables of semiconduc tor manufacture. These variables represent the significant cost influencers/ contributors along the long IC manufacturing process. The cost model is an algorithmic portrayal of the value accrual process because a semiconductor part is manufactured from processed wafer to wafer test, to chip assembly, to final test, and to mark, pack, and ship.

Dataqyest Program: Semiconductor Contract Manufacturing Services Woridwide Product Code: SCMS-WW-DP-9605 Publication Date: November 25, 1996 Filing: Perspective (For Cross-Technology, file in the Semiconductor Regional Markets and Manufacturing binder.) Semiconductor Contract Manufacturing Services Worldwide

Cost Model Applications Semiconductor cost models are predominantly used to compile costs for use in near-term contract negotiations. By identifying cost reduction areas, price negotiation results often benefit the parts buyer. Applying experience- curve theory to cost model applications can provide both short- and long- term cost/price scenarios, which can be a basis for strategic planning. Strategic use of cost models in long-range planning has been underused because of the indirect influence of cost over price as the time horizon expands. Some users apply different learning curves to individual variables in the model in combination with price forecast analysis. In this way, one can better understand future trends and have alternative strategies at hand if any variable actually differs from its expected trend line. We suggest this use of cost modeling as a part of a proactive strategic procurement plan.

Cost versus Price In a competitive market, semiconductor manufacturers pass cost reductions on to their customers. Therefore, a knowledge of semiconductor costs and cost trends is useful for projecting long-term procurement costs and selecting the most cost-effective semiconductor device for a particular application. The cost/price relationship for semiconductor products varies from product to product and from company to company with time as a function of business conditions. One way to perform cost/price analysis is to moni tor prices and costs over a period of several years for selected product types and identify the average gross margin for these types. By using this proce dure, semiconductor users can develop a good feel for the cost/price relationship for the semiconductor products they buy.

Cost Factors As mentioned earlier, the key factors affecting the cost of a finished semi conductor device are the semiconductor process, wafer size, die size, sort yield, package type, and final test 5n[eld. The cost of a semiconductor incre mentally increases by adding the cost of each step in the manufacturing process to the finished product. Figure 1 illustrates the typical manufactur ing process flow for semiconductor devices. The Dataquest cost model categorizes costs into the following four areas: • Wafer processing and die sort • Assembly • Final test • Screening, qualification, mark, pack, and ship The manufacturing process begins with a raw, improcessed silicon wafer that costs from under $15 (100mm wafer) to about $120 (200mm wafer). After completing more than 100 processing steps, the cost of a processed wafer is 10 to 30 times the initial cost of the unprocessed wafer. The cost of a processed wafer is a function of the following: • Wafer size • The number of masks

• Technology requirements: process type (CMOS, BiCMOS, or bipolar), process technology (for example, SRAM, logic, mbced-signal, DRAM, dual voltage and others), process line width (for example, 0.5 micron), number of interconnection layers (for example, two to four metal layers), and number of poly layers • Special process requirements: Tungsten plugs, salicide, chemical mechan ical polishing layers, epitaxial wafers, additional poly and/or intercon nect layers, and other special or custom processes Complex relationships exist among all of these elements and the end cost of the product. These interacting relationships also involve, in addition to direct material and labor costs, the depreciation of the fabrication equip ment (which accounts for over half of the total cost of a modem IC fab). Other elements in the cost structure may include wafer output, capacity utilization, process learrung curves within a fab, back-end test cost amorti zation, and royalty pajonents, if applicable, by process or device type. Figure 1 Commercial and MIL-STD Manufacturing Flow

Commercial Silicon Waler Military 201OE Standard Class B Product T Processed Wafer X X 1 Commercial Wafer Prolie Wafer Sort 100% T I^^House Visual Sort Military Commercial Visual Inspection Specifications X I Assembly in Scrilse arid Assembly Plastic Military Package Hermetic Package

Commercial Visual Inspection 24-Hour 150°C Bake I 10 Temp. Cycles Constant Plastic Acceleration 30K Gs, Class B Seal Mold Fine and Gross Leak T Bake 6 Hours 150°C Electrical 25°C Class B Go/No Go Test I Commercial Final Test Limits Bum-in 160 Hours Class B I T Final Visual inspection aS'C DC Electricals Class B 5% PDA Mark, Pack. Ship 125»C and -SS'C DC Screen and 25''C AC Screen Class B X External Visual Military * Key Cost Points 961036

Source: Dataquest (October 1996)

In general, the cost of a wafer increases with each mask layer required. Additional mask layers could introduce more defects and decrease yields. Naturally more complex processes result in more expensive dies. Table 1 lists the typical number of mask layers for many of ttie IC manufacturing processes. Representing the vast majority of the world's IC production capacity, CMOS is by far the most common of all the processes. Current state-of-the-art CMOS processes are capable of manufacturing up to four layers of poly for DRAM processes or up to five layers of metal interconnect for logic device production. Today's multilayer-metal CMOS can be as com plex as requiring more than 20 mask layers. Wafer costs also increase as device features become smaller. However, smaller features result in more die per wafer. Although the wafer cost will be higher, the cost per function per chip often will be lower because of the increased density.

Table 1 Number of IC Process Mask Layers Process Single -Layer Metal Multilay er Metal Schottky TTL 7 9 Bipolar Linear 7 to 9 9 to 11 ECL 8 10 NMOS 8 10 HMOS 9 11 CMOS 10 12 to 22 HCMOS 11 13 to 16 BiCMOS 14 16 to 20 Source: Dataquest (October 1996) Package Costs The type of packaging a semiconductor device often makes up a large por tion of the overall semiconductor cost. For example, going from a ceramic to a plastic package using the same die will often halve the manufacturing cost and related price. Table 2 shows the latest cost estimates for semicon ductor packaging in 1996. This table highlights how different packaging options can alter finished semiconductor pricing.

Cost Model Formula Dataquest's semiconductor cost model uses the variables and algorithms shown in Table 3 to estimate semiconductor costs. Because of the flexibility of the model, a variety of semiconductor devices can be cost-modeled by assigning the appropriate values to the variables indicated in Table 3 (wafer size, geometry, processed wafer cost, die area, defect density, test cost, test seconds, test heads, package cost, assembly yield, final test time, final test cost, and final test yield).

Ceramic Ceramic a Plastic Chip Chip -D Chip Carrier Carrier TQFP TQFP I No. of Plastic CER Side- Ceramic PlasUc Carrier (Leadless) (Uaded) TSOP •raop Plastic lj4i]iin Irmn Ceramic Metal (O Viva DIP DIP Braze PGA PGA LLCC QUAD UAD QUAD O) PLCC LCC SOJ SOIC lypel lypell ssop Bod; Body o 8 0.07 0.21 1.25 0.06 0.20 CJl 14 0.09 0.22 1.65 1.15 0.10 0.20 16 0.11 0.26 1.65 0.90 1.20 0.11 18 0,12 0.30 1.80 0.19 1.00 1.30 0.14 0.29 0.55 0.21 20 0.15 OJO ZIO 0.19 1.10 1.45 0.28 0.15 0.40 22 0.18 0.35 Z55 1.20 030 0.21 0.47 0.55 24 0.20 0.41 185 IJO 1.75 0.34 0.22 0.50 0.55 037 28 0.23 0.49 3.40 0.21 1.50 105 0.38 035 0.55 0.63 0.43 0.46 32 032 0.68 3.95 0.29 1.70 2.40 0.40 035 0.60 0.70 0.45 40 0.35 1.00 4.95 2.30 190 0.40 0.42 0.72 0.50 0.58 0,60 44 0.36 0.31 2.45 3.25 0.75 053 0.61 48 0.50 6.20 2.70 0.60 @ 52 0.45 3.10 1.08

CO 56 0.64 0.68 0.75 05 0.60 4.65 5.95 a> 64 1.52 3.75 4.55 0.75 o 68 3.30 4.90 Z13 0.56 3.90 0.90 0.70 6.92 84 4.00 6.05 4.39 0.68 4.80 0.95 0.78 1.13 11.80 4.00

CD 100 7.50 5.70 5.30 1.30 1.70 13.60 6.78 V) 128 9.50 7.42 1.40 1.80 15.90 132 10.00 8.03 1.55 1.98 17.50 a93 144 10.90 9.58 1.80 1.99 19.50 9.75 160 15.20 10.64 164 169 184 255 196 2,40 3.00 25.40 1210 208 17.85 13y83 225 2.95 ia90 232 19.20 240 3.25 30.90 244 21.30 16.23 3.85 3i65 39.60 21.76 256 17.51 O < 296 46.10 5,80 24.47 CD 3 304 C3- 308 lO 313 CJl 324 50.10 CO C£> (Continued)

Ceramic Ceramic Plastic Chip Chip o Chip Cairier Carrier TQFP TQFP TJ ND.OF PluUc CER Side- Ceramic Plastic Cairier (Leadlesa) (Leaded) TSOP TSOP Plastic 1.4min 1mm Ceramic Metal l I Fiiu DIP DIP Biue PGA PGA PLCC LLCC LCC SOJ SOIC •lypel Type II SSOP QUAD Body Body UAD QUAD / eCOn o 352 Ol 36] 1 363 390.00 376 57.80 1 442 460.00 475 2 480 5m 80.64 39.56 55.44 44.45 2 625 3 672 3 Package Materials Leadframe C194 A42 A42 A42 Cu C151 A42/ C194 a94 A42/ A42/ Cu A42 Cu Cu A42 Cu @ LDCC Cu Cu wit CD (D Lead Form TH TH TH TH J J Gull/ Gull/J Gull/J Gull Gull Gull Gull Gull GuU Gull Gull a> None o Wire Au Al Al Au Au Au Al Au Au Au Au Au Au M Al Al Au Ud Opoxy Cera Au/ Au/ Au/ Epoxy Au/Kovar Epolty Epoxy Epooty Epoxy Epoxy Epoxy Upoxy Epolty Au/ AlCap X3 mic Kovar Kovar Epoxy FCovar Preform NA Class Au/Sn Au/Sn NA NA Au/Sn NA NA NA NA NA NA NA NA Au/Sn NA NA » Not applicable Source: Dataquest (October 1996)

O< C3D a- CD ro en

(O CO O) Semi conductor Contract Manufacturing Services Worldwide

Table 3 Semiconductor Cost Model Section Algorithm or Variable Wafer Sort Wafer Size (Diameter in Inches) = A Capacity Utilization (%) = B Geometry (Microns) = C Processed Wafer Cost ($) = D Die Area (Square MiUimeters) = E Defect Derwity (Defect per Square Centimeter) = F Gross Die per Wafer = G = (0.8*pi*(A/2)^2»(25.14)^2)/E Processed Wafer Cost per Gross Die ($) = H = (D/G) Test Cost per Hour ($) = 1 Test Seconds per Die = J Test Heads = K Wafers Tested per Hour = L = 3600*K/(G*J) Wafer Sort Cost per Gross Die ($) = M = a / L) /G Cost per Gross Die at Wafer Sort ($) = N = (H+M) Wafer Sort Yield (%) = O = ((l-exp(-F*E»0.01))/(F*E»0.01))^2 *100 Cost per Sorted Die ($) = P = N*100/O Assembly Material Cost/Sorted Die + Package Cost ($) = Q Number of Package Pins = R Assembly Yield (%) = S Cost per Assembled Die ($) = T = (P+Q)/S*100 Final Test Test Time per Die (Seconds) =U Cost per Hour of Testing = v Test Cost per Die (USD$) = W = U*V/3600 Final Test Yield (percent) = x Cost per Final Tested Unit (USD$) = Y = (T+W)/X*100 Mark, Pack, and Ship Cost at 99 Percent Yield (Percent) = Z = (Y*0.01) Total Fabrication Cost per Unit ($) = AA = Y+Z Foreign Market Value (FMV) Formiila Adders R&D Expense (15 Percent) = AB = 0.15*AA SG&A Expense (10 Percent) = AC = (AA + AB) * 0.10 Profit (8 Percent) = AD = (AA+AB+AO* 0.08 Constructed FMV = AE = (AA+AB+AC+AD) Source: Dataquest (October 1996)

Cost Model Examples Tables 4 and 5 illustrate how the cost models can highlight the cost differen tials for two very different product types: a 60,000-gate ASIC versus a 16Mb DRAM (projected over the bulk lifetime of the part from 1995 to 1998). These models substitute variables with values fliat Dataquest believes to be most reflective of current market/industry conditions. Projected values for future years are based on line width shrirJic, defect density improvement, and test cost forecast that are in part based on historical trends of previous product generations. Table 4 1996 ASIC Cost Model (60^00 Gates; Excludes Nonrecurring Engineering Charges) PQFP-208 0.8 PQFP-208 0.5 PQFP-208 0.8 PQFP-208 0.5 Micron CMOS Micron CMOS Micron CMOS Micron CMOS Wafer Sort Wafer Size (Inches Diameter) 6 6 8 8 Processed Wafer Cost ($) 350 450 700 900 Die Area (Square Millimeters) 70 45 70 45 Number of Masks 16 16 16 16 Defect Density (Defect per Square cm) 0.30 0.35 0.25 0.30 Gross Die per Wafer 204 318 363 565 Processed Wafer Cost per Gross Die ($) 1.71 1.42 1.93 1.59 Test Cost per Hour ($) 76 76 76 76 Test Seconds per Die 15 15 15 15 Wafers Tested per Hour 1.18 0.76 0.66 0.42 Wafer Sort Cost per Gross Die ($) 0.32 0.32 0.32 0.32 Cost per Gross Die at Wafer Sort ($) 2.03 1.73 2.24 1.91 Wafer Sort Yield (%) 81 86 84 88 Cost per Sorted Die ($) 2.50 2.02 2.67 2.18 Assembly Material Cost/Sorted Die ($) 2.40 2.40 2.40 2.40 Number of Pins 208 208 208 208 Assembly Yield (%) 90 90 90 90 Cost per Assembled Die ($) 5.44 4.92 5.63 5.09 Final Test Test lime per Die (Sec.) 10 10 10 10 Cost per Hour of Testing ($) 76.00 76.00 76.00 76.00 Test Cost per Die ($) 0.21 0.21 0.21 0.21 Final Test Yield (%) 90 90 90 90 Cost per Final Tested Unit ($) 6.28 5.70 6.49 5.89 Mark, Pack, and Ship Cost at 99 Percent Yield (%) 0.06 0.06 0.06 0.06 Total Fabricated Cost per Net Unit ($) 6.34 5.75 6.56 5.95 Price Formula Adders R&D Expense (35 Percent) 2.22 2.01 2.29 2.08 S G & A Expense (15 Percent) 1.28 1.17 1.33 1.21 Profit (30 Percent) 2.95 2.68 3.05 2.77 Constructed Foreign Market Value (FMV) 12.80 11.61 13.23 12.01 Source: Dataquest (October 1996)

Table 5 16MB DRAM Cost Model, 1995-1996 1995 1996 1997 1998 Wafer Sort Wafer Size (Inches Diameter) 8 8 8 8 Capacity Utilization (%) 100 100 100 100 Geometry (Microns) 0.6 0.40 0.35 0.30 Processed Wafer Cost ($) 1400 1150 1200 1300 Die Area (Square Millimeters) 95 80 65 60 Active Area Factor 1.0 1.0 1.0 1.0 Defect Density (Defect per Square cm) 0.70 0.25 0.17 0.11 Gross Die per Wafer 268 318 391 424 Processed Wafer Cost per gross Die ($) 5.2 3.6 3.1 3.1 Test Cost per Hour ($) 110.0 100.0 90.0 80.0 Test Seconds per Die 170 160 160 160 Test Heads 4 4 4 4 Wafers Tested per Hour 0.317 0.283 0.230 0.212 Wafer Sort Cost per Gross Die ($) 1.3 1.1 1.0 0.9 Cost per Gross Die at Wafer Sort ($) 6.5 4.7 4.1 4.0 Wafer Sort Yield (Percent) 53 82 90 94 Cost per Sorted Die ($) 1224 5.76 4.54 4.23 Assembly Material Cost/Sorted Die- SOJ Package ($) 0.38 0.38 0.38 0.38 Number of Pins 26 26 26 26 Assembly Yield (%) 99 99 99 99 Cost per Assembled Die ($) 12.75 6.20 4.97 4.65 Final Test Test Time per Die (Second) 30 30 20 20 Cost per Hour of Testing ($) 90 90 90 90 Test Cost per Die ($) 0.75 0.75 0.50 0.50 Final Test Yield (%) 85 90 95 95 Cost per Final Tested Unit ($) 15.88 7.72 5.76 5.42 Mark, Pack, and Ship Cost at 99 Percent Yield (%) 0.16 0.08 0.06 0.05 Total Fabricated Cost per Net Unit ($) 16.04 7.80 5.82 5.48 Source: Dataquest (October 1996) Dataquest Perspective The individual unit cost of a semiconductor is the most tangible variable in the total cost of a semiconductor device. Understanding cost models and the variables that go into a model allows for more efficient and educated allocation of resources, both in plaiming and in the execution of those plans. By appljdng different assumptions to different variables in the model, one may uncover areas of cost not considered important initially. Often, many different "what if scenarios are required to best use cost modeling in long- range system analysis. As different suppliers improve yields and lower costs, individual company price points can hint at efficiency gains or losses for differing technologies (ASICs) or the next-generation products.

Models are inherently flexible. If historical data differs from calculated model results, updates quickly correct inconsistencies. Checking and updating a model against known data ensures that the model is correct and current. Revisions to the existing algorithms to match reality should better be made only when basic changes occur, not for perturbations that deviate from the norm. Those in procurement use cost modeling and experience-curve analysis for both short-term and long-term contract negotiations. The current transition in market dynamics from a seller's to a more balanced market again allows use of cost-base pricing. Good communication with suppliers regarding yield improvements or other cost savings in combination with cost model use can potentially allow price reductions for astute procurement groups. Periodic "reality checks" of the model assure planners that they used the best information available at the time. Using cost modeling in this way pro vides a tangible benchmark for procurement groups to use with their sup pliers in terms of cost and price reduction for critical semiconductor parts.

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represertfs our interpretation and analysis of information genially available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in cor\fidence by our clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—^Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C. Nidsen Company Perspective

UJ 3 Semiconductor Contract Manufacturing Services Worldwide N 2 111 Competitive Analysis >• Q. ^ Worldwide Fabless Semiconductor Company Directory 8< Abstract: One of the fastest-growing sectors of the semiconductor industry, the fabless semiconductor companies have seen their ranks swell during the past several years. Nearly LU CC 200 fabless companies, encompassing North America, Asia/Pacific, and Europe, are featured in the 1996 Dataquest Worldwide Fabless Semiconductor Company Directory. d < By Calvin Chang

Worldwide Fabless Directory Table 1 shows North American fabless companies and their products. Table 1 North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market 3Dfx Interactive Inc. U.S. 1994 P 3-D graphics accelerators 415 Clyde Ave. exclusively for the Suite 105 entertainment market, for Mountain View, California 94043 video games only 8x8 Inc. (IIT—Integrated U.S. 1987 P 44 MP As for multimedia and Information Technology) commuiucations systems 2445 Mission College Blvd. Santa Clara, California 95054 ACC Microelectronics U.S. 1987 P 40 Microcomponents 2500 Augustine Dr. Santa Clara, California 95054 Actel Corporation U.S. 1994 ACTL 108 FPGAs 955 East Arques Ave. Sunnyvale, California 94086 (Continued) DataQuest Program: Semiconductor Contract Manufacturing Services Worldwide Product Code: SCMS-WW-DP-9604 Publication Date: September 23,1996 Filing: Perspective (For Cross-Technology, file in the Semiconductor Regional Markets and Manufacturing binder) Semiconductor Contract Manufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Adaptec Inc. U.S. 1981 1986 ADPT 124 Accelerators and controllers 691 S. Milpitas Blvd. for multimedia, database Milpitas, California 95035 backup, and networking Advanced MOS Technology, Inc. U.S. 1991 S DSPs for sound add-in 2345 Harris Way cards, motherboards, and San Jose, California 95131 musical instruments Advanced Photonix Inc. U.S. 1988 API 6.8 LAAPD, VAPDs, -

1240 Avenida Acaso Photodiodes for light 1 Camarillo, California 93012 detection used in industrial,' > J medical, military, space, science, and commercial applications AHA (Advanced Hardware U.S. 1988 P Coprocessors for error Architectures) correction coding

2365 NE Hopkins Court t Pullman, Washington 99163-5601 u"7 Alesis Semiconductor Corporation U.S. 1985 P 'J 3630 Holdrege Ave. Los Angeles, California 90016 1 T^ Alliance Semiconductor U.S. 1985 1993 ALSC 220 High-performance memory 3099 North First St. and memory-intensive logic < 1^ San Jose, California 95134 products Altera Corporation U.S. 1988 ALTR 402 PLDs 2610 Orchard Parkway San Jose, California 95134-2020 AMP Sensors U.S. ,P Sensors 470 Friendship Road Harrisburg, Pennsylvania 17111 Aptek Williams U.S. 1969 Thick-film hybrid circuits, 700 NW 12th Ave. communications Deerfield Beach, Florida 33442 components Aptix Corporation U.S. 1989 P 4 FPICs 2880 North First St. San Jose, California 95134 Aptos Semiconductor U.S. 1993 SRAMs, high-speed 2254 North First Street miniprocessors, speech and San Jose, California 95131 speaker recognition, neural net technology circuits Arcus Technology Inc. U.S. 1987 P Custom ICs, MPEGs 1885 Lundy Ave. San Jose, California 95131 Arithmos Inc. U.S. 1993 Mixed-signal, chipsets for 2730 San Tomas Expwy., Ste. 210 video compression Santa Clara, California 95051-0952 applicatioiis Array Microsystems Inc. U.S. 1990 P DSP, ICC, MEC 987 University Ave. Los Gatos, California 95030 (Continued)

Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market ASPEC Technology Inc. U.S. 1991 P ASICs for physical cell 830 E. Arques Ave. libraries for EDA software, Sunnyvale, California 94086 memory, and FIFO compilers ATI Technologies Canada 1985 ATY Graphics accelerators 33 Commerce Valley Dr. East Thomhill, Ontario, L3T 7N6 Aura Vision Corporation U.S. mm Video processors 47865 Fremont Blvd. Fremont, California 94538 Aureal Semiconductor U.S. ^ AURL Audio/visual ICs for 3-D (Formerly Media Vision) audio technology 4245 Technology Dr. Fremont, California 94538 Benchmarq Microelectronics Inc. U.S. 1989 1995 BMRQ Battery management 17919 Waterview Parkwray products, NVSRAM Dallas, Texas 75252 products, RTC products, mixed-signal (analog and digital) ICs Brooktree Corporation U.S. 1981 1991 BTRE 120 High-performance digital 9868 Scranton Road and mixed-signal ICs for San Diego, California 92121 graphics, imaging, multimedia, and communications C-Cube Microsystems U.S. 1988 1994 CUBE 124.6 Processors, decoders, and 1778 McCarthy Blvd. encoders for video and still Milpitas, California 95035 images in consumer electronics, computers, and communications California ASIC (Division of Jaymar ) U.S. Gate arrays. X-ray 13845 Alton Parkway, Suite B lithography Irvine, California 92718 Catalyst Semiconductor U.S. 1985 1993 CATS 49 EEPROMs, NVRAMs, and (LS2—Logical Silicon Solutions) flash memories 1250 Borregas Avenue Sunnyvale, California 94089 Celerix Inc. U.S. 1996 High-performance analog 370 N. Westlake Blvd, Ste. 220 and mixed-signal ASICs Westlake Village, California 91362 Chip Express U.S. 1989 P High-performance ASICs 2323 Owen St. Santa Clara, California 95054 Chips & Technologies Inc. U.S. 1984 1985 CHPS 138 Video/graphics controllers 2950 Zanker Road and accelerators, chipsets for San Jose, California 95134 PCs Chromatic Research Inc. U.S. 1993 P Media processors 615 Tasman Dr. Sunnyvale, California 94089-1707 (Continued)

Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Chrontel Inc. U.S. 1986 16 Mixed-signal ICs for 2210 O'Toole Ave. graphics, video, and audio, San Jose, California 95131-1326 high-performance clocks Cirrus Logic Inc. U.S. 1984 1988 CRUS 1,002 Multimedia, 3100 W. Warren Ave. communications, mass Fremont, California 94538-6423 storage, and data acquisition ICs Qarkspur Design Inc. U.S. 1988 P DSP cores for modems, 12930 Saratoda Ave. voice mail, and disk drivers Suite B9, Saratoga, California 95070-4661 Colorado Micro Display U.S. 1996 P Semiconductors for flat 55 Roberts Road, Bldg. G panel displays Los Gatos, California 95030 Comlinear Corp. U.S. F Mixed-signal, linear 4800 Wheaton Dr. Fort Collins, Colorado 80525 CommQuest Technologies Inc. U.S. 1991 ICs for v^dreless voice and 527 Encinitas Blvd. data, cordless telephony, Encinitas, California 92024-3740 interactive cable modem, and satellite communications CORSAIR Microsystems U.S. 1994 10+ Cache memory for PCs 2005 Hamilton Ave. Suite 130, San Jose, California 95125 CPU Technology Inc. U.S. 1989 Processors 4900 Hopyard Road Suite 300, Pleasanton, California 94588 CREE Research Inc. U.S. 1987 1993 CREE Silicon carbide (SiC) ICs 2810 Meridian Parkway (LEDs) E>urham, North Carolina 27713 • Crosspoint Solutions U.S. 2 FPGAs (customer- 694 Tasman Dr. programmable ASICs) Milpitas, California 95035 Cubic Memory Inc. U.S. 1989 P Memories for PCs 27 Janis Way Scotts Valley, California 95066 Cyrix Corporation U.S. 1988 1993 CYRX 212 High-performance 2703 N. Central Expressway processors Richardson, Texas 75085-0118 Datapath Systems Inc. (DPS) U.S. 1994 P CMOS and BiCMOS mixed- 2334 Walsh Ave. signal VLSI circuits Santa Clara, California 95051 Dialight Corporation U.S. LED indicators for 1913 Atlantic Ave. telecommunications, data Manasquan, New Jersey 08736 processing, industrial, computer, diagnostic, and bacldightine applications (Continued)

SCIVIS-WW-DP-9604 ©1996Dataquest September 23,1996 Semiconductor Contract iVianufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Displaytech Inc. U.S. 1984 P High-performance electro- 2200 Central Ave. optic components Boulder, Colorado 80301 DSP Group Inc. U.S. 1987 1994 DSPG 60 Digital sigrial processing ICs 3120 Scott Blvd. for digital speech Santa Clara, California 95054 Edge Semiconductor U.S. 1994 P High-performance analog 9868 Scranton Road and mixed-signal ICs for San Diego, California 92121 ATE (Bipolar and CMOS) Electronic Designs Inc. U.S. EDIX 43 High-density, high- (EDI, Division of Crystallume) performance memory One Research Dr. devices for communications Westborough, Massachusetts (SRAMs and monolithic 01581 devices) Emulex U.S. 1979 EMLX Communication 3535 Harbor Blvd. coprocessors, SCSI chipsets, Costa Mesa, California 92626 LAN and WAN components, data storage collectors ESS Technology Inc. U.S. 1995 ESST 106 Highly integrated, mixed- 48401 Fremont Blvd. signal ICs for multimedia Fremont, California 94538 ETEQ Microsystems Inc. U.S. 7 Microcomponents 1900 McCarthy Blvd. Suite 110, Milpitas, California 95035-7413 EXAR Corporation U.S. 1971 146 Analog, digital, mixed- 48720 Kato Road signal, and SCF ICs Fremont, California 94538 Exponential Technology U.S. 1993 14 Microprocessors for high- 2075 Zanker Road performance power PCs San Jose, California 95131 Focam Technology Canada 1992 P Analog, digital, and mixed- 3050 Blvd. Cartier West sigrial ICs, ASICs Laval, Quebec, H7V 1J4 Focus Semiconductor Inc. U.S. 1994 $ Mixed-signal ICs for ASIC 768 N. Bethlehem Pike, Ste. 301 market Lower Gwynedd, Pennsylvania 19002-2659 G-Link Technology U.S. 1994 Enabling technologies: 2701 Northwestern Parkway memory and logic for Santa Clara, California 95051-0947 computers, multimedia, mass storage, and telecom markets (SRAMs, DRAMs); nonmemory ASIC products Galileo Technology Inc. U.S. 1993 High-performance core 1735 N. First St., Suite 308 logic, data communications San Jose, California 95112 controllers, ASM buffers (Continued)

Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Genesis Microchip Inc. Canada 1987 ICs for high-performance, 200 Town Centre Blvd., Suite 400 graphics/visualization and Markham, Ontario L3R 8G5 imaging Gennum Corporation Canada 1973 36 High-performance ICs for PO Box 489, Station A video and signal processing Burlington, Ontario, L7R 3Y3 I-Cube Inc. U.S. 1990 p ASIC switch sets and PSIDs 2605 S. Winchester Blvd. for telecommunications, Campbell, California 95008 networking, DSPs, image processing, ATE Ideal Semiconductor U.S. 1987 P Digital and analog 816 North Swing microcircuits Liberty Lake, Washington 99019 ICT Inc. (Formerly International U.S. 1983 P 17 Logic CMOS Technology Inc.) 2123 lUngwood Ave. San Jose, California 95131 Information Storage Devices Inc. U.S. 1987 1995 ISDI 55.5 High-density storage and (ISD) mixed-signal ICs for voice 2045 Hamilton Ave. recording and playback and San Jose, California 95125 batteryless message storage Integrated Circuit Systems Inc. U.S. 1976 1991 ICST 96 Mixed-signal ICs for clocks, (ICSInc.) ASICs, multimedia, and data 1271 Parkmore Ave. communications San Jose, California 95126 Integrated Silicon Solution Inc. U.S. 1995 ISSI 158 High-performance SRAMs; (ISSI) EPROM, EEPROM, flash for 680 Almanor Ave. networking, PCs, Sunnyvale, California 94086 teleconununications, data communications, instrumentation, and consumer products Integrated Telecom Technology Inc. U.S. 1991 P Memory, microcomponents, (IgT) logic, mixed-signal, linear, 18310 Montgomery Village discretes, ATM switches, Gaithersburg, Maryland 20879 some software Irvine Sensors Corp. U.S. 1980 1982 IRSN Optical smart sensors, 3-D 3001 Red Hill Ave., Bldg. 3 stack memory, stack Costa Mesa, California 92626 processors IXYS Corporation U.S. 1983 P MOSFETs, IGBTs, FREDs, 3540BassettSt. smart power ICs, thyristors, Santa Clara, California 95054 rectifiers, and diodes for the motion control and power conversion industries (Continued)

SCMS-WW-DP-9604 (g>1996Dataquest September 23,1996 Semiconductor Contract IVlanufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Lattice Semiconductor U.S. 1983 LSCC 187 ISPs, E2CMOS PLDs for 5555 Northeast Moore Court conununications, data Hillsboro, Oregon 97124-6421 processing, computer peripherals, instrumentation, industrial controls, and military systems Level One Communications U.S. 1985 1993 LEVL 78 ASSPs: Analog and digital 9750 Goethe Road mixed-signal ICs for Sacramento, California 95827 networks, wireless, cable, telephony, digital Internet access, LAN, WAN, high speed transmissions Logic Devices Inc. U.S. 1983 LOGC 18 High-performance, digital 628 E. Evelyn Ave. ICs: DSPs and SRAMs Sunnyvale, California 94086 Maxford Semiconductor U.S. P Communications ICs 1762 Technology Dr., Suite 128 San Jose, California 95110 Medianinx Semiconductor Inc. U.S. 1994 P Digital signal processors for 100 View St., Suite 101 consumer audio applications Mountain View;, California 94041 Micro Linear Corporation U.S. 1983 1994 MLIN 54 High-performance analog 2092 Concourse Dr. and mixed-signal ICs to San Jose, California 95131 communications, computer, and industrial markets (bipolar, CMOS, BiCMOS) for networks, video, power supply, battery management, motor controllers Micron Quantum Devices U.S. Flash designer (Parent: Micron Technology Inc.) 2338 Walsh Ave. Santa Clara, California 95051 MMC Networks U.S. ATM switch chipsets 2855 Kifer Road, Suite 200 Santa Clara, California 95051 MOSAID Technologies Inc. Canada 1975 MSD Memory ICs: DRAM, ASM, 2171 McGee Side Road HDRAM Carp, Ontario KOA ILO MoSys Incorporated U.S. 1991 Memory ICs: DRAM, 2670 Seely Road MDRAM for PC graphics San Jose, California 95134 Music Semiconductors Inc. U.S. 1986 P ICs for electronic and 1150 Academy Park Loop computer industries Suite 202 Colorado Springs, Colorado 80910 (Continued)

SCI\/IS-WW-DP-9604 ©1996 Dataquest September 23,1996 8 Semiconductor Contract IVIanufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market NeoMagic Corporation U.S. 1993 Memory/logic ICs (DRAM) 3260 Jay St. for notebook computers, Santa Clara, California 95054 graphics and video accelerator ICs for notebook and desktop PCs Nova Logic Inc. U.S. 1995 Content-Addressable 465A Fairchild Dr., Suite 101 Memories for networking Mountain View, California 94043 applications Novalog Inc. U.S. 1995 S Analog and mixed-signal (Parent: Irvine Sensors Co.) ICs for wireless, infrared 151 Kalmus Drive, Unit Kl communications Costa Mesa, California 92626 Nu Vision Technologies Inc. U.S. 1994 S 3-D technology for PC (Subsidiary of Vikay Industrial) games 1815 NW 169th Place, Bldg. 3060 Beaverton, Oregon 97006 NVidia Corp. U.S. 1993 P Multimedia accelerator ICs 1226 Tiros Way for PCs for 2-D and 3-D Sunnyvale, California 94086 graphics Oak Technology U.S. 1987 1995 OAKT 84 Graphics controllers 139 Kifer Court (SVGA); CD-ROM Surmyvale, California 94086 controllers; MPEGs for optical storage, compression / imaging, video/graphics and PC audio OPTi Inc. U.S. 1989 OPTI 167 Core logic and multimedia 888 Tasman Dr. chipsets and graphics Milpitas, California 95035 controllers for audio, graphics, and storage Pacific Coast Engineering (PCE) U.S. 1989 Sole P. Low-frequency ICs in PO Box 1956 wireless receivers and Thousand Oaks, California 91358 transmitter systems for satellite TV reception and wireless TV antennas Peregrine Semiconductor Corp. U.S. 1990 High-performance ICs 6175 Nancy Ridge Drive (FPGA and SRAM); San Diego, California 92121 frequency synthesizer ICs (microcommunicators) for wireless systems Pericom Semiconductor U.S.: 1990 25 High-performance digital 2380 Bering Dr. and mixed-signal ICs for San Jose, California 95131 PCs, workstations, peripherals, and networking PMC-Sierra (Subsidiary of Sierra Canada 1992 S PDH interface ICs; Semiconductor) SONET/SDH interface ICs; 105-855 Baxter Place ATM interfaces Bumaby, British Columbia V5A4V7 (Continued)

SCMS-WW-DP-9604 ©1996Dataquest September 23,1996 Semiconductor Contract Manufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Power Senuconductors Inc. U.S. 1968 P Power semiconductors 6352 Corte del Abeto, Suite F Carlsbad, California 92009 Purdy Electronics U.S. 1995 P LEDs, LCDs for computers, 720 Palonaar Ave. medical, and industrial Sunnyvale, California 94086 instrumentation QLogic Corp. (Formerly Emulex U.S. 1980 1994 QLGC 57.6 Controllers, processors for Micro Devices—HMD) minicomputers, 3545 Harbor Blvd. workstations, and high-end Costa Mesa, California 92626 PCs Quality Semiconductor (QSI) U.S. 1988 1994 QUAL m High-performance logic 851 Martin Ave. (FCT) and logic-intensive Santa Clara, California 95050-2903 specialty memory ICs (RAMs) for networking, PC, workstations QT Opto Electronics U.S. 1978 60 Optical ICs (Formerly Quality Technologies Corp.) 610 N. Mary Ave. Sunnyvale, California 94086 QuickLogic Corp. U.S. 1988 16 FPGAs 2933 Bunker Hill Lane, Ste. lOOA Santa Clara, California 95054 Rambus Inc. U.S. 1990 DRAMs for graphics and 2465 Latham St. video in PCs Mountain View, California 94040 Rendition Inc. U.S. 1993 3-D graphics processors for 1675 N. Shoreline Blvd. PCs and multimedia-based Mountain View, California 94043 systems RF Monolithics Inc. U.S. 1979 1994 RFMI SAW devices and RF 4441 Sigma Road modules for low-power Dallas, Texas 75244 wireless, high-frequency timing, and telecommunications Ross Technology Inc. U.S. 1988 1995 RTEC 39 RISC microprocessors for 5316 Highway 290 W., Suite 500 SPARC workstations, Austin, Texas 78735 servers, and embedded applications serving computationally intensive markets (scientific, engineering, file server, and high-end commercial markets) S3 Inc. U.S. 1989 1993 Sill 315 Multimedia acceleration 2770 San Tomas Expressway solutions for PCs Santa Clara, California 95052-8058 (Continued)

SCMS-WW-DP-9604 (g)1996Dataquest September 23,1996 10 Semiconductor Contract !\/lanufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market SanDisk Corporation U.S. 1988 1995 SNDK Flash memory data storage 140 Caspian Court products for industrial, Sunnyvale, California 94089 communications, highly portable computing, and consumer electronics Seeq Technology Corporation U.S. 1981 1983 SEEQ 27 LAN ICs for networking 47200 Bayside Parkway connectivity (controllers, Fremont, California 94538 media interface adapters, and transceivers) Sensory Circuits Inc. U.S. 1994 P Interactive Speech ICs for 1735 N. First St., Suite 313 speech recognition, speech San Jose, California 95112-4511 and music synthesis, voice recording and playback, speaker verification Sierra Semiconductor U.S. 1984 1991 SERA 141 ICs for broadband 2075 N. Capitol Ave. infrastructure, LAN, and San Jose, California 95132 network access or user interface Silicon Engines Inc. U.S. 1986 P 2.5 High-performance parallel 844 E. Charleston, Suite 200 processors for visual Palo Alto, California 94303 computing systems Silicon Magic Corp. U.S. 1994 EDODRAMsfor 20300 Stevens Creek Blvd. • graphic/video applications Suite 400 Cupertino, California 95014 Silicon Storage Technology Inc. U.S. 1989 1995 SSTI 39 EEPROMs and flash (SST) memories 1171 Sonora Court Sunnyvale, California 94086 Single Chip Systems Corp. (SCS) U.S. 1992 P Interactive identification 16885 W. Bernardo Dr., Ste 295 (I/I) in inventory control, San Diego, California 92127 asset management, document management, and ticketing systems for high- volume identification markets Siquest Inc. U.S. 1991 P CMOS gate arrays, FPEG 1731 Technology Dr., Suite 550 conversions for consumer San Jose, California 95110 electronics, telecommunications, and industrial controls and ATE SiRF Technology Inc. U.S. 1995 Chipsets and DSP chips for 107 San Zeno Way consumer GPS navigation Sunnyvale, California 94086 and wireless communications markets Solidas Corp. U.S. 1992 ZRAM for video, chipsets, 100 Century Centre Court DSPs, HDD files, and Suite 503 graphics chip memories San Jose, California 95112-4512 (Continued)

SCI\/IS-WW-DP-9604 ©1996Dataquest September 23,1996 Semiconductor Contract Manufacturing Services Worldwide 11 Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Space Electronics Inc. U.S. 1992 E Advanced function, highest 4031 Sorrento Valley Blvd. density, monolithic, San Diego, California 92121 radiation-hardened ICs (memory and microprocessor) for spacecraft Space Power Electronic Inc. U.S. 1960 P 3 Microwave and discrete 305 Jeffrey Lane signal ICs Glen Gardner, New Jersey 08826 Stanford Telecom U.S. 1973 1983 STEL All technologies required for 1221 Grossman Ave. communications systems Sunnyvale, California 94089 Swift Microelectronics Corp. U.S. 1992 P Single mask, customization 2635 N. First St., Suite 220 gate arrays San Jose, Califorrua 95134 Syclone Semiconductor U.S. 1995 S SRAMs 2115 De Le Cruz Blvd. Santa Clara, California 95050 Teltone Corporation U.S. 1968 TTNC DSPs, analog ICs for 22121 20th Ave. SE telecommunications Bothell, Washington 98021 The Engineering Consortium Inc. U.S. 1983 Mixed-signal ICs for hearing 3130B Coronado Dr. devices, modems, and Santa Clara, California 95054 military smart power TranSwitch Corp. U.S. 1988 1995 TXCC 17.4 High-speed, mixed-signal 8 Progress Dr. and digital ICs for Shelton, Connecticut 06484 broadband telecommunications and data communications applications Trident MicroSystems Inc. U.S. 1987 1992 TRID 139 Video/graphics accelerators, 189 N. Bernardo Ave. controllers, and multimedia Mountain View, California 94043- video processors for IBM 5203 PCs Tseng Labs Inc. U.S. 1984 TSNG 105 Video graphics controller 6 Terry Dr. and processor ICs for Newtown, Peiuisylvania 18940 advanced graphics and multimedia applications in PCs Tundra Semiconductor Corp. Canada 1995 P Bus bridging and encryption 603 March Road ICs for high-speed data KaI^ata, Ontario K2K 2M5 ciphering systems Ultra Sound Technology Assoc. U.S. :p Radiation-hardened custom 644 Towle Place and ASIC ICs, semicustom Palo Alto, California 94306 and military-standard VLSIs to external high-reliability aerospace and defense companies (Continued)

SCMS-WW-DP-9604 ©1996Dataquest September 23,1996 12 Semiconductor Contract l\/lanufacturing Services Worldwide Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Unichip Inc. U.S. 1991 MOS logic ASICs for PCs 244 E. Capitol Ave. Milpitas, California 95035 United Technology Microelectronics U.S. 1980 UTX Semicustom and military Co. (UTMC) standard VLSIs, radiation- 1 Financial Plaza hardened custom and ASICs Hartford, Connecticut 06101 to military and space systems US MikroChips (USM) U.S. 1993 P High-volume Hall-effect 15 Sutton Road sensors and power transistor Webster, Massachusetts 01570 arrays V3 Semiconductor Inc. U.S. Chipsets for RISC processors 2348 Walsh Ave., Suite G Santa Clara, California 95051 Vadem Ltd. U.S. 1983 Microprocessors, display 1960 Zanker Road controllers, PCMCIA host San Jose, California 95131 adapters, and PC card controllers for portable systems Via Technologies Inc. U.S. 1987 P Chipsets for multiprocessor, 5020 Brandin Court desktop, and portable PC Fremont, California 94538 systems ViComp Technology Inc. U.S. 1995 MPEGs in consumer and 1580 Oakland Rd, Suite C-206 computer systems for video, San Jose, California 95131 PC multimedia, satellite and cable receiver boxes, compressed video and audio data Vivid Semiconductor Inc. U.S. 1993 Extended voltage-range 7400 W. Detroit St., Suite 100 column drivers for LCD Chandler, Arizorw 85226 panels for notebook and CRT replacement flat-panel displays WSI (Formerly WaferScale U.S. 1984 P 37 High-performance, field- Integration Inc.) programmable/MCU 47280 Kato Road peripheral ICs (PSD Fremont, California 94538 microcontrollers, PROMs, EPROMs) for technologically advanced electronics companies Weitek Corporation U.S. 1991 WWTK 37 Processors and controllers to 2801 Orchard Parkway accelerate the performance San Jose, California 95134 of PCs, workstatioris, and laser printers Western Design Center Inc. (WDC) U.S. 1978 P Microprocessors and 2166 E. Brown Road controllers for high-volume Mesa, Arizona 85213 or special-purpose solutions (Continued)

SCl\/IS-WW-DP-9604 ©1996Dataquest September 23,1996 Semiconductor Contract Manufacturing Services Worldwide 13 Table 1 (Continued) North American Fabless Companies (Millions of U.S. Dollars) Year IPO Stock 1995 Company Country Founded Year Symbol Revenue Product and Market Western Digital Corporation U.S. 239 Microcomponents 8105 Irvine Center Dr. Irvine, California 92718 Xilinx Inc. U.S. 1984 1990 XLNX 520 FPGAs and CPLDs for 2100 Logic Dr. computers peripherals, San Jose, California 95124 telecommunications, industrial control, and instrumentation and military markets Zoran Corporation U.S. issi ZRAN High-performance DSPs for 2041 Mission College Blvd. leading-edge compression Suite 255 solutions to high-volume PC Santa Clara, California 95054 and consumer applications CPEGs, MPEGs, and AC-3s) Zycad Corporation U.S. ZCAD 2 FPGAs 47100 Bayside Parkway mt Fremont, California 94538-9942 P = Privately held company S = Subsidiary Source: Dataquest (Septemt)er 1996) Table 2 shows European fabless companies and their products. Table 2 European Fabless Companies (Millions of U.S. Dollars) IPO 1995 Company Country Founded Year Revenue Product and Market 3D Labs Inc. United 1994 P 3-D graphics processors and 181 Metro Drive, Suite 520 Kingdom accelerators and software for San Jose, California 95110 multimedia, CAD, simulation, virtual reality, interactive TV, and video games ARM (Advanced RISC Machines United Microprocessors Ltd.) Kingdom CSEMIC Design Switzerland Analog CMOS and BiCMOS; Jaquet-Droz 1 high-performance, mixed-mode Neuchatel, CH-2007 signal processing ICs; low- power/low-voltage ICs TCS (Parent: Thomson-CSF) France 100 Microprocessors, optical, 38521 Saint Egreve discretes, ASIC, mixed signal, Calex, France linear P = Privately held company Source: Dataquest (September 1996)

SCIViS-WW-DP-9604 ©1996 Dataquest September 23,1996 14 Semiconductor Contract IVIanufacturing Services Worldwide Table 3 shows Asia/Pacific fabless companies and their products. Table 3 Asia/Pacific Fabless Companies (Millions of U.S. Dollars) 1995 Company Founded Revenue Product and Market South Korea Anam Semiconductor & Technology 1987 20 ASICs for CDMA, DVD, set-top boxes Anam Bldg., 154-17 Samsung-dong, Kangnam-gu Seoul, South Korea ASIC Plasa 1995 a ASICs for peripherals, set-top boxes, and 734-11 Yeoksam-dong, Kangnam-gu LEDs Seoul, South Korea C&S Technology 1993 % ASICs for multimedia/communications, 6F Haejoo BIdg., 175-4 Nonh}ain-dong chipsets for pagers Kangnam-gu Seoul, South Korea Seodoo Logic 1990 4 Controllers for set-top boxes 647-5 Yeoksam-dong, Kangnam-gu Seoul, South Korea Singapore Tritech Microelectronics International 1990 NA Design and production of ASSPs and CISC 16A Science Park Dr. No. 04-01/02 The Pascal, Science Park Singapore Taiwan Acer Laboratories Inc. 1987 79 Chipsets, ASICs, I/O peripherals, 5F., No. 156, Tung Hsing St. graphics, multimedia Taipei, Taiwan Advance Reality Technology Inc. 1994 NA Communications, consumer ICs 3F, No. 609, Kuang Fu Rd., Sec. 1 Hsin Chu, Taiwan Analog Integrations Co. 1992 NA Monolithic and hybrid analog ICs 4F. No. 9, Industry Rd. 9 Science-Based Industrial Park Hsin Chu, Taiwan Aplus Intergrated Circuits Inc. 1992 NA Audio ICs 6F.-3 No. 7,75 Lane, Ta An Rd. Taipei, Taiwan Aslic Microelectronics Co. 1987 NA Consumer ICs, encoders, decoders 5F. No 317, Sung Chiang Rd. Taipei, Taiwan Chesen Electronics Co. 1984 13 Communcations ICs 5F-2, No. 94, Pao Chung Rd. Hsin Tien, Taiwan Chip Design Technology Inc. 1985 NA Consumer ICs 4F-3, No. 26, Wu Chuan 2nd Rd. Wu Ku Industry District, Wu Ku Shing Chuang, Taiwan E-CMOSCo. 1987 NA Memory ICs, PC I/O ICs, consumer ICs IF, No. 58, Park Ave. 2 Science-Based Industrial Park Hsin Chu, Taiwan (Continued)

SCMS-WW-DP-9604 ©1996Dataquest September 23,1996 Semiconductor Contract IVIanufacturing Services Woridwide 15 Table 3 (Continued) Asia/Pacific Fabless Companies (Millions of U.S. Dollars) 1995 Company Founded Revenue Product and Market Elan Microelectronics Co. 1994 42 Neural-fuzzy ICs, digital signal 7F-1, No. 9, Prosperity Rd. I processors, DSPs, 8-bit MCUs, ASICs Science-Based Industrial Park Hsin Chu, Taiwan Eplus Co. 1989 NA PIR 2F-2, No. 2,253 Lane, Fu Shing S. Rd., Sec. 1 Taipei, Taiwan Etron Technology Inc. 1991 53 SRAM, DRAM, ASICs IF., No. 1, Prosperity Rd. I Science-Based Industrial Park Hsin Chu, Taiwan Faraday Technology Co. 1993 NA ASICs 7F-3, No. 9, Prosperity Rd. I Science-Based Industrial Park Hsin Chu, Taiwan Ginjet Technology Co. 1989 NA Communications ICs No. 18-1,76 Lane, Long Chiang Rd. Taipei, Taiwan Holylite Microelectronics Co. 1992 NA Melody, analog ICs, mixed MOD lOF-2, No. 67, Chih Hu Rd. Hsin Chu, Taiwan Hwa Mye Electronic Co. Ltd. 1988 NA ASICs 8F, No. 80, Sung Te Rd. Taipei, Taiwan Inno Technology Ltd. 1993 NA Corosumer ICs 7F. No. 181, Yung Chi Rd. Taipei, Taiwan Integrated Silicon Solution Inc. 1990 107 EEPROM, flash, SRAM, DSPs, voice IF, No. 10 Prosperity Rd. II EPROMs Science-Based Industrial Park Hsin Chu, Taiwan Memory Technology Inc. 1993 18 DRAM, SRAM No. 3 R&D Rd I Science-Based Industrial Park Hsin Chu, Taiwan Micro Advance Technology Co. Ltd 1992 NA ASICs 8F, No. 26,204 Lane, Sung San Rd. Taipei, Taiwan Micro Electronic Co. Ltd. 1991 NA Consumer ICs 5F-5, No 12, 609 Lane, Chung Shing Rd. Sec. 5 San Chung, Taiwan MOS Design Semiconductor Co. 1988 NA Melody, audio ICs 6F-5, No. 10,609 Lane, Chung Shin Rd. San Chung, Taiwan MOSART Semiconductor Co. 1993 NA Communications, consumer ICs llF-2, No. 33, Ming Shen Rd., Sec. 1 Pan Chiao, Taiwan (Continued)

SCIVIS-WW-DP-9604 ©1996Dataquest September 23,1996 16 Semiconductor Contract Manufacturing Services Worldwide Table 3 (Continued) Asia/Pacific Fabless Companies (Millions of U.S. Dollars) 1995 Company Founded Revenue Product and Market Myson Technology Inc. 1991 14 ASICs, consumer ICs, monitor ICs, LAN No. 2, Industry E Rd. 3 ICs, bipolar ICs Science-Based Industrial Park Hsin Chu, Taiwan Princeton Technology Co. 1986 33 Consumer ICs 2F. No. 233-1, Pao Chiao Rd. Hsin Tien, Taiwan Progate Group Co. 1991 NA ASICs 14F, No. 482, Chung Hsiao E. Rd. Taipei, Taiwan Realtek Semiconductor Co. Ltd. 1987 42 Video/graphic ICs, consumer ICs, LAN IF, No. 11, Industry E Rd. 9 ICs, ASICs Science-Based Industrial Park Hsin Chu, Taiwan SARC Technology Co. 1989 NA ASICs 15F-1, No. 159, Sung Te Rd. Taipei, Taiwan Silicon Integrated Systems Co. 1987 149 Chipsets 2F, No. 17, Innovation Rd. I Science-Based Industrial Park Hsin Chu, Taiwan Sun Plus Technology Co. Ltd. 1990 54 DSPs, ASICs, consumer ICs, voice and IF, No. 21, R&D Rd. II music sjmthesizers, multimedia-related Science-Based Industrial Park ICs Hsin Chu, Taiwan Syntek Design Technology Ltd. 1992 14 Microcomputer peripheral ICs IF. No. 40, Park Ave. II Science-Based Industrial Park Hsin Chu, Taiwan Tamarack Microelectronics Inc. 1987 6 Hybrid ICs, ASICs, LAN chipsets 16F-4, Fu Shing N. Rd. Taipei, Taiwan Utron Technology Inc. 1993 15 ASIC, SRAM IF, No. 11, R&D Rd. II Science-Based Industrial Park Hsin Chu, Taiwan VIA Technologies Inc. 1987 89 Chipsets, ISA/PCI/PCMCIA LAN chips 8F, No. 533, Chun Zan Rd. Hsin Tien, Taiwan VLSI Technology Asia Ltd. 1990 NA Chipsets Room C, 15F, No. 170, Tun Hua N. Rd. Taipei, Taiwan Weltrend Semiconductor Inc. 1989 18 Customers' ASICs, mtdtisync monitor 2F., No. 24, Industry E. Rd. 9 discriminator ICs, consumer ICs Science-Based Industrial Park Hsin Chu, Taiwan Yuban Co. 1993 NA DRAM, SRAM 5F. No. 29, Jen Ai Rd., Sec. 3 Taipei, Taiwan NA = Not available Source: Dataquest (September 1996)

For More information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408)954-1780 The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or I J?iT?lC31.1CST 'disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. . o »^ ^^*^ ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company dataquest is a registered trademark of A.C. Nielsen Company Perspective

Semiconductor Contract Manufacturing Services Worldwide Dataquest Predicts

Semiconductor Contract Manufacturing Capacity Update: Is Tliere A Foundry Capacity Glut Looming?

Abstract: Dedicated semiconductor contract manufacturing (foundry) capacity is projected to dramatically increase over the next several years. Ambitious fab capacity build-up is under way, carried out by both existing and aspiring foundry companies. Although aimed at providing advanced IC manufacturing, the surge in fab expansion could result in excess supply extended over the next few years. By Calvin Chang

Dedicated Foundry Fab Build-Up Emboldened by their spectacular success of the past few years, dedicated foundry houses such as Taiwan Semiconductor Mfg. Co. and Chartered Semiconductor Manufacturing Inc. are expanding fab capacity to foster continual growth in their semiconductor contract manufacturing (SCM) business. However, new foundry ventures are being launched in Asia and the United States, each with a grand plan to btiild state-of-the-art IC fabs to catch a piece of the burgeoning semiconductor foundry business. These developments will result in a dramatic increase in overall dedicated IC foundry capacity over the next several years. Dataquest's latest study shows that from 1996 through 1999, new fabs being built or planned will increase the world's dedicated foundry output to more than 4.5 times the 1995 level. Moreover, the vast majority of the new capacity to be added in foundry will be of advanced technologies, with linewidth capabilities extending from 0.5 micron to 0.25 micron. Figure 1 reveals the rise in dedicated foundry capacity measured in millions of square inches (MSI) of silicon wafer area. By the year 2000, worldwide dedicated foundry output will reach 300 MSI, Dataquest Program: Semiconductor Contract Manufacturing Services Worldwide Product Code: SCMS-WW-DP-9603 Publication Date: August 26,1996 Filing: Perspective (For Cross-Teciinology, file in the Semiconductor Regional Markets and Manufacturing binder) Semiconductor Contract Manufacturing Services Worldwide

equivalent to 25 8-inch fabs, each capable of 20,000 wafers-per-month. As seen in the figure, nearly all the new dedicated capacity will possess linewidth capability of 0.5 micron or smaller. Figure 1 Worldwide Semiconductor Foundry Capacity Ramp-Up

Capacity (MSI)

•sou -n

300- B i 0.S micron

250- ^ > 0.5 micron

200-

150-

100-

50- ^^^^^^^^^^^ ^^^^^^^^^^^^ 1 f 1994 im 1996 1997 1998 1999 2000 96SS72

Source: Dataquest (August 1996)

There are now 16 dedicated foundry companies worldwide, compared to only five just a few years ago. The fantastically profitable enterprise of IC semiconductor contract manufacturing, as demonstrated by the hefty earnings garnered by leading foundries, such as TSMC, has attracted many new entrants. Many of these have considerable funding support from governments intent on using IC foundry as the vehicle to propel their nations into the modem industry of IC manufacturing. Some of the new enterprises are joint ventures formed by foundries and their customers in a strategic supply relationship. Table 1 shows the dedicated foundry companies and their new fabs scheduled to come into production from 1996 through 1999. As shown in the table, 17 new fabs are planned by the dedicated foundries. Most of the new fabs are 8-inch facilities; the rest are 6- inch fabs. With the surge in fab capacity slated for the next several years, dedicated foundries will constitute more than 40 percent of the world's total semiconductor contract manufacturing output by the year 2000, compared with only 18 percent in 1995. Figure 2 projects the makeup of the world's semiconductor foundry capacity supply from 1994 to 2000. Integrated device manufacturers (IDMs), using excess fab capacity for fotmdry services, have historically been the predominant source of the world's foundry supply. In particular, Japanese IDMs, pioneers in adapting depredated DRAM fabs to foundry work, own the majority of the IDM foundry supply. However, most of the Japanese IDM foundry output is sold to other Japanese companies and does not compete outside the Japanese market. The Japanese IDM foundry

supply is projected to increase from the continual migration of spent DRAM capacity to foundry. Non-Japanese IDM foundry providers, including IBM SCM Services, LSI Logic, VLSI Technology, SGS-Thomson, the Korean giants Samsung and LG Semicon, and United Microelectronics Corp. and Winbond in Taiwan, are expanding or entering significantly into the semiconductor foundry services market. Table 1 The Dedicated Foundries' New Fab Build-Up, 1996-1999 Dedicated Foundry Company Country New Fab (Wafer Size) Advanced Semiconductor Mfg. Co. China Fab 2 (6 inch) AS Electronics South Korea Fab 1 (8 inch) Champlain Semiconductor Mfg. Co. United States Fab 1 (8 inch) Chartered Semiconductor Manufacturing Singapore Fab 3 (8 inch) Extel Semiconductor United States Fab 1 (6 inch) GMT Microelectronics United States Fab 2 (6 inch) Interconnect Technology Malaysia Fab 1 (8 inch) Midwest Microelectronics United States Fab 1 (6 inch). Fab 2 (8 inch) Newport Wafexfab Ltd. United Kingdom Fab 2 (6 inch). Fab 3 (8 inch) SubMicron Technology Thailand Fab 1 (8 inch) Taiwan Semiconductor Mfg. Co. Taiwan Fab 4 (8 inch), Fab 5 (8 inch) Tower Semiconductor Israel - United IC Corp. (UMC JV No. 2) Taiwan Fab 1 (8 inch) United Semiconductor Corp. (UMC JV No. 1) Taiwan Fab 1 (8 inch) United Silicon Corp. (UMC JV No. 3) Taiwan Fab 1 (8 inch) WaferTech(TSMCJV) United States Fab 1 (8 inch) Total New Fabs 17 (12 8 inch, five 6 inch) Source: Dataquest (August 1996)

Table 2 shows projected supply and demand in SCM capacity. Also shown is the estimated source of the supply and demand. Strong growth in dedicated SCM supply, on top of the continual moderate increase in IDM SCM output, is causing the overall SCM supply to soar at a compound annual growth rate (CAGR) of over 21 percent. However, demand for SCM services is projected to grow at an 18.3 percent CAGR, significantly slower than supply. The mismatch between the SCM supply and demand will most likely result in an overabxindance of foundry capacity over the next few years. The surplus in SCM supply will begin to be felt starting this year, initially in the trailing- edge segments—0.6-micron and 0.8-micron and larger linewidth CMCDS. With much new capacity still to come on line, the oversupply could worsen and extend into the 0.5-micron regime by next year.

Dataquest Predicts Figure 3 presents Dataquest's current outlook on the worldwide SCM capacity imbalance. (The projection has factored in the inefficiencies inherent

in the market, caused by mismatches between a buyer's requirements and a supplier's capabilities in technology, volume, and yield, among other factors. The inefficiencies range from 2.5 percent to 5 percent.) An oversupply in SCM capacity is projected to emerge in 1996 and continue over the next three years, leading to an even higher level of oversupply. Figure 2 Worldwide Semiconductor Foundry Capacity Ramp-Up

Capacity (MSI) 800-

700- ^ Dedicated Foundries 600- 91 Non~Japanes6 IDM Foundries 500- Japanese IDM Foundries 400-

100-

1994 1995 1996 1997 1998 1999 2000 965S73

Source: Dataquest (August 1996)

Table 2 Semiconductor Contract Manufacturing Supply and Demand Sources, 1994-2000 (MSI) CAGR (%> 1994 1995 1996 1997 1998 1999 2000 1995-2000 Fabless Companies 47.1 66.1 83.7 105.5 132.9 162.9 210.7 26.1 IDMs 162.3 189.8 225.9 258.5 290.0 328.2 376.0 14.6 System OEMs 3.9 5.3 6.9 8.8 11.1 14.1 18.9 29.1 Total Demand 213.3 261.2 316.5 372.8 434.0 505.2 605.6 18.3 Dedicated SCM Supply 36.5 47.8 77.5 128.2 219.6 286.1 300.4 44.4 IDM SCM Supply 176.8 218.8 246.7 283.5 326.5 374.3 407.3 13. Total Supply 213.3 266.6 324.2 411.7 546.1 660.3 707.7 21.6 Source: Dataquest (August 1996}

What does oversupply mean? For a start, it means that foundry customers unable to find sufficient foundry supply in past years will now find a plentiful supply of foundry manufacturing. This will result in a buyer's market, accompanied by downward pressure on foundry wafer prices. An oversupply, even at the 0.5-micron technology level (which was much in demand vmtil just several months ago), will likely arrive sooner rather than later. Dataquest predicts that an excess supply of 0.5-micron foundry capacity will emerge as early as the third quarter of 1996. This surplus in

mainstream foundry supply will soon translate into foundry wafer price competition. An estimated 15 percent decline in the price of 8-inch, 3-metal- level, 0.5-micron processed foundry wafers can be reasonably expected before the end of 1996. The oversupply and price decline in SCM services do not, however, mean an end of the growth of the SCM industry. The economics of semiconductor manufacturing and the continual escalation in the cost of new fabs will dissuade more IC companies from building fabs of their own. This trend will remain intact and continue to favor SCM as a business model. Not only are the fabless companies, with their growing chip revenues, continuing to drive foundry consumption, but an increasing number of IDMs are also deplojdng a long-term strategy of greater reliance of semiconductor foundry for future IC manufacturing capacity. Indeed, Dataquest expects that it is also the IDMs, not just the fabless companies, that will drive the future growth of the foundry business. Moreover, the growing abundance of SCM supply, coupled with the likelihood of continually moderating foundry prices, will present a compelling case for greater use of SCM services. Figure 3 Worldwide Semiconductor Contract Manufacturing Capacity Imbalance Projection

MSI Oversupply/Undersupply (%) 25 H

20-

15-

10-

5 °- vMmm • -5 199& 1996 1997 1998 1999 2000 96SS?t

Source: Dataquest (August 1996)

•

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408)954-1780 The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject compsmies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by oiu: clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C. Nielsen Company Perspective

Semiconductor Contract Manufacturing Worldwide Vendor Analysis

United Microelectronics Corporation

Abstract: Armed toith three new foundry joint ventures and an impressive f ah expansion plan, UMC is aggressively pitrsuing a product transition strategy that ivill make it a major world-class semiconductor foundry service provider. By Calvin Chang

Corporate Management

Headquarters Hsinchu, Taiwan Chairman and CEO Robert Tsao President John Hsuan Business Group I President Ing-Dar Liu Business Group n President Ming-Kai Tsai Business Group HI Senior Vice President J.S. Aur Senior Director, Foundry Marketing and Sales H-YLiu 1995 Revenue U.S.$900 million Fiscal Year-End December 31 Employees 3,150 Founded 1980

DataQuest Program: Semiconductor Contract Manufacturing Worldwide Product Code: SCMS-WW-DP-9602 Publication Date: June 3,1996 Filing: Perspective • (For Cross-Technology, file in the Senniconductor Regional Markets and Manufacturing binder.) Semiconductor Contract Manufacturing Worldwide

Company Overview Founded in 1980, United Microelectronics Corporation (UMC) is Taiwan's first IC production company. UMC came to being as a result of a govern ment-sponsored project by the Industrial Technology Research Institute. UMCs commercial IC production began in April 1982 at its 4-inch Fab 1 facility. In July 1985 UMC became the first publicly traded IC company in Taiwan with the enlisting of its stock on the Taiwan Stock Exchange. UMC captured another Taiwan first in June 1989 when it began IC production on 6-inch wafers at its Fab II facility. Principally a maker of consumer ICs in its early days, UMC has successfully expanded its product portfolio over the past 10 years to include communications, computer, and peripheral and memory ICs. In recent years UMC has begun a major product transition that is aimed to transform the company into a major, world-class semicon ductor foundry services provider and a producer of memory ICs.

Company Financials Since its inception, UMC has grown its revenue every year. This is high lighted by the recent 1991-to-1995 period, during which the company's sales grew at a remarkable compound annual growth rate (CAGR) of 43 percent. For 1996 UMC is projecting a strong, 32 percent year-on-year revenue growth to U.S.$1.19 billion. Table 1 shows UMCs revenue, R&D, and capi tal expenditure from 1991 to 1996. As shown in the table, UMCs R&D spendings have been maintained at a modest range of 6 percent to 10 per cent of total revenue. This is in contrast to the industry average of 13 per cent. On the other hand, UMCs capital expenditure, mostly for the construction of new manufacturing facilities, has been on the rise and is expected to stay at a high level (that is, more than 50 percent of revenue) for the next couple of years. A significant notable in UMC's achievements is the continual rise of company productivity. Revenue per employee has risen consistently from 1991 to 1996 and has nearly tripled during the six-year period.

Table 1 UMCs Revenue, R&D, Capital Spending, and Employee Productivity, 1991 to 1996 (Millions of U.S. Dollars) 1991 1992 1993 1994 1995 1996 Revenue 212 257 376 567 900 1185 Revenue Year-to-Year Increase (%) - 21 46 51 59 32 R&D 17.4 193 37 39.5 52 70 R&D (% of Revenue) 8.2 75 9.8 ' 7.0 5.8 5.9 Capital Spending 50 56 53 255 570 600 Capital Spending (% of Revenue) 24 22 14 45 63 51 Revenue/Employee ($) 0.12 0.15 020 0.25 030 035 Note: The 1996 column is UVIC's projection. Source: Dataquest (June 1996)

Company Strategy—Focusing on Foundry The year 1995 was a watershed for UMC. During the year UMC produced a gigantic boost in profitability on top of an impressive 59 percent increase in revenue. UMC surpassed TSMC in net margin and became the most profit able semiconductor manufacturer with net margin in excess of 50 percent. However, prospects for UMC's profitability have dimmed as a result of the precipitous drop in the prices of SRAM, a significant revenue source for UMC that accounted for more than 35 percent of the company revenue in 1995. UMC's management, however, had anticipated the imminent changes in the memory IC market and began to set forth a methodical move toward a product migration strategy. As a result, UMC's future core business will no longer rely on standard chip products and instead will focus on semi conductor foundry.

Table 2 shows the historical and planned product migration at UMC. Con tribution of commercial, communications, and computer and peripheral ICs to UMC's overall company revenue has steadily decreased over the past few years. At the same time, a greater emphasis has been placed on mem ory IC and foundry services, IXiring 1996, a phaseout of UMC's communi cations and computer and peripheral IC production will be accomplished through the spin-off of these divisions. Over the next three years, revenue from memory IC is expected to be maintained at 30 percent of company's sales as foundry services becomes UMC's principal focus.

Figure 1 shows UMC's planned product transition in terms of the com pany's manufacturing ouliput. As shown in the figure, amount of UMC's capacity (Fabs 1,2, and 3A) allocated for foundry services will rise from less than 40 percent in 1995 to a projected 70 percent in 1997 with the bulk of the increase to be accomplished in 1996. This will be a remarkable feat in light of the swiftness of the product transition and its apparent nonimpact on UMC's projected revenue stream. While a major redirection in manufactur ing is taking place, the company is well on track to achieve a 32 percent growth in revenue in 1996. This attests to the thorough plarming and superb execution that UMC is capable of in carrying out its product transition strategy.

Table 2 UMC Revenue Composition, Product Tjrpe as a Percentage of Total Revenue 1991 1992 1993 1994 1995 Hl/96 H2y96 1997 1998 Commercial IC 32 23 14 10 9 7 6 5 5 Communication IC 1 2 7 6 5 4 3 0 0 Computer and 23 23 25 20 16 14 12 0 0 Peripheral IC Memory IC 33 28 26 34 40 17 27 30 30 Foundry Services 11 24 28 28 30 48 52 65 65 Note: H1 and H2 represent the first and second halves of the year, respectively. Source: Dataquest (June 1996)

Figure 1 UMC Focuses on Foundry

Percentage of UMC Capacity for Foundry

io-

60-

40-

20-

"~l 1 1 1 1 1 1 1 HI/94 H2/94 HI/95 H2/95 HI/96 H2/96 HI/97 H2/97 1996

Year 963277

Source: Dataquest (June 1996)

UMC's approach toward building a world-class foundry company is through the formation of joint ventures with its strategic foundry partners. UMC has established three fotindry joint ventures QVs) with major Ameri can and Canadian fabless companies. Joint ventures are UMC's chosen business model for implementing a risk-sharing approach in establishing its foundry alliances. The rationale is based on the assumption that if mar ket conditions deteriorate and wafer demand slacks off, a no-deposit arrangement will not bind the partner-custonrers to take delivery of the wafers that they have been allocated. The philosophy behind the risk- sharing JV arrangement is for the partners, as part-owners, to share the JV's success as well as its downside risks. For UMC's fabless JV partners, the JV deals offer guaranteed access to foundry services, a percentage of dividends, and, if the JV eventually goes public, capital gains. UMC gains the obvious benefit of spreading the bur den of large fab costs, as well as its own guaranteed access to foundry capacity. As planned, UMC wUl receive 40 percent of the capacity at the three new JV fabs, or 30,000 8-inch wafers per month. Under the terms of the agreements, each partner will have an equity stake in the joint venture that corresponds to the percentage of its investment in the (initial) capital cost of the JV fab (U.S.$400 million for JV 1 and U.S.$600 million each for JV 2 and JV 3). Each JV partner will produce the investment amounts in cash in three installments over two years. The installments will coincide with the timing of expected building and equipment costs. UMC's JV arrangements, however, are contingent upon a number of conditions including receipt of commitments for additional financing and obtaining requisite government approvals.

For its part, UMC has been busy applying its outstanding bank credit to arrange financing of the three foundry JVs. In January 1996,14 Taiwanese banks granted a syndicated loan of U.S.$278 million ($7.68 billion in NT, the Taiwanese currency) to finance United Semiconductor Corp., UMC's first foundry JV. This was followed by a May 1996 announcement that UMC would issue convertible bonds in Taiwan to raise U.S.$220 million (NT $6 billion) working capital. Also in the pipeline is the overseas convertible bonds that UMC plans to issue sometime in the near future.

UMC's Foundry Joint Ventures and Partners The following indicates UMC's three foundry joint ventures, the partners involved, and the percentage of equity stake each partner has in the project: • JV 1, United Semiconductor Corporation 3 UMC (Includes technology share)—43 percent 3 Alliance Semiconductor—20 percent 3 S3—25 percent 3 Others—12 percent • JV 2, United IC Corporation 3 UMC (Includes technology share)—40 percent 3 ATI—5 percent 3 ESS Technology—5 percent 3 ISSI—5 percent 3 Lattice—10 percent 3 Trident—10 percent 3 Oak Technology—10 percent 3 OFTi—5 percent 3 Others—10 percent • JV 3, United Silicon Inc. • UMC (Includes technology share)—40 percent 3 Alliance—10 percent 3 Cirrus Logic—15 percent 3 Xilinx—25 percent 3 Others—10 percent When the three JV foimdry fabs are successfully built and at full production in 1999, UMC will have increased its 8-inch manufacturing capacity by tenfold from its current level. As shown in Table 3, a total output of 100,000 8-inch wafers per montii is planned for UMC's 3A and the three JV fabs. Discounting the portion that is allocated to UMC's JV partners, UMC will have access to more than 55,000 8-inch wafers per month by 1999.

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In view that more than 15 new fabs will be built and begin operation in Tai wan by 1998, there could be a problem with a shortage of skilled labor to run them. Competition for labor at UMC's new fabs will not be so much of a problem for UMC as for the other companies. UMC will be scaling back operations at its 4-inch Fab 1 line and transferring the personnel from there to help staff the new facilities. About 400 people, 300 of them direct fab labor, will thus be available for the new LJMC fabs.

Product Simplification As part of its product transition plan, UMC is pursuing a rapid production simplification strategy. It is quickly shedding divisions through spin-offs and discontinuation of product lines. In the fourth quarter of 1995, UMC announced it was discontinuing the manufacturing of x486 CPU micropro cessors. This also resolved the disputes UMC has had with Intel in x486 patent infringement. In the second quarter of 1996, UMC spun off the PC chipset, I/O peripheral, and notebook chipset business to a newly created Integrated Technology Express (ITE), an IC-design company in Santa Clara, California. Meanwhile, UMC's LAN chipset, fax, and modem chip business was off-loaded to Davicom, another IC design start-up. With the spin-off of the communications and computer and peripheral IC business, only the consumer IC and memory IC product division will be kept in-house.

Another important objective accomplished by the production simplification strategy is to alleviate concerns UMC's foundry customers may have about potential competition between it and UMC. On the other hand, UMC's new fabless spin-offs, free of manufacturing concerns, will be able to focus R&D resources on product design, development, and marketing to be overall more competitive.

UMC Foundry Service Model For itself and its new joint venture foundry companies, UMC has opted a foundry service business model that is aimed at providing a turnkey full- service program. As shown in Figure 2, UMC's foundry service portfolio will offer reticle generation from pattern-generation tape (that is, GDS-II), maskmaking, IC fabrication, electrical-sort, chip assembly, and final test. While UMC and the JV foundries will focus on IC fabrication, they will pro vide the coordination and logistic management that make up the turnkey full-service program. UMC has close relationships with Taiwan's largest maskmaking shop, Taiwan Mask Company (TMC) and assembly/test ven dor Siliconware. These relationships help forge together the turnkey full- service program that will provide a one-stop shopping solution for UMC's foundry customers.

Interestingly, UMC is one of the first companies in the industry that adopted very early on a "vertical disintegration" approach toward the chip manufacturing business. EKiring the 1980s, when niost large chipmakers worldwide were vertically integrated (comprising IC design, layout, maskmaking, IC fabrication, chip packaging, and test), UMC departed from the norm and instead chose to focus on only high-value-added expertise^— namely IC fabrication and design—leaving other parts of the chipmaking processes to closely allied vendors that specialized in their respective seg ments. Over the years, the "vertically disintegrated" chipmaking infrastruc ture campaigned by UMC has set root and become the mode of operandi in Taiwan's fledging semiconductor industry.

Figure 2 UMC Turnkey, Full-Service Program and Focus on IC Foundry Manufacturing

PG Tape

Reticle Layout

Maskmaking

Turnkey Full-Service IC Fabrication 1 UMC's 1 Foundry Focus E-Sort

Assembly

Final Test ^r 9B327B

Source: Dataquest (June 1996)

Manufacturing Technologies Figure 3 shows UMC's manufacturing technology road map. UMC is at 0.5-micron linewidth production in all iowr of its principal processes: SRAM, logic, mixed-mode, and DRAM. Within a year, 0.35-micron manu facturing process will begin to go into production, first with the SRAM pro cess and to be followed by each of the other three processes in six-month separations. CMP, a critical enabling technology for multilevel interconnect fabrication, will also be introduced by the end of 1996. All in all, UMC's manufacturing technologies are among the rank of the world-leading foundry service providers.

UMC has also steadily improved its manufacturing efficiency over the past few years. UMC's current manufacturing cycle time is at 2.1 days per mask layer, down from 3.5 days per layer in 1993. By at least one measure (the "Competitive Semiconductor Manufacturing Survey" from the University of California at Berkeley), UMC's manufacturing cycle time is competitive with the estimated industry average of 2.6 days per layer.

SCMS-WW-DP-9602 ©1996 Dataquest Junes, 1996 Crt o Figure 3 ^ UMC Technology Road Map a 5V/3V 1 3V 2.5V "D V I \ : i ID t ! i OJ • O \ \ : r>j 4 SRAM 0.5nm ^ 0.35nm 1 I ^ 0,25|im 2p2m ^ 3p2m 4p2m 1 W i w • I \ ; \ 1 \ 1 \ \ \ \ \ O.Stim 0,35nm Lqntic w Ik 0.25jim 1p3m IP 1p4m \ I P 1 1p5m © \ CO CO -T"*-*-^ CD : CMP , > O * K. \ \ PJ n^ X3 \ Mixed- 0.5^m k.: 0,35fim k. 0,25nm Mode 2p3m —p 2p3m \ W 2p4m \ \ < \ t • I 0.5nm 1 fc 0.35fim ^ h D,25 nnm ;• P 3p2m T^—W 3p2m ; \ 4p2 1 i N 1 t 1 I \ 1 \ 1994 1995 1996 1997 1998

:3 Source: UMC, Datsquest (June 1996)

CO CO en 10 Semiconductor Contract Manufacturing Worldwide

UMC's achievements in establishing quality manufacturing and R&D were recently recognized by the Taiwan's government, which presented UMC with the 1995 National Quality Award. The award is Taiwan's highest offi cial recognition of a company's outstanding achievements in total quality management. One of the key reasons behind the selection of UMC for Tai wan's top quality honor is UMC's continual effort to establish respect for intellectual property rights through patent application and protection. Over the past several years, UMC has vigorously promoted employee innova tion, which has resulted in UMC building an impressive portfolio of pat ents. As shown in Table 4, UMC's patent awards—both in Taiwan'and overseas (United States)—have increased dramatically, from less than 10 in 1992 to more than 400 in 1995 (see Table 4). As a result, UMC is among the top firms with the highest number of patent awards for companies in its capitalization class.

Table 4 UMC's Patent Portfolio

Patents Applied 1992 1993 1994 1995 Estimate 1996 Taiwan 18 287 430 358 500 Overseas 56 265 282 251 350 Total 74 552 712 609 850 Patents Approved Taiwan 3 27 133 285 360 Overseas 5 11 48 145 182 Total 8 38 181 430 542 Source: UMC, Dataquest (June 1996)

For More information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C Nielsen Company Perspective

Semiconductor Contract Manuf actxiring Worldwide Market Analysis

1995 Fabless Semiconductor Review

Abstract: The revenue of worldwide fabless semiconductor companies surged in 1995, reach ing an estimated U.S.$6.3 billion, a gain of 46 percent over 1994. Strong worldwide demand for personal computers and network equipment kept the fabless companies on the fast track to continue to outperform the overall semiconductor market. By Calvin Chang

The Fabless More than 100 fabless companies w^orldwide are estimated to have revenue greater than U.S.$1 million. Dataquest now tracks 55 fabless companies for which semiconductor revenue segment information has been gathered and analyzed. The vast majority of the fabless companies listed in Table 1 are less than 10 years old, but the fabless collectively represent one of the most exciting growth segments of the semiconductor industry.

Fabless Semiconductor Revenue Distribution Products produced by the fabless companies span a wide range of semicon ductor segments. Table 2 shows the segmentation of 1994 and 1995 revenue for fabless comparues by semiconductor product group and the segments within the groups. As shown in the table, fabless companies' revenue from MOS memory has risen from 7 percent to 10 percent of overall fabless reve nue. Within MOS memory, SRAM accounts for the bulk (two-thirds) of fabless revenue in 1995. Alliance Semiconductor, Integrated Silicon Solution Inc., Paradigm Technology, and other SRAM fabless companies latched onto strong PC and telecommunications markets and jointly produced the

ElataQuest Program: Semiconductor Contract Manufacturing Worldwide Product Code: SCI\/IS-WW-DP-9601 Publication Date: IVIay 20, 1996 Filing: Perspectives (For Cross-Technology, file in the Semiconductor Regional Markets and Manufacturing binder.) Semiconductor Contract IVIanufacturing Worldwide

Table 1 Worldwide Fabless Semiconductor Revenue, 1994-1995 (Millions of U.S. Dollars) Company 1994 1995 ACC Microelectronics 49 40 Acer 70 79 Actel 76 108 Adaptec 125 124 Alliance Semiconductor 90 220 Altera 199 402 Brooktree 109 120 C-Cube 45 125 Catalyst 50 49 Chips & Technologies 89 138 Chrontel 12 16 Cirrus Logic 781 1,002 Crosspoint Solutions 1 2 Cyrix 241 212 DSP Group 18 60 ESS Technology 33 106 ETEQ Microsystems 6 7 Etron 28 47 Eupec 106 143 Fagor 27 38 G-Link USA 1 14 Information Storage Devices 38 56 Integrated Circuit Systems 81 96 Integrated Infonnation Technology 35 44 Integrated Silicon Solution Inc. 60 158 International CMOS Technology 12 17 Lattice 134 187 Level One Commtmications 47 78 Logic Devices 14 17 Micro Linear 41 54 Novasensor 13 15 Oak Technology 62 84 OPTi 130 167 Pericom Semiconductor 12 25 Q Logic 45 60 Quality Semiconductor 22 46 Quality Technologies 49 60 QuickLogic 8 16 S3 130 315 (Continued)

Table 1 (Continued) Worldwide Fabless Semiconductor Revenue, 1994-1995 (Millions of U.S. Dollars)

Company 1994 1995 SEEQ Technology 22 27 Sierra Semiconductor 120 141 Silicon Integrated Systems 101 127 Silicon Storage Technology 4 39 Symphony Laboratories 12 15 Thomson-CSF (TCS) 78 100 TranSwitch 12 17 Trident Microsystems 87 139 Tseng Labs 83 105 WaferScale Integration 24 37 Weitek 28 37 Western Digital 184 239 Xilinx 321 520 Zycad 1 2 Other Fabless Companies 145 210 Total Fabless Companies 4,311 6,302 Year-to-Year Change (%) 36 46 Source: Dataquest (May 1996) Table 2 Segmentation of Fabless Revenue by Semiconductor Product Type, 1994-1995 (Revenue in Millions of U.S. Dollars) 1994 1994 1995 1995 1994 Segment Group 1995 Segment Group Product Group Product Segment Revenue Percentage Percentage Revenue Percentage Percentage MOS Memory Dynamic RAM 30 0.7 7 58 0.9 10 Static RAM 170 3.9 415 6.6 EPROM 27 0.6 26 0.4 EEPROM 44 1.0 52 0.8 Flash Memory 14 0.3 46 0.7 Other MOS Memory 3 0.1 14 0.2 MOS 8-Bit and 16-Bit CISC 0 0 6 5 0.1 4 Microprocessor MPU 32-Bit and Above 248 5.8 226 3.6 CISC MPU 32-Bit and Above 14 0.3 20 0.3 RISC MPU MOS System Core Logic 494 11.5 53 561 8.9 51 Microperipherals Chipsets Graphics and Imag 941 21.8 1,422 22.6 ing Controllers Communications 69 1.6 99 1.6 Controllers (Continued)

Table 2 (Continued) Segmentation of Fabless Revenue by Semiconductor Product Type, 1994-1995 (Revenue in Millions of U.S. Dollars) • 1994 1994 1995 1995 1994 Segment Group 1995 Segment Group Product Group Product Segment Revenue Percentage Percentage Revenue Percentage Percentage Mass Storage 378 8.8 450 7.1 Controllers Audio/Other 411 9.5 669 10.6 Controllers MOS Logic Traditional Digital 7 0.2 20 § 0.1 22 Gate Arrays MOS PLDs 752 17.4 1,252 19.9 MOS Cell-Based ICs 44 1.0 56 0.9 MOS Custom ICs 12 0.3 14 0.2 MOS Standard Logic 27 0.6 • 57 0.9 Other MOS Logic 15 0.3 14 0.2 Monolithic Voltage Regulators/ 1 0 9 1 0 9 Analog Devices References Data Converters/ 156 3.6 176 2.8 Switches/Multi plexers Telecom ICs 111 2.6 202 3.2 Disk Drive ICs 17 0.4 26 0.4 Special Function 52 1.2 80 1.3 Analog Devices Linear Arrays/ 18 0.4 22 0.3 ASICs Mixed-Signal ASICs 47 1.1 43 0.7 Power Transistors 8 0.2 23 0.4 3 Discrete Devices ^'^•. Insulated Gate Bipo 8 0.2 23 0.4 lar Transistors Small-Signal Diodes 4 0.1 1 0 Power Diodes 52 1.2 69 1.1 Thyristors 62 1.4 66 1.0 Optical Infrared LEDs 0 0 I 6 0.1 1 Semiconductors Other LEDs 0 0 21 0.3 Couplers 26 0.6 31 0.5 Charge-Coupled 26 0.6 34 0.5 Devices Other 8 0.2 2 0 Optoelectronics Total Fabless Semiconductor Revenue 4,311 100 6,302 100 Source: Dataquest (May 1996)

huge, 140 percent increase in sales during 1995. Prospects for the SRAM fabless companies in 1996 seem less certain, however, as recent declines in SRAM prices are slowing revenue growth. Other fabless companies in the memory IC arenas include the DRAM producers Etron, NeoMagic, and Sili con Magic. In flash memory, the fabless are represented by Silicon Storage Technology and a few others.

With NexGen acquired by Advanced Micro Devices, Cyrix is pretty much the only fabless story in MOS microprocessors. And nothing is a better illustration of how fabless companies' growth has been hampered by the constraint in foundry capacity than the case of Cyrix. Limited by the small number of foundry sources available for its 3-layer-metal and 4-layer-metal process, Cyrix has seen its revenue decline in 1995. Cyrix's growth pros pects in 1996 likewise hinge on its ability to get additional capacity from its foundry suppliers (IBM and SGS-Thomson).

MOS microperipherals markets are where the fabless really shine. Without a doubt, the personal computer graphics controller market is entirely owned by the fabless, including Cirrus Logic, S3, Trident Microsystems, ATI, Tseng Labs, Western Digital, Ark Logic, Sierra Semiconductor, and a few others. The graphics fabless companies collectively shipped an esti mated 74 million units of graphics chips in 1995 for the whole PC and graphics accelerator card markets. As the table shows, graphics and imag ing controllers generated more than U.S.$1.4 billion in 1995 for the fabless and are the largest source of fabless revenue. In system core logic chipsets, the fabless (Silicon Integrated Systems, OPTi, Acer Labs, ACC Microsys tems, Pico Power, Symphony, and Chips & Technologies) accounted for more than 40 percent of the PC core logic market. Fabless companies are equally important in all other peripheral applications for the personal com puter, such as mass storage controllers (IDE and SCSI controllers), audio chips, and communications controllers. Their total revenue of more than U.S.$3.2 billion from MOS microperipherals is a testament to the fabless' dominance in the PC peripherals chip markets. Conversely, an apt descrip tion of the importance of the fabless to the personal computer industry is that without the fabless, no PC could be built.

Programmable logic devices (PLDs) are another area where the fabless dominate. Fabless PLD suppliers had a gangbuster year in 1995 that pro duced U.S.$1.25 billion in PLD revenue, a 66 percent increase from 1994. Looking forward, Xilinx, Altera, Lattice, Actel, and other fabless PLD sup pliers are expected to continue to dominate the fast-growing MOS PLD market.

Other semiconductor markets from which the fabless derive significant rev enue include monolithic analog devices (data converters/switches/multi plexers, telecom ICs), discrete semiconductor, and some optical devices. Looking Forward: Projecting Fabless Growtli A number of foreseeable developments in the semiconductor industry are playing favor to the fabless. As shown in Table 3, Dataquest is projecting an unusually slow growth of 8 percent for the worldwide semiconductor industry in 1996, to be followed by two years of growth that falls in the tra ditional range of about 15 percent a year, consistent with the long-term

industry historical average. The principal cause of the dramatic slowdown in projected growth for 1996 compared with the average 30-plus percent growth of 1993 through 1995 is the fall in DRAM prices that began in the last quarter of 1995. The erosion in DRAM prices is expected to continue, and it will put a damper on the growth of tike industry's revenue, which is significantly (over 30 percent) weighted toward memory products. In con trast, memory products account for only 10 percent of the fabless compa nies' revenue, with DRAM contributing to less than 1 percent of total fabless revenue (see Table 2). Thus the growth of the fabless companies is unlikely to be significantly impacted by the continued decline in memory average selling prices (or revenue). Dataquest expects that fabless growth will be significantly and consistently higher than overall semiconductor industry growth for the next five years (see Figure 1).

Moreover, constraint in available foundry capacity has been an important limitation for fabless growth. This situation is likely to be remedied as sig nificant amounts of new manufacturing capacity, being built by both exist ing and new foundry companies, begin to come into production in 1997. In fact, Dataquest projects an oversupply of foundry capacity is likely to begin during 1997. A plentiful supply of foundry capacity will certainly aid the fabless in achieving greater revenue milestones.

The recent years have witnessed a continual emergence of start-up semi conductor companies that have enriched the fabless camp. Dataquest expects this trend to continue, as nearly all new companies entering the semiconductor industry are likely to be fabless. Those that are not fabless are, interestingly, likely to be foundries. This has been the case for the past few years and is projected to continue. The fabless-foundry model has proven to be a viable approach toward defraying the escalating costs of building modern IC manufacturing capacity. With capital resources, the foundries focus on developing and providing cost-effective semiconductor manufacturing. The fabless, on the other hand, find their relatively smaller resources best used on new product design, development, and marketing. With the fabless model providing an attractive vehicle for enterprising engi neering talents to enter the IC industry, the rank of the fabless will surely grow. As shown in Table 3, the fabless universe is projected to grow steadily, reaching U.S.$20.8 billion in revenue, or 6.7 percent of the worldwide semi conductor market, by 2000. This will represent a more than 500 percent increase from the 1993 revenue level and leave no doubt in anyone's mind that the fabless are a major force to be reckoned with.

Table 3 Fabless Revenue Estimates and Projections Compared with the Worldwide Semiconductor Market, 1993-2000 (Millions of U.S. Dollars) 1993 1994 1995 1996 1997 1998 1999 2000 Worldwide Semiconductor 85,518 110,580 151,171 162,612 184,241 213,833 256,247 309,836 Revenue Worldwide Semiconductor 31 29 37 8 13 16 20 21 Growth (%) Fabless Company Revenue 3,175 4,311 6,302 7,578 9,544 12,071 15,708 20,852 Fabless Companies' Year-to- - 36 46 20 26 26 30 33 Year Growth (%) Fabless Companies' Contri 3.7 3.9 4.2 4.7 5.2 5.6 6.1 6.7 bution to the Worldwide Semiconductor Market (%) Source: Dataquest (May 1996) Figure 1 Fabless Companies Outperform the Semiconductor Market

Year-to-Year Growth Rate (%) ou- Worldwide 45- Semiconductor Growth 40- / ^'\ / 35- •^Xx ^^ — Fabless Growth 30- 25- 20- 15*^ V^I^^^ 10- 5-

0- I 1 1 1 1 1994 1995 1996 1999 2000 1997 1998 SodUVO

Source: Dataquest (May 1996)

^Vjia

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C Nielsen Company I I

DataQuest DataQuest

Semiconductor Contract ii/lanufacturing Wafer Pricing Trends

Market Trends

Program: Semiconductor Contract Manufacturing Worldwide Product Code: SGMS-WW-MT-9602 Publication Date: December 23,1996 Filing: Market Trends \

Semiconductor Contract IVIanufacturing Wafer Pricing Trends

Market Trends

Program: Semiconductor Contract IVIanufacturing Worldwide Product Code: SCI\/IS-WW-MT-9602 Publication Date: December 23,1996 Filing: IVIarket Trends Semiconductor Contract Manufacturing Wafer Pricing Trends

Table of Contents Page 1. SCM Wafer Pricing Update 1 How Much Have SCM Wafer Prices Changed? 1 Looking Ahead: SCM Wafer Price Projection 3 2. Semiconductor Contract Manufacturing Market Forecast 7 SCM Supply Surge 7 SCM Capacity Supply and Demand Imbalance Forecast 7 SCM Contribution to the Semiconductor Market 11

List of Figures ^^-^^^^^^^^^^^^^^^^^^ | Figure Page 1-1 Buyers' and Suppliers' Reported 150mm Foundry Wafer Prices, September 1996 versus October 1995 3 1-2 Buyers' and Suppliers' Reported 200mm Foundry Wafer Prices, September 1996 versus October 1995 4 2-1 Worldwide SCM Capacity Imbalance Projection 10 2-2 SCM Market Forecast and Contribution to the Semiconductor Market 12

List of Tables Table Page 1-1 September 1996 Foundry Wafer Prices for 150mm and 200mm Wafers, by Technology 2 1-2 150mm SCM Wafer Price Projection, 1995-1997 4 1-3 200mm SCM Wafer Price Projection, 1995-1997 5 2-1 Dedicated Foundry Companies' New Fab Plans, 1996-1999 8 2-2 Dataquest Projection of the Semiconductor Contract Manufacturing Supply and Demand Dynamics by Year, 1995-2000 9 2-3 Semiconductor Contract Manufacturing Market Forecast by Region, 1993-2000 10 2-4 Semiconductor Contract Manufacturing Market Forecast by Supply and Demand Sources, 1993-2000 11 2-5 Semiconductor Contract Manufacturing Market Revenue Forecast by Regions, 1993-2000—November 1996 Update 11

SCMS-WW-MT-9602 ©1996 Dataquest December 23,1996 I Chapter 1 ' SCM Wafer Pricing Update In October, Dataquest conducted a worldwide semiconductor confract manufacturing (SCM) foundry wafer pricing study. A large number of SCM users and providers were surveyed and reported prices paid and charged in September 1996 for 150mm and 200mm foundry-processed CMOS wafers. Pricing reported also encompassed a variety of different process technologies, by feature size (minimum geometry) and metal interconnect layers. Table 1-1 presents the complete SCM pricing survey reports. As Ulusfrated, foundry wafer buyers reported consistently lower prices than foundry providers. The difference between average wafer prices reported by buyers and suppliers ranges from 1 percent to nearly 25 percent, depending on the process technology. Dataquest believes buy ers' reported prices are a more accurate reflection of the current wafer pricing envirorunent. Moreover, the fact that buyers are reporting lower prices than are suppliers in all categories of technologies sfrongly indi cates that the current SCM market can aptly be described as a buyers' market.

The difference in buyers' and suppliers' reported prices also tends to be higher for the lower technologies (larger line width). This suggests it is very much a phenomenon of the lagging technologies where supply is plentiful and most prone to pricing pressure. In confrast, 0.35-micron, the most advanced foundry process available, experiences little or no discrep ancy in buyers' and suppliers' reported prices. Demand for leading-edge > SCM capacity should remain robust and help wafer pricing in advanced processes—for example 0.35iam—to stay relatively firm in the coming months. How Much Have SCM Wafer Prices Changed? Compared with one year ago (the previous worldwide survey was in October 1995), foundry per-wafer prices in September 1996 averaged a 25 percent decline. Figures 1-1 and 1-2 compare the wafer prices for Octo ber 1995 and those reported by SCM suppliers and buyers in 1996 for 150mm and 200mm wafers, respectively. As Ulusfrated, the 1996 wafer prices exhibit a decline ranging from negative 5 percent to negative 30 per cent, depending on the process technologies. Notably, all processes (all wafer sizes, line geometries, and metal layers) experienced price erosion during the past year. One exception: There is no price comparison for 0.35- micron process, which was not available in 1995, and so no prices were reported.

SCMS-WW-MT-9602 ©1996 Dataquest CO Table 1-1 o September 1996 Foundry Wafer Prices for 150mm and 200mm Wafers, by Technology (U.S. Dol 1pm, 2ML* 1pm, 3ML 0.8pm, 2ML 0.8pm, 3ML 0.6pm ,2ML 0.6pm ,3M 150mm Wafers CO Suppliers' Responses on Wafer o> o r>o Prices High 650 600 710 860 1,10 Low 480 600 600 680 72 Average 580 600 628 753 82 Ijuyers' Responds oaa Wfifelf l^ces High 600 625 685 800 900 1,00 Low 348 400 550 600 570 60 Average 466 502 613 673 738 79 Difference between Buyers' @ and Sellers' Averages (%) 24 20 2 2 CO CO OJ o 0.8pm ,2ML 0.8pm, 3ML 0.6pm, 2ML 0.6pm, 3ML 0.5pm ,2ML 0.5pm ,3M Oi 200mm Wafers Suppliers' R^ponses on Wafer Prices High 2,200 2,35 Low 1,700 1,80 Average 1,870 2,01 Buyers' Responses oriWadferl^ces High 1,200 1,500 1,650 1,800 1,900 2,50 Low 1,150 1,200 1,200 1,300 1,500 1,45 Average 1,175 1,350 1,410 1,543 1,650 1,85 Difference between Buyers' and Sellers' Averages (%) 13 Notes: Assumed baseline process of CMOS—13 to 16 masks for 0.5pm or tiigher, 14 to 18 masks for 0.35pm, no epitaxial, single-level poly, and m per month. [S3 CO Given by line geometry and number of metal layers; "1pm, 2ML' means a 1-micron, two-layer metal process. Source: Dataquest (November 1996) CO CO O) SCM Wafer Pricing Update

Figure 1-1 > Buyers' and Suppliers' Reported ISOinm Foundry Wafer Prices, September 1996 versus October 1995

Wafer Price (U.S. Dollars per Wafer) 1 400 —

1,200 - Buyers' Average 9/96 ^^^^

nrtnhrr 10Ti

1,000-

""" 800-

600- ^^^^^ -^

400-

200- >

n_ "i ( 1 I 1 1|im, 2ML 0.8^m, 2ML 0.6|.im, 2ML 0.6|im, 3ML 0.5|im, 2ML O.Sjirr ,3ML Process Type 9684?7

Source: Dataquest (November 1996)

Looking Ahead: SCM Wafer Price Projection All survey respondents, foundry suppliers and wafer buyers alike, indi cated expectation of further decline in foundry wafer prices during the next six months from October 1996 to March 1997. Projection of declines ranges from negative 5 percent to negative 40 percent, with an average of negative 10 percent across process technologies and wafer sizes. Based on the strong indication given by the survey, Dataquest projects that SCM wafer prices wiU continue to experience downward pressure throughout 1997. Tables 1-2 and 1-3 present the projection of SCM wafer prices for 150mm and 200mm foundry wafers, respectively.

Dataquest's SCM foundry wafer pricing model for 1997 calls for a continu ing decline in wafer prices in aU technologies and all wafer sizes. After crashing through to the U.S.$1,000 price support in 1996,150mm wafers will likely experience prices under U.S.$900 in 1997. For larger geometries, such as 1.0-micron and 0.8-micron processes, 150mm foundry wafers are r expected to bring in less than U.S.$700 apiece during the next year.

Figure 1-2 Buyers' and Suppliers' Reported 200mm Foundry Wafer Prices, September 1996 versus October 1995

Wafer Price (U.S. Dollars per Wafer) 4,000-

Suppliers' Average 9/96 3,500- Buyers' Average 9/96

October 1995 3,000-

2,500 -

2,000-

1.500-

1,000-

500-

I I I I 0,8jim, O.Bum, 0.6M.m, O.Stim, 0.5|j.m, 0.5iinn, 0.35^m, 0.35|j.m, 2ML 3ML 2ML 3ML 2ML 3ML 3ML 4ML Process Type

Source: Dataquest (November 1996)

Table 1-2 150mm SCM Wafer Price Projection, 1995-1997 (U.S. Dollars per Processed Wafer)

March 1997 September 1997 Technology October 1995 September 1996 Projection Projection l.Ovim, 2ML 636 466 440 to 510 420 to 510 l.Ovim, 3ML 684 502 470 to 550 450 to 550 0.8pm, 2ML 772 613 580 to 640 550 to 620 O.Svim, 3ML 844 673 630 to 700 590 to 680 0.6]im, 2ML 927 738 700 to 740 660 to 710 0.6pm, 3ML 1,031 799 730 to 790 670 to 750 0.5pm, 2ML 1,205 859 770 to 850 690 to 800 0.5pm, 3ML 1,307 912 820 to 900 730 to 850 Notes: Assumed baseline process of CMOS—13 to 16 masks for 0.5pm or higher, 14to 18 masks for 0.35pm., no epitaxial, single-level poly, and minimum volume of 500 unprobed wafers per month. October 1995 prices are average of surveyed responses; September 1996 prices are average of surveyed SCM buyers' responses. Source: Dataquest (November 1996)

Table 1-3 200mm SCM Wafer Price Projection, 1995-1997 (U.S. Dollars per Processed Wafer) March 1997 September 1997 Technology October 1995 September 1996 Projection Projection 0.8]im, 2ML 1,352 1,175 980 to 1,110 910 to 1,030 0.8>iin, 3ML 1,391 1,350 1,130 to 1,280 1,020 to 1,190 0.6pm, 2ML 1,844 1,410 1,170 to 1330 1,050 to 1,230 0.6pm, 3ML 1,958 1,543 1,280 to 1,460 1,150 to 1,350 0.5pm, 2ML 2,169 1,815 1,540 to 1,720 1,380 to 1,590 0.5pm, 3ML 2,370 1,970 1,630 to 1,870 1,460 to 1,730 0.35pm, 3ML NA 2,756 2,480 to 2,610 2,230 to 2,470 0.35pm, 4ML NA 3,036 2,730 to 2,880 2,450 to 2,730 NA = Not applicable Note: Assumed baseline process of CMOS—13 to 16 masks for O.Spm or higher, 14 to 18 masks for 0.35|jm, no epitaxial, single-level poly, and minimum volume of 500 unprobed wafers per month. October 1995 prices are average of surveyed responses; September 1996 prices are average of surveyed SCM buyers' responses. Source: Dataquest (November 1996)

For 200mm SCM foundry wafers in 1997, profit margins for 0.5-micron process wafers will see continuing pressure as prices are expected to fall through the U.S.$1,800 mark. Further pressure on 0.5-micron pricing will also come from the projected substitution of 0.5-micron technology by 0.35-micron as the leading-edge SCM volume production process. Dataquest believes by the first half of 1998,0.35-micron will emerge as the mainstream SCM process. By the end of 1997, when many new foundry fabs will have entered into volume production in 0.35-micron, wafer pric ing for 0.35-micron SCM process will then serve as the most important ref erence point for pricing of all SCM processes.

SCM Supply Surge While demand for SCM capacity in the next several years (1996 to 1999) is projected to continue to grow at a steady pace, there will be an even greater increase in the supply of SCM capacity. Much of the SCM capacity increase is contributed by an abundance of new fab construction slated for the next few years. Of the 16 dedicated foundry companies in the world, all have plans to buUd one or more new fabs during 1996 to 1999. Table 2-1 lists the dedicated foundry companies and their fab plans. Because some of the dedicated foundries are new companies that may not have the financial and technological wherewithal required to build a mod em IC fab, Dataquest assigns a probability to indicate the likelihood of the new fabs being actually built. As shown in the table, all new foundry fabs but a few have high probabilities of being buUt and successfully going into volume production. Not counting the lower-probability projects (50 per cent or lower), the dedicated foundry companies will, over the next three years, put into place new capacity that is more than four times the total dedicated foundry output at the end of 1995.

Besides the dedicated foundries, there is also a rising number of integrated device manufacturers (IDMs) offering foundry services. Most significant are the Korean IDMs, including Samsung and LG Semicon, which are offering ample leading-edge SCM capacity with very competitive wafer pricing. In Taiwan, United Microelectronics Corporation has announced it will spin off aU of its product divisions to become a dedicated foundry. By the end of 1997, all of UMC's IC manufacturing will be devoted to foundry production. Winbond will likely maintain at least 30 percent of its capacity as foundry business. In the United States, IBM remains the most important and largest supplier of leading-edge SCM production. Other important foundry suppliers include well-known IDMs such as LSI Logic, Texas Instruments, VLSI Technology and medium or small SCM vendors, including IMP, IC Works, AMI, Orbit, and others.

SCM Capacity Supply and Demand imbalance Forecast SCM capacity demand and supply in 1995 through 2000 have been esti mated and compared. Dataquest has constructed a market projection that portrays what will most likely be the users' perception of the capacity availability in the SCM market in the years ahead. In forecasting the SCM supply/demand outlook, Dataquest continues to use the guideline that a balanced supply-to-demand SCM market would require about 5 percent to 10 percent higher supply than demand to account for the inevitable inefficiencies in matching customer requirements and supplier capability. The assumption that the SCM market is price elastic is also maintained. The SCM supply/demand imbalance analysis, including forecast assump tions, is shown in Table 2-2.

Table 2-1 Dedicated Foundry Companies' New Fab Plans, 1996-1999

Probability Sub- Production Dedicated Foundry Company Fab Plan (%) O.Spm Start ASMC (China) Fab 2 (6-inch) 80 1996 Anam Semiconductor Electronics Fab 1 (8-inch) 100 X 1997 Champlain Fab 1 (8-inch) 5 1998 Chartered Semiconductor Manufacturing Fab 3 (8-inch) 100 X Q4/1997 Extel Semiconductor Fab 1 (6-inch) 50 1996 GMT Microelectrorucs Fab 2 (6-inch) 80 Q4/1997 Interconnect Technology Fab 1 (8-inch) 100 X 1998 MidWest Microelectronics Fab 1 (6-inch), 20 1997,1998 Fab 2 (8-inch) Newport Waferfab Ltd. Fab 2 (6-inch), 80 K Q4/1996, Fab 3 (8-inch) Q4/1997 SubMicron Technology Fab 1 (8-inch) 100 X Q3/1997 Tower Semiconductor Fab 2 (8-inch) 40 X 1999 TSMC Fab 4 (8-inch), 100 X 1997,1998 Fab 5 (8-inch) United IC Corp. (UMC Joint Venture No. 2) Fab 1 (8-inch) 100 n Q3/1997 United Semiconductor Corp. (UMC Joint Venture No. 1) Fab 1 (8-inch) 100 X 1996 United Silicon Corp. (UMC Joint Venture No. 3) Fab 1 (8-inch) 30 X Q4/1997 WaferTech (TSMC Joint Venture) Fab 1 (8-inch) 100 X 1998 Total Number of New Fotindry Fabs 19 new fabs (14 8-inch, 5 6-inch) Note: Probability is Dataquest's estimation of the probability that the fab will actually be built and enter into production. "Sub-0.5 |jm" denotes whether the fab will have sub-0.5-micron process capabilities. Source: Dataquest (November 1996)

Projection of the SCM supply and demand imbalance for 1995 to 2000 is shown in Figure 2-1. The projection pronounces the end of the SCM capac ity constraint of the previous years (1994 and 1995), to be followed by an extended period of ample supply in 1996 through the year 2000. As shown in the figure, oversupply in SCM capacity begins in 1996. The years 1997 and 1998 will witness the unveUing of much of the foundry suppliers' ambitious capacity buildup as more than 10 new 200mm wafer fabs will enter into and ramp up production during the two-year period. This is expected to add significantly to the foundry supply surplus, allowing the supply/demand imbalance to reach over 25 percent by 1999. At the same time, however, the oversupply will to lead to a continued downward trend in foundry wafer prices—a situation that wiU likely spur demand. Increased SCM demand, ranging from 10 percent to 20 percent, as a result of price elasticity has been built into the Dataquest SCM market forecast model. Price elasticity will, however, have only a modest ameliorating effect on the projected supply surplus. Dataquest believes the three years from 1997 through 1999, encompassing the 0.5-micron and 0.35-micron technology generations, will be a period of excess SCM supply.

SCI\^S-WW-IVIT-9602 ©1996 Dataquest December 23,1996 C/J Table 2-2 o Dataquest Projection of the Semiconductor Contract Manufacturing Supply and Demand Dyn $ S Year "Real" Oversupply or Undersupply Market Characteristics Market For 1995 1 percent to 3 percent undersupply Tight supply Average of CO Price firnmess a> C3 Sellers' market tS3 1996 3 to 5 percent oversupply in overall SCM Bifurcation of SCM market into mainstream Market fore capacity (> 0.5 micron) and leading edge (0.5 micron elasticity— Oversupply in mainstream capacity and smaller) to absorb 3 to 6 percent undersupply at leading edge in Adequate/excess supply in mainstream demand d first half of year turning into oversupply by capacity, v^rith leading edge also transition Q4 ing to a buyers' market by 2H/1996 Wafer price decline sets in lH/1996 and quickens in 2H/1996 1997 8 to 12 percent oversupply in overall SCM Mainstream is now 0.5 micron and greater Six or seven © capacity Leading edge is 0,35 micron with three to venture fo CO Oversupply in all SCM process technologies four layers of metal, tion durin CO CT) with the exception of 0.35 micron Continued wafer price dedine for most duction a a 5 percent to 10 percent undersupply in process teclinologies Market fore Pi 0.35 micron capacity beginning to ease by Buyers' market in mainstream; sellers' market absorb 15 Q4 in leading-edge technology (0.35 micron) 1998 20 to 23 percent oversupply in overall SCM Convert to buyers' market for all process tech Three new capacity nologies fabs enter Ample supply for all process technologies Price softness Continued Increased demand spurred by attractive Increased d foundry wafer prices for all process excess sup technologies 1999 25 to 30 percent oversupply in overall SCM Buyers' market Increased d capacity More aggressive pricing excess sup Ample supply for all process technologies Increased demand 0.25 micron except 0,25 micron Demand for 0.25 micron prpqe^lijEig^m tflf t^ 2000 12 percent oversupply in overall SCM Buyers' market Increased d

CD capacity Price declines lessening excess sup 3 Comfortable supply for all process New investment begins again Rising capa CT technologies except 0.25 micron tS3 00 Source: Dataquest (November 1996 CO CO 05 10 Semiconductor Contract Manufacturing Worldwide

Figure 2-1 Worldwide SCM Capacity Imbalance Projection

Source: Dataquest (November 1996)

Based on the projected SCM supply/demand outlook, Tables 2-3 and 2-4 present the SCM market forecast by regions and supply and demand sources, respectively, in terms of processed silicon wafer area (millions of square inches of silicon, or MSI).

An oversupply in 1998 and 1999 is expected to keep SCM suppliers focused on technology migration and transition to a higher-margin prod uct mix. This should help attract higher SCM usage and permit higher foundry w^afer prices in leading-edge processes, although prices in mainstream and laggard technology areas will see continued decline. Dataquest believes that the net result is a modest but steady increase in the average selling prices (ASPs) of SCM services through the year 2000. This also means a higher overall SCM niarket, in dollar revenue terms. Table 2-5 presents the SCM market forecast by region.

Table 2-3 Semiconductor Contract Manufacturing Market Forecast by Region, 1993-2000 (Millions of Square Inches of Silicon) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1995-2000 Americas 54.8 68.6 95.1 121.8 156.5 192.7 244.1 306.7 26.4 Japan 94.4 117.4 129.5 124.9 133.8 150.2 173.1 191.4 8.1 Europe 15.2 23.8 30.3 32.2 37.5 44.9 55.7 66.0 16.9 Asia/Pacific 2.4 3.5 5.7 7.0 8.4 10.7 14.2 18.5 26.5 Worldwide SCM Market 166.7 213.3 260.6 285.9 336.2 398.4 487.1 582.6 17.5 Source: Dataquest (November 1996)

Table 2-4 Semiconductor Contract Manufacturing Market Forecast by Supply and Demand Sources, 1993-2000 (Millions of Square Inches of Silicon) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2D00 1995-2000 Demand Sources Fabless 41.4 47.4 61.5 76.5 97.3 121.8 159.5 207.0 27.5 IDM 123.7 163.1 194.4 202.6 230.3 265.4 313.2 356.7 12.9 System OEMs 1.6 3.9 5.4 7.0 9.1 11.7 15.1 19.4 29.2 Total SCM Market 166.7 214.4 261.3 286.2 336.7 399.0 487.8 583.1 17.4 Supply Sources Dedicated 24.0 36.7 46.9 70.4 111.2 171.8 226.0 266.2 41.5 IDM 142.7 177.7 214.4 215.7 225.5 227.2 261.8 316.9 8.1 Total SCM Market 166.7 214.4 261.3 286.2 336.7 399.0 487.8 583.1 17.4 Source: Dataquest (November 1996)

Table 2-5 Semiconductor Contract Manufacturing Market Revenue Forecast by Regions, 1993- 2000—November 1996 Update (Millions of U.S. Dollars) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1995-2000 Americas 1,537 2,200 3,167 4,061 5,279 6,655 8,750 11,428 29.3 Japan 1,367 1,789 2,215 2,138 2,407 2,780 3,236 3,672 10.6 Europe 248 471 598 645 759 922 1,155 1,386 18.3 Asia/Pacific 69 105 172 204 254 336 470 643 30.2 Worldwide SCM Market 3,222 4,565 6,152 7,049 8,700 10,693 13,612 17,129 22.7 Source: Dataquest (November 1996)

SCM Contribution to tlie Semiconductor iVIarlcet Figure 2-2 shows the forecast for the SCM market and its contribution to the semiconductor market. Dataquest estimates that SCM products are sold on the merchant semiconductor market at a multiple of the wafer price paid by SCM customers. This multiple ranges from 1.6 to as high as 4, depending on the specific markets (for example, graphics chips, chipsets, mass flow controllers, programmable logic devices, or mixed- signal devices) and the SCM customers' marketing power (distribution, brand recognition, or design-wins). In the present analysis, an average of 2.5 in 1995, rising to 2.8 for 2000, is used to account for the migration of SCM products to a higher-margin mix enabled by SCM suppliers' con tinue adoption of advanced semiconductor process technologies. As shown in the figure, the contiibution of SCM products to the overall merchant semiconductor market is expected to rise from about 10 percent in 1995 to 16 percent by year 2000. In other words, by the year 2000,16 per cent of the semiconductor products sold worldwide will be manufactured by semiconductor contract manufacturers.

Figure 2-2 SCM Market Forecast and Contribution to the Semiconductor Market

Worldwide SCM SCM Contribution to Worldwide Market (U.S.$B) Merchant Semiconductor Market (%) la 18 te ^ Worldwide SCM Market 14 _ SCM Contribution to Worldwide Merchant Semiconductor Market 12 10 8 6 4 2 0

Source: Dataquest (November 1996)

For More Information... Calvin Chang, Senior Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and anal5'sis of information generally available to the public or released by respor^ible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in part to other parties shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Cornpany Dataquest is a registered trademark of A.C. Nielsen Company DATAQUEST WORLDWIDE OFFICES

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DataQuest

Semiconductor Five-Year Forecast Trends—Spring 1996

> Market Trends

Program: Semiconductors Contract l\/lanufacturing Services Worldwide Product Code: SCMS-WW-MT-9601 Publication Date: May 13,1996 Filing: Market Trends Semiconductor Five-Year Forecast Trends—Spring 1996

Market Trends

Program: Semiconductors Contract IVIanufacturing Services Worldwide Product Code: SCMS-WW-MT-9601 Publication Date: May 13,1996 Filing: Market Trends Semiconductor Five-Year Forecast Trends—Spring 1996

Table of Contents Page 1. Introduction and Assumptions 1 Forecast Summary 1 Forecast Highlights 2 Exchange Rates 3 2. Worldwide Forecast by Product Family 5 Worldwide Forecast Data 5 3. Worldwide Semiconductor Forecast by Region 9 4. Americas Forecast by Product Family 11 5. Japan Forecast by Product Family 15 6. Europe Forecast by Product Family 19 7. Asia/Pacific Forecast by Product Family 23 8. Forecast by Product 27 Microcomponent ICs 27 Memory ICs 28 LogicICs 29 Analogies 29 Total Monolithic ICs 29 Discrete Devices 30 Optical Semiconductors 31 9. Forecast by Technology 33 Digital MOS and Bipolar IC Forecast 33 Appendbc A—^Japanese Revenue History and Forecast in Yen 35 Appendix B—European Revenue History and Forecast in ECU 39 Appendix C—Definitions 43 Appendix D—Historical Exchange Rates 47

List of Figures Figure Page 4 2-1 Market Share by Product, 1995 and 2000 8 3-1 Semiconductor History and Forecast by Region 9 3-2 Regional Consumption as a Percentage of Total 10 4-1 Product Comparison, Americas Market, 1995 and 2000 14 5-1 Product Comparison, Japanese Market, 1995 and 2000 18 6-1 Product Comparison, European Market, 1995 and 2000 22 7-1 Product Comparison, Asia/Pacific Market, 1995 and 2000 26 8-1 Worldwide Semiconductor Forecast by Product 27 9-1 MOS versus Bipolar Forecast 33 A-1 Comparison of Revenue Shipment Growth in the Japan Region—^Dollars versus Yen 35 B-1 Comparison of Revenue Shipment Growth in European Region—^Dollars versus ECU 39

List of Tables Table Page 1-1 Changes in 1996 Forecast 2 2-1 Worldwide Semiconductor Growth by Product Type 5 2-2 Worldwide Semiconductor Market, Six-Year Revenue History, 1990-1995 6 2-3 Worldwide Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 6 2-4 Worldwide Semiconductor Market, Historic Revenue Growth, 1990-1995 7 2-5 Worldwide Semiconductor Market, Forecast Five-Year Revenue Growth 7 3-1 Total Semiconductor Consumption by Region, Five-Year Revenue Forecast, 1995-2000 10 3-2 Total Semiconductor Growth Forecast by Region 10 4-1 Americas Semiconductor Market, Six-Year Revenue History, 1990-1995 12 4-2 Americas Semiconductor Market, Five-Year Revenue Forecast 1995-2000 12 4-3 Americas Semiconductor Market, Historic Revenue Growth, 1990-1995 13 4-4 Americas Semiconductor Market, Forecast Five-Year Revenue Growth 13 5-1 Japanese Semiconductor Market, Six-Year Revenue History, 1990-1995 .16 5-2 Japanese Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 16 5-3 Japanese Semiconductor Market, Historic Revenue Growth, 1990-1995 17 5-4 Japanese Semiconductor Market, Forecast Five-Year Revenue Growth 17 6-1 European Semiconductor Market, Six-Year Revenue History, 1990-1995 20 6-2 European Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 20 6-3 European Semiconductor Market, Historic Revenue Growth, 1990-1995 21 6-4 European Semiconductor Market, Forecast Five-Year Revenue Growth 21 7-1 Asia/Pacific Semiconductor Market, Six-Year Revenue History, 1990-1995 24 7-2 Asia/Pacific Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 24 7-3 Asia/Pacific Semiconductor Market, Historic Revenue Growth, 1990-1995 25 7-4 Asia/Pacific Semiconductor Market, Forecast Five-Year Revenue Growth 25

List of Tables (Continued), Table Page 8-1 Microcomponent IC Market, Five-Year Revenue Forecast, 1995-2000 28 8-2 Memory IC Market by Region, Five-Year Revenue Forecast, 1995-2000 28 8-3 Logic IC Market by Region, Five-Year Revenue Forecast, 1995-2000 29 8-4 Analog IC Market by Region, Five-Year Revenue Forecast, 1995-2000 30 8-5 Total Monolithic IC Market by Region, Five-Year Revenue Forecast, 1995-2000 30 8-6 Discrete Device Market by Region, Five-Year Revenue Forecast, 1995-2000 30 8-7 Optical Semiconductor Market by Region, Five-Year Revenue Forecast, 1995-2000 31 9-1 Semiconductor Market by Process Technology, Six-Year Revenue History, 1990-1995 34 9-2 Semiconductor Market by Process Technology, Five-Year Revenue Forecast, 1995-2000 34 A-1 Japanese Semiconductor Market, Six-Year Yen Revenue History, 1990-1995 36 A-2 Japanese Semiconductor Market, Five-Year Yen Revenue Forecast, 1995-2000 36 A-3 Japanese Semiconductor Market, Yen Revenue Growth, 1990-1995 37 A-4 Japanese Semiconductor Market, Forecast Five-Year Yen Revenue Growth, 1995-2000 37 B-1 European Semiconductor Market, Six-Year ECU Revenue History, 1990-1995 40 B-2 European Semiconductor Market, Five-Year ECU Revenue Forecast, 1995-2000 40 B-3 European Semiconductor Market, Historic Revenue Growth, 1990-1995 41 B-4 European Semiconductor Market, Forecast Five-Year ECU Revenue Growth, 1995-2000 41 D-1 Exchange Rates 47

SCI\/1S-WW-IVIT-9601 ©1996 Dataquest iVIay 13,1996 Chapter 1 Introduction and Assumptions, Dataquest Semiconductor Group analysts provide a semiconductor device revenue forecast twice a year, in April and October. These revenue fore casts, which cover a five-year horizon, comprise forecasts for the major product families and the four main geographic semiconductor-consuming regions. This document, completed in April 1996, is the latest of these fore casts. Although revenue is subject to the vagaries of exchange rate varia tions, it is the most useful means to consolidate the forecasts of widely differing products and the most meaningful measure of markets and com panies. Unit forecasts, which underlie the microcomponent and memory IC forecasts, are doUarized to arrive at the revenue forecast presented here. Average annual exchange rates are used for revenue history, and the most recent "average" exchange rate is extended into the five-year forecast hori zon. Dataquest does not forecast exchange rates.

The forecast is presented in two local currencies in Appendixes A and B, in yen for the Japanese market forecast in Appendix A and in ECU for the European market forecast in Appendix B. The Americas market and the Asia/Pacific-ROW market are forecast only in U.S. doUars.

In 1996, the "North America" market has been expanded to include the total North and South America region and will be known as the "Ameri cas" region from this point forward. This matches the divisions found in Dataquest's 1995 market share data. Forecast Summary The PC market, now the dominant market for semiconductors, grew nearly 26 percent in 1995. Semiconductors grew by 37 percent as demand continued to outstrip supply and DRAM average selling prices (ASPs) continued strong, at $25 per megabyte. DRAM revenue growth, which was 66 percent in 1993 and 60 percent in 1994, reached 81 percent in 1995. The brakes on this growth were applied early in 1996 as ASPs tumbled. The declining DRAM ASPs lead a number of factors that have aligned to take our 1996 forecast down to a surprising 7.6 percent growth. Beside DRAM, some other factors causing our 1996 forecast to drop under 8 per cent are excess inventories, slowing markets, and a stronger yen. Inven tory problems occurred as the fourth quarter PC market was well below expectations, leaving the first half of 1996 struggling with an inventory correction. Triggered by this correction, DRAM prices tumbled with prices per megabyte going from $25 in 1995 to under $15 early in 1996. Although we had anticipated DRAM price erosion in 1996, this price erosion occurred far sooner and faster than we had forecast last fall.

It is important to recognize that these corrections do not signal an evapo rating market. Although the semiconductor end markets have slowed, they are still healthy. Dataquest's PC unit forecast for 1996 is still at 19 per cent worldwide. If these problems were not severely impacting revenue, we would still be forecasting growth between 15 percent to 22 percent. Table 1-1 shows the impact of the major downside factors on our 1996 forecast.

Table 1-1 Changes in 1996 Forecast (Percent) Change Change to 1996 October 1995 to Dollar Worldwide Forecast This Forecast Growth (%) Forecast (%) DRAM Revenue Growth (%) 33 1» -32 -8 Non-DRAM Product Growth (%) 18 14* -4 -3 Yen/Dollar Exchange Rate 93.90 107.05 -12 -3 Total Growth in 1996 (%) 22.1 7.6 -14.5 -14.5 'Excludes change in yen/dollar exchange rate Source: Dataquest (May 1996)

Both DRAM and Japan represent about one-fourth of the total semicon ductor market, so their impact on the worldwide 1996 forecast shows up proportionately in the right column. If the 1996 yen-dollar exchange rate does not differ from 1995, the 3 percent change to the worldwide forecast would bring it back to double digits. If DRAM prices rebound more than expected, the growth could move the forecast up into the "normal" 15 per cent range. This forecast is highly leveraged off of the fortunes of these two items. Forecast Highlights The following are the highlights of this forecast: • Growth in 1996 drops under 8 percent after 37 percent growth in 1995. • The PC market slows in 1996 to 19 percent unit growth versus 26 per cent in 1995. • The MPU market slows along with PC market. Price reductions bring 96 growth down to 17 percent. • The DRAM price per bit will decline nearly 50 percent in 1996. Even with a high rate of bit growth, revenue growth will be nonexistent. • Non-DRAM products will grow by 14 percent in 1996, growth consis tent with historical rates. • The Asia/Pacific regional market will exceed Japan in 1998 and will grow to 25 percent of the world market in 2000. • The Americas forecast has decreased. Even with a 17 percent 1995 through 2000 compound aimual growth rate (CAGR), the Americas will lose 1 percent of the world market (to 33.7 percent) by 1999 as Americas growth slows. • Like the Americas, the European market's growth has been revised downward to a 17 percent CAGR from 1995 through 2000. Nonetheless, the European market share will remain at 18 percent over the forecast period. We expect the semiconductor market to pass the $300 billion mark in 2000, as the adjustments seen in 1996 will not greatly impact the long-term growth of the market.

Exchange Rates The following exchange rates are used for the 1994 through 1999 forecast: • ¥107.05 per dollar • ECU 0.774 per dollar The following chapters will discuss the forecast by product and region in more detail.

SCMS-WW-I\/IT-9601 ©1996Dataquest May 13.1996 Chapter 2 Worldwide Forecast by Product Family The growth by product in 1995 as well as the past five-year CAGR and forecast 1995-through-2000 CAGR is shown in Table 2-1. Memory ICs will show much slower growth as the five-year compounded growth rate of 16 percent brings memory IC growth back in line. Micro- component growiii, as well, will slow as the Americas market grows more slowly and prices stabilize. Logic ICs and analog ICs are settling into 14 percent growth rates, growtii more consistent with the growSi of elec tronic equipment markets. Discrete devices have gained greater growth potential with the lead of power and radio frequency (RF) transistors. Despite the growth potential of logic ICs, analog ICs, discrete devices, and optical semiconductors and the slowdown of memory IC growth, microcomponent and memory ICs will continue to increase their share of the semiconductor market at the expense of these other categories.

The tables on the following pages provide the complete five-year forecast by product type for the worldwide semiconductor market.

Worldwide Forecast Data Tables 2-2 through 2-5 provide the five-year forecast by product type for the worldwide semiconductor market. Table 2-1 Worldwide Semiconductor Growth by Product Type (Revenue in Millions of Dollars) CAGR (%) CAGR (%) 1994-1995 1990-1995 1995-2000 1995 Revenue Growth (%) Actual Forecast Microcomponents 34,513 30.7 29.2 17.6 Memory Total 55,421 64.4 34.6 16.5 Logic/ASIC Total 22,961 22.0 13.5 13.8 Analog ICs 17,607 15.4 14.8 14.7 Monolithic IC Total 130,502 38.5 24.8 16.1 Hybrid ICs 1,935 16.2 8.5 1.4 Total ICs 132,437 38.2 24.4 15.9 Discrete Devices 14,023 30.3 12.8 11.6 Optical Semiconductors 4,811 23.7 14.8 12.1 Total Semiconductor 151,271 36.9 22.6 15.4 Source: Dataquest (May 1996)

Table 2-2 Worldwide Semiconductor Market, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 9,584 11,774 14,359 19,947 26,408 34,513 29.2 Memory Total 12,559 13,197 15,626 23,550 33,704 55,421 34.6 Bipolar Memory 431 356 318 244 199 160 -18.0 MOS Memory 12,128 12,841 15,308 23,306 33,505 55,261 35.4 Logic/ASIC Total 12,182 12,972 12,918 15,956 18,821 22,961 13.5 Bipolar Logic 3,742 3,272 2,875 2,835 2,713 2337 -9.0 MOS Logic 8,440 9,700 10,043 13,121 16,108 20,624 19.6 Analog ICs 8,845 9,517 10,180 12,513 15,263 17,607 14.8 Monolithic IC Total 43,170 47,460 53,083 71,966 94,196 130,502 24.8 Hybrid ICs 1,289 1,395 1,335 1,463 1,665 1,935 8.5 Total ICs 44,459 48,855 54,418 73,429 95,861 132,437 24.4 Discrete Devices 7,674 8,035 8,155 9,083 10,763 14,023 12.8 Optical 2,412 2,804 2,688 3,006 3,889 4,811 14.8 Semiconductors Total Semiconductor 54,545 59,694 65,261 85,518 110,513 151,271 22.6 Source: Dataquest (May 1996) Table 2-3 Worldwide Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 34,513 39,945 46,524 54,885 65,532 77,645 17.6 Memory Total 55,421 55,749 64,213 75,098 93,666 118,680 16.5 Bipolar Memory 160 119 108 93 79 71 -15.0 MOS Memory 55,261 55,630 64,105 75,005 93,587 118,609 16.5 Logic/ASIC Total 22,961 24,910 27,692 31,906 37,212 43,748 13.8 Bipolar Logic 2337 2,012 1,644 1,415 1,219 1,066 -14.5 MOS Logic 20,624 22,898 26,048 30,491 35,993 42,682 15.7 Analog ICs 17,607 19,562 21,698 25,147 29,531 34,911 14.7 Monolithic IC Total 130302 140,166 160,127 187,036 225,941 274,984 16.1 Hybrid ICs 1,935 1,947 2,009 2,030 2,055 2,075 1.4 Total ICs 132,437 142,113 162,136 189,066 227,996 277,059 15.9 Discrete Devices 14,023 15,300 16,517 18,481 21,044 24,251 11.6 Optical 4,811 5,199 5,588 6,286 7,207 8,526 12.1 Semiconductors Total Semiconductor 151,271 162,612 184,241 213,833 256,247 309,836 15.4 Source: Dataquest (May 1996)

Table 2-4 Worldwide Semiconductor Market, Historic Revenue Growth, 1990-1995 (Percentage Revenue Growth over Preceding Year) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 22.7 22.9 22.0 38.9 32.4 30.7 29.2 Memory Total -20.8 5.1 18.4 50.7 43.1 64.4 34.6 Bipolar Memory -6.3 -17.4 -10.7 -23.3 -18.4 -19.6 -18.0 MOS Memory -21.3 5.9 19.2 52.2 43.8 64.9 35.4 Logic/ASIC Total 3.4 6.5 -0.4 23.5 18.0 22.0 • 13.5 Bipolar Logic -2.9 -12.6 -12.1 -1.4 -4.3 -13.9 -9.0 MOS Logic 6.5 14.9 3.5 30.6 22.8 28.0 19.6 Analog ICs 13.5 7.6 7.0 22.9 22.0 15.4 14.8 Moriolithic IC Total -0.2 9.9 11.8 35.6 30.9 38.5 24.8 Hybrid ICs -5.8 8.2 -4.3 9.6 13.8 16.2 8.5 Total ICs -0.3 9.9 11.4 34.9 30.5 38.2 24.4 Discrete Devices 4.8 4.7 1.5 11.4 18.5 30.3 12.8 Optical Semiconductors 0.2 16.3 -4.1 11.8 29.4 23.7 14.8 Total Semiconductor 0.4 9.4 9.3 31.0 29.2 36.9 22.6 Source: Dataquest (May 1996)

Table 2-5 Worldwide Semiconductor Market, Forecast Five-Year Revenue Growth (Percentage Revenue Growth over Preceding Year)

1 CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 30.7 16.1 16.5 18.0 19.4 18.5 17.6 Memory Total 64.4 0.6 15.2 17.0 24.7 26.7 16.5 Bipolar Memory -19.6 -25.6 -9.2 -13.9 -15.1 -10.1 -15.0 MOS Memory 64.9 0.7 15.2 17.0 24.8 26.7 16.5 Logic/ASIC Total 22.0 8.5 11.2 15.2 16.6 17.6 13.8 Bipolar Logic -13.9 -13.9 -18.3 -13.9 -13.9 -12.6 -14.5 MOS Logic 28.0 11.0 13.8 17.1 18.0 18.6 15.7 Analog ICs 15.4 11.1 10.9 15.9 17.4 18.2 14.7 Monolithic IC Total 38.5 7.5 14.2 16.8 20.8 21.7 16.1 Hybrid ICs 16.2 0.6 3.2 1.0 1.2 1.0 1.4 Total ICs 38.2 7.4 14.1 16.6 20.6 21.5 15.9 Discrete Devices 30.3 9.1 8.0 11.9 13.9 15.2 11.6 Optical Semiconductors 23.7 8.1 7.5 12.5 147 18.3 12.1 Total Semiconductor 36.9 7.6 13.3 16.1 19.8 20.9 15.4 Source: Dataquest (May 1996)

The impact of these varying rates of growth by product is shown in Figure 2-1. In 1995, the PC-driven combination of microcomponent and memory ICs gained market share rapidly, going from 54 percent of the worldwide market in 1994 to almost 60 percent of the market in 1995. In € 1992, memory and microcomponent ICs combined to share only 46 per cent of the semiconductor market. This gain in market share driven by PC growth will slow. As the figure shows, memories and microcomponents will only gain a 3 percent share in the coming five-year period, after gain ing 12 percent in tiie past five years. All other semiconductor categories, logic ICs, analog ICs, discrete devices and optical semiconductors, will lose market share, but at a slower pace than in the past.

Figure 2-1 Market Share by Product, 1995 and 2000

1996 20D0 Optical Semiconductc rs (3.2%) Optical Semiconductors (2,8%) Hybrid IC (1.3%)^^--^ Hybrid IC (n.7%^_ | ^^^ L^^iscreta v/^DJscrete v /

1 Logic/ASIC / \ Logic/ASIC / \ (14.1%) X \ (15.2%) / i Memory M Memory m (36.6%) # (38.2%) M

Total s $ 151 Billion Total = $310 Billion 962904

Source: Dataquest (May 1996)

SCi\/IS-WW-!VIT-9601 ©1996 Dataquest IViay13,1996 Chapter 3 Worldwide Semiconductor Forecast by Region The worldwide revenue forecast is broken into the four constituent regional revenue shipment forecasts in Figure 3-1. A significant feature of this figure is the passing of Japan by Asia/Pacific in revenue by 1998.

The 1993-through-1995 period showed remarkable consistency in the growth of all regions; the three-year compounded growth rates for the Americas, Japan, Europe, and Asia/Pacific regions were 33 percent, 27 percent, 32 percent, and 39 percent, respectively. In the coming five years, these growth rates will drop by half, and regional differences wiU become more pronounced. Although we have forecast differing growth rates by region, the forecast still does not suggest a major downturn in the coming five years, only a period of adjustment. The negative growth shown for Japan in 1996 is because of an expected dollar devaluation; the growth would be nearly 12 percent in yen.

The regional revenue data for the five-year semiconductor forecast is listed in Table 3-1 and the annual growth by region in Table 3-2. The effect of this forecast on the share of the total market by region is pro vided in Figure 3-2, where the lower anticipated growth for the Japanese market results in a continuing decline of the Japanese market share of the total market. The decline in the Japanese market is neatiy mirrored by the rise in the Asia/Pacific market; these changes are tightly related with the shift of Japanese manufacturing to Asia/Pacific sites erUiandng the growth of Asian markets. Figure 3-1 Semiconductor History and Forecast by Region

Billions of Dollars

100- Japan ,

80- <:::^^ 60-

_^^_^^-^ ;::jr=-F^'^^*'^ 40- ^^^^^

20-5

^~\ \ 1 1 1 1 1993 1994 1995 1996 1997 1998 1999 2000 962905

Source: Dataquest (May 1996)

Table 3-1 Total Semiconductor Consumption by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 48,349 52,478 60,217 70,352 85,481 104,579 16.7 Japan 42,164 41,244 45,286 51,144 60,212 71,693 11.2 Europe 28,341 31,479 35,734 41,079 48,433 56,828 14.9 Asia/Pacific 32,417 37,411 43,004 51,258 62,121 76,736 18.8 Semiconductor Total 151,271 162,612 184,241 213,833 256,247 309,836 15.4 Source: Dataquest (May 1996} Table 3-2 Total Semiconductor Growth Forecast by Region (Percentage Revenue Growth over Preceding Year) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 35.2 8.8 14.7 16.8 21.5 22.3 16.7 Japan 36.0 -2.2 9.8 12.9 17.7 19.1 11.2 Europe 35.6 11.1 13.5 15.0 17.9 17.3 14.9 Asia/Pacific 42.0 15.4 15.0 19.2 21.2 23.5 18.8 Semiconductor Total 36.9 7.6 13.3 16.1 19.8 20.9 15.4 Source: Dataquest (May 1996) Figure 3-2 Regional Consumption as a Percentage of Total

Percentage of World Dollar Shipments 45- Americas

Japan

Europe

• Asia/Pacific

—I 1 1 1 1 1 1 1 1 1 1— 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: Dataquest (May 1996)

SCMS-WW-MT-9601 ©1996 Dataquest I\/Iay13,1996 Chapter 4 Americas Forecast by Product Family. The five-year forecast for the Americas market (the more inclusive succes sor to the North America region) is based on the following assumptions:

• The Americas PC market is slowing. Windows 95 didn't materialize as the strong driver of growth. Many businesses are waiting for \^^ndows NT before the next big hardware/software upgrade cycle. This slowing of PC demand in the business community coupled with a saturation of the home PC market has left the forecast unit growth in 1996 at 13 per cent. The lowered growth expectation has impacted all PC-related busi ness (more than 50 percent of the Americas semiconductor market). • Pentium processors pushed up microprocessor (MPU) revenue strongly in 1995. With Intel's Pentium price reductions, a slowing Americas mar ket, and no looming Pentium Pro changeover in 1996, MPU market growth is expected to drop to about half of 1995's 24 percent growth. • High-ASP semiconductors, such as x86 processors and single in-line memory modules (SIMMs), will continue to be strongly consumed in the Americas and added to PCs or motherboards manufactured in the Asia/Pacific region. • Price reductions in Pentium processors and free-faUing DRAM prices will accelerate the consumption of higher-performance MPUs and larger DRAM configurations. The same money will buy twice the PC in 1996; a prospect that may develop new customers but that also runs the risk of alienating home PC consumers who may tire of the treadmill nature of PC bujdng and six-month obsolescence. • Because of the strong computer market, microcomponent and memory ICs grew from 61 percent of semiconductor revenue in the Americas market in 1994 to 68 percent in 1995, a somewhat unnatural spurt of growth that will not be repeated in 1996. We expect this share to drop to 67 percent in 1996, because memory IC revenue growth will lag all other major device families. By the year 2000, microcomponent and memory ICs will account for 70 percent of semiconductor revenue in the Ameri cas, a slow ramp from 1995's 68 percent. • DRAM price-per-bit declines of 40 percent to 50 percent will be offset by increased bit demand, but this will barely keep DRAM revenue growth positive in 1996. • Discrete device growth (22 percent in 1994 and 30 percent in 1995) increasingly comes from the use of power MOS field-effect transistors (MOSFETs) and insulated gate bipolar transistors (IGBTs) in switching power supplies and peripheral drivers and the increasing use of RF devices. MOSFETs and IGBTs showed 37 percent and 59 percent growth in 1995, respectively. These devices will continue to post double-digit growth in 1996. Tables 4-1 through 4-4 provide details of the Americas semiconductor market.

Table 4-1 Americas Semiconductor Market, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 MiCTocomponents 3,381 3,916 5,282 7,620 9,839 12,421 29.7 Memory Total 4,485 4,641 5,837 8,868 12,535 20,530 35.6 Bipolar Memory 160 131 130 83 66 55 -19.2 MOS Memory 4,325 4,510 5,707 8,785 12,469 20,475 36.5 Logic/ASIC Total 4,101 4,070 4,287 5,549 6,323 7,528 12.9 Bipolar Logic 1,417 1,200 1,102 1,090 901 741 -12.2 MOS Logic 2,684 2,870 3,185 4,459 5,422 6,787 20.4 Analog ICs 2,404 2,397 2,689 3,304 3,820 3,995 10.7 Monolithic IC Total 14,371 15,024 18,095 25341 32,517 44,474 25.3 Hybrid ICs 245 245 309 288 347 378 9.1 Total ICs 14,616 15,269 18,404 25,629 32,864 44,852 25.1 Discrete Devices 1,611 1,389 1,603 1,811 2,212 2,870 12.2 Optical Semiconductors 313 332 423 486 697 627 14.9 Total Semiconductor 16,540 16,990 20,430 27,926 35,773 48,349 23.9 Source: Dataquest (May 1996) Table 4-2 Americas Semiconductor Market, Five-Year Revenue Forecast 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 12,421 14,073 16,182 18,779 21,950 25,575 15.5 Memory Total 20,530 21,145 24,297 28,647 36,710 47,307 18.2 Bipolar Memory 55 40 33 17 20 17 -20.9 MOS Memory 20,475 21,105 24,264 28,620 36,690 47,290 18.2 Logic/ASIC Total 7,528 8,400 9,581 11,074 12,887 15,320 153 Bipolar Logic 741 675 576 504 422 360 -13.4 MOS Logic 6,787 7,725 9,005 10,570 12,465 14,960 17.1 Analog ICs 3,995 4,575 5,315 6,232 7329 8,652 16.7 Monolithic IC Total 44,474 48,193 55,375 64,732 78376 96,854 163 Hybrid ICs 378 345 352 370 385 400 1.1 Total ICs 44,852 48,538 55,727 65,102 79,261 97,254 16.7 Discrete Devices 2,870 3,225 3,650 4,190 4395 5,700 14.7 Optical Semiconductors 627 715 840 1,060 1,325 1,625 21.0 Total Semiconductor 48,349 52,478 60,217 70352 85,481 104,579 16.7 Source: Dataquest (May 1996)

Table 4-3 Americas Semiconductor Market, Historic Revenue Growth, 1990-1995 (Percentage Revenue Growth over Preceding Year) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 20.9 15.8 34.9 44.3 29.1 26.2 29.7 Memory Total -24.6 3.5 25.8 51.9 41.4 63.8 35.6 Bipolar Memory -11.1 -18.1 -0.8 -36.2 -20.5 -16.7 -19.2 MOS Memory -25.1 4.3 26.5 53.9 41.9 64.2 36.5 Logic/ASIC Total 5.8^ -0.8 5.3 29.4 13.9 19.1 12.9 Bipolar Logic -2.6 -15.3 -8.2 -1.1 -17.3 -17.8 -12.2 MOS Logic 10.9 6.9 11.0 40.0 21.6 25.2 20.4 Analog ICs 8.0 -0.3 12.2 22.9 15.6 4.6 10.7 Monolithic IC Total -3.2 4.5 20.4 40.0 28.3 36.8 25.3 Hybrid ICs -3.5 0 26.1 -6.8 20.5 8.9 9.1 Total ICs -3.2 4.5 20.5 39.3 28.2 36.5 25.1 Discrete Devices -1.7 -13.8 15.4 13.0 22.1 29.7 12.2 Optical Semiconductors -4.9 6.1 27.4 14.9 43.4 -10.0 14.9 Total Semiconductor -3.1 2.7 20.2 36.7 28.1 35.2 23.9 Source: Dataquest (May 1996) Table 4-4 Americas Semiconductor Market, Forecast Five-Year Revenue Growth (Percentage Revenue Growth over Preceding Year) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 26.2 14.2 15.0 16.0 16.9 16.5 15.5 Memory Total 63.8 3.0 14.9 17.9 28.1 28.9 18.2 Bipolar Memory -16.7 -27.3 -17.5 -18.2 -25.9 -15.0 -20.9 MOS Memory 64.2 3.1 15.0 18.0 28.2 28.9 18.2 Logic/ASIC Total 19.1 11.6 14.1 15.6 16.4 18.9 15.3 Bipolar Logic -17.8 -8.9 -14.7 -12.5 -16.3 -14.7 -13.4 MOS Logic 25.2 13.8 16.6 17.4 17.9 20.0 17.1 Analog ICs 4.6 14.5 16.2 17.3 17.6 18.1 16.7 Monolithic IC Total 36.8 8.6 14.9 16.9 21.9 22.8 16.8 Hybrid ICs 8.9 -8.7 2.0 5.1 4.1 3.9 1.1 Total ICs 36.5 8.5 14.8 16.8 21.7 22.7 16.7 Discrete Devices 29.7 12.4 13.2 14.8 16.8 16.4 14.7 Optical Semiconductors -10.0 14.0 17.5 26.2 25.0 22.6 21.0 Total Semiconductor 35.2 8.8 14.7 16.8 21.5 22.3 16.7 Source: Dataquest (May 1996)

The effect of the Americas forecast on the relative consumption by product is shown in Figure 4-1. With 68 percent of the revenue in the Americas stemming from microcomponents and memories, the Americas market is highly dependent on the health of data processing, \^^th lowered growth i expectations in these two product types, we expect that market shares will hold more constant than in the past, with microcomponents actually los ing 1 percent over the next five years. Logic ICs will lose a 1 percent share as bipolar logic declines.

Figure 4-1 Product Comparison^ Americas Market^ 1995 and 2000

1995 2000 Optical Semiconductors (1,3%) Optical Semiconductors (1,6%) Discrete (5.9%) Discrete (5.5%) Hybrid iC (0,8%) Hybrid IC (0.4%) Analog/Mixed Analog/Mixed (8.3%) (8.3%) •

Total = $48.2 Billion Total = $104.6 Billion 96290?

Source: Dataquest (May 1996)

SCMS-WW-IVIT-9601 ©1996 Dataquest I\/Iay13,1996 Chapter 5 Japan Forecast by Product Family. The five-year semiconductor forecast for the Japanese market is based on the following assumptions: • Growth had been accelerating in Japan after the disastrous revenue decline in 1992, but this three-year growth period is slowing. A 36 per cent dollar growth in 1995 will be followed by a 2 percent decline in 1996. Although the past three years have had dollar revenue enhance ments because of the yen-to-dollar depreciation, the 1996 forecast includes a dollar appreciation of 14 percent, turning a 12 percent yen- based growth in 1996 to a 2 percent decline in dollars. • The Japanese market is fundamentally sound. PC growth in Japan will drop from the 58 percent seen in 1995 to above 30 percent. The contin ued migration of electronic equipment manufacturing to Asia/Pacific sites is a factor that will reduce revenue growth over tiie forecast period, but this migration has been somewhat stunted by constraints in grow ing Asian infrastructures. The result of this migration is that the Japa nese market will drop from 28 percent of worldwide shipments in 1994 to slightly over 23 percent in the year 2000, a lower loss of share than our past forecasts, because depreciation is expected to slow the rate of migration. • Microcomponents will show Japan's strongest product growth in 1996 as the MPtj category is dominated by the dollar-based x86 devices from Intel. The other product categories, more strongly supplied by domestic suppliers in yen-based revenue, are impacted by the devalued dollar exchange rate. The weak 1996/1995 growth of MCU, analog, optical semiconductor, and discrete is due to sluggish consumer equipment production. • Microcomponents show the strongest five-year compounded growth in Japan. The 21 percent compounded growth forecast for PC shipments in Japan provides comparable growth for the MPU category. • MCU, analog IC, and optical semiconductor growth in Japan will be reduced by the offshore production shift of consumer electronics, the biggest application for these devices in Japan. • MOS memory revenue will decline by 16 percent in dollars (negative 4 percent in yen). Even with strong PC growth, the bit growth will be insufficient to bring revenue into positive growth as ASPs drop by half. DRAM consumption in Japan has been pumped up by robust growth in SIMM production, which will be impacted by any possible slowdown in worldwide PC shipments. Prices are weakening for other memory products like SRAM, flash, and MROMs. • Optical semiconductors showed a 32 percent growth in 1995, a consid erable increase over the 21 percent seen in 1994. An explosive increase in the consumption of optically oriented computer peripherals such as CD-ROM players, scanners, and laser/LED printers has helped to fuel this growth over the past two years. This growth wiU be blunted in 1996 and beyond as this multimedia frenzy slows. It is not expected that new growth opportunities in DVD will be seen in the optical semiconductor category until the end of the forecast period (the year 2000).

Tables 5-1 through 5-4 provide details on the Japanese semiconductor market. Table 5-1 Japanese Semiconductor Market, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcoinponents 2,974 3,579 3,269 3,987 5,603 7,829 21.4 Memory Total 4,390 4,393 4,175 5,697 7344 12,337 23.0 Bipolar Memory 194 165 138 127 98 82 -15.8 MOS Memory 4,196 4,228 4,037 5,570 7,246 12,255 23.9 Logic/ASIC Total 4,931 5,351 4,849 5,712 7,111 8,772 12.2 Bipolar Logic 1,441 1,277 1,016 1,001 1,118 988 -7.3 MOS Logic 3,490 4,074 3,833 4,711 5,993 7,784 17.4 Analog ICs 2,723 3,094 2,903 3,278 4,048 4,744 11.7 Monolithic IC Total 15,018 16,417 15,196 18,674 24,106 33,682 17.5 Hybrid ICs 776 860 750 820 889 1,034 5.9 Total ICs 15,794 17,277 15,946 19,494 24,995 34,716 17.1 Discrete Devices 2,969 3,432 3,077 3,423 3,916 4,681 9.5 Optical Semiconductors 1,494 1,787 1,556 1,728 2,097 2,767 13.1 Total Semiconductor 20,257 22,496 20,579 24,645 31,008 42,164 15.8 Source: Dataquest (May 1996) Table 5-2 Japanese Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 7,829 8,558 10,130 12,001 14,286 16,934 16.7 Memory Total 12,337 10,409 11,853 13,481 17,163 22,162 12.4 Bipolar Memory 82 63 60 55 49 45 -11.3 MOS Memory 12,255 10,346 11,793 13,426 17,114 22,117 12.5 Logic/ASIC Total 8,772 8,934 9,663 10,919 12,501 14,180 10.1 Bipolar Logic 988 824 637 546 486 437 -15.1 MOS Logic 7,784 8,110 9,026 10,373 12,015 13,743 12.0 Analog ICs 4,744 4,801 4,846 5,331 5,922 6,612 6.9 Monolithic IC Total 33,682 32,702 36,492 41,732 49,872 59,888 12.2 Hybrid ICs 1,034 1,045 1,075 1,075 1,075 1,075 0.8 Total ICs 34,716 33,747 37,567 42,807 50,947 60,963 11.9 Discrete Devices 4,681 4,708 4,845 5,232 5,813 6,641 7.2 Optical Semiconductors 2,767 2,789 2,874 3,105 3,452 4,089 8.1 Total Semiconductor 42,164 41,244 45,286 51,144 60,212 71,693 11.2 Source: Dataquest (May 1996)

Table 5-3 Japanese Semiconductor Market, Historic Revenue Growth, 1990-1995 (Percentage Revenue Growth over Preceding Year) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 11.7 20.3 -8.7 22.0 40.5 39.7 21.4 Memory Total -246 0.1 -5.0 36.5 28.9 68.0 23.0 Bipolar Memory 1.6 -14.9 -16.4 -8.0 -22.8 -16.3 -15.8 MOS Memory -25.5 0.8 -4.5 38.0 30.1 69.1 23.9 Logic/ASIC Total 1.7 8.5 -9.4 17.8 24.5 23.4 12.2 Bipolar Logic -1.1 -11.4 -20.4 -1.5 11.7 -11.6 -7.3 MOS Logic 4.3 16.7 -5.9 22.9 27.2 29.9 17.4 Artalog ICs -0.4 13.6 -6.2 12.9 23.5 17.2 11.7 Monolithic IC Total -6.2 9.3 -7.4 22.9 29.1 39.7 17.5 Hybrid ICs -7.7 10.8 -12.8 9.3 8.4 16.3 5.9 Total ICs -6.3 9.4 -7.7 22.3 28.2 38.9 17.1 Discrete Devices -3.6 15.6 -10.3 11.2 14.4 19.5 9.5 Optical Semiconductors -3.7 19.6 -12.9 11.1 21.4 32.0 13.1 Total Semiconductor -5.7 11.1 -8.5 19.8 25.8 36.0 15.8 Source: Dataquest (May 1996) Table 5-4 Japanese Semiconductor Market, Forecast Five-Year Revenue Growth (Percentage Revenue Growth over Preceding Year) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 39.7 9.3 18.4 18.5 19.0 18.5 16.7 Memory Total 68.0 -15.6 13.9 13.7 27.3 29.1 12.4 Bipolar Memory -16.3 -23.2 -4.8 -8.3 -10.9 -8.2 -11.3 MOS Memory 69.1 -15.6 14.0 13.8 27.5 29.2 12.5 Logic/ASIC Total 23.4 1.8 8.2 13.0 14.5 13.4 10.1 Bipolar Logic -11.6 -16.6 -22.7 -14.3 -11.0 -10.1 -15.1 MOS Logic 29.9 4.2 11.3 14.9 15.8 14.4 12.0 Analog ICs 17.2 1.2 0.9 10.0 11.1 11.7 6.9 Monolithic IC Total 39.7 -2.9 11.6 14.4 19.5 20.1 12.2 Hybrid ICs 16.3 1.1 2.9 0 0 0 0.8 Total ICs 38.9 -2.8 11.3 13.9 19.0 19.7 11.9 Discrete Devices 19.5 0.6 2.9 8.0 11.1 14.2 7.2 Optical Semiconductors 32.0 0.8 3.0 8.0 11.2 18.5 8.1 Total Semiconductor 36.0 -2.2 9.8 12.9 17.7 19.1 11.2 Source: Dataquest (May 1996)

Figure 5-1 illustrates the effect of the Japanese market forecast on the rela tive consumption by product. The figure highlights three main trends. First, microcomponents are expected to track PC growth in Japan. Second, memory IC price erosion will hold memory growth down over the fore cast period. Third, the non-DRAM, non-MPU devices will decline in mar ket share as these devices increasingly move toward offehore equipment production. With a memory and microcomponent market share that is 20 percent less than that of the Americas, the Japanese market has had less dependence on the PC. Personal computers will make strong gains in the Japanese market in the coming years.

Figure 5-1 Product Comparison, Japanese Market, 1995 and 2000

1995 2000 Optical Semiconductors (6.6%) Optical Semiconductors (6.7%) Hybrid IC (2.5%) Hybrid IC (1.5%)

Total s $42.2 Billion Total = $71.7 Billion gezaOB

Source: Dataquest (May 1996)

SCMS-WW-I\/IT-9601 ©1996 Dataquest May 13,1996 Chapter 6 Europe Forecast by Product Family, The five-year semiconductor forecast for the European market, shown on the following pages, is based on these assumptions: • With two consecutive years of growth exceeding 35 percent, the Euro pean market has shown considerably more strength than we had expected. This growth, based on the PC and personal communications booms, is expected to moderate in 1996. • The European PC market, which grew by 25 percent in 1995, is still expected to do more than 20 percent in 1996. Declining prices for DRAM will limit the semiconductor ride on this boom, however. • DRAM revenue will be flat in 1996. Double-digit growth will return in 1997, although at a compounded rate below 20 percent. The more stable prices seen in 1997 will result in DRAM revenue growth consistent with PC unit growth (17 percent). • MCU growth continued strongly into 1995, with revenue growth exceeding 40 percent. ASP erosion and a slowing of demand will limit revenue growth in 1996, and beyond, to less than 20 percent. • Shortages in discrete products enhanced the market in 1994 and 1995 as ASPs were kept high. In 1995, a 45 percent annual growth more than doubled the 19 percent seen in 1994. Discrete growth will drop into lower growth in 1996 (10 percent) and beyond (11 percent CAGR, 1995 through 2000). Tables 6-1 through 6-4 provide details on the European semiconductor n\arket. Figure 6-1 illustrates the consumption by product changes for the Euro pean market over the forecast period. Unlike past years of memory and microcomponent market incursion, the product mix remains fairly consis tent over the forecast period. By the year 2000, microcomponents and memory ICs are expected to account for 62 percent of semiconductor ship ment revenue, up slightly from the 60 percent of 1995. The growth in microcomponents derives from all segments of the microcomponent cate gory, the MPUs and microperipherals (MPRs) in computers and the micro controller (MCU) and digital signal processor (DSP) ICs used in communications and consumer products.

Table 6-1 European Semiconductor Market, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 1,802 2,082 2,723 4,037 5,408 7,009 31.2 Memory Total 2,105 2,172 2,698 4,067 6,602 9,990 36.5 Bipolar Memory 55 43 38 27 28 19 -19.2 MOS Memory 2,050 2,129 2,660 4,040 6,574 9,971 37.2 Logic/ASIC Total 1,882 2,085 2,137 2,299 2,659 3,243 11.5 Bipolar Logic 510 443 388 363 329 291 -10.6 MOS Logic 1,372 1,642 1,749 1,936 2,330 2,952 16.6 Analog ICs 2,169 2,184 2,249 2,736 3,370 4,127 13.7 Monolithic IC Total 7,958 8,523 9,807 13,139 18,039 24,369 25.1 Hybrid ICs 157 178 151 179 178 239 8.8 Total ICs 8,115 8,701 9,958 13,318 18,217 24,608 24.8 Discrete Devices 1,895 1,828 1,826 1,769 2,108 3,053 10.0 Optical Semiconductors 405 485 434 374 575 680 10.9 Total Semiconductor 10,415 11,014 12,218 15,461 20,900 28,341 22.2 Source: Dataquest (May 1996) Table 6-2 European Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 7,009 8,503 9,775 11,365 13,454 15,437 17.1 Memory Total 9,990 10,321 11,962 13,917 16,728 19,919 14.8 Bipolar Memory 19 13 13 10 9 8 -15.9 MOS Memory 9,971 10,308 11,949 13,907 16,719 19,911 14.8 Logic/ASIC Total 3,243 3,621 3,974 4,540 5,250 6,175 13.7 Bipolar Logic 291 251 203 174 151 134 -14.4 MOS Logic 2,952 3,370 3,771 4,366 5,099 6,041 15.4 Analog ICs 4,127 4,630 5,306 6,049 7,149 8,580 15.8 Monolithic IC Total 24,369 27,075 31,017 35,871 42,581 50,111 15.5 Hybrid ICs 239 249 245 248 258 263 1.9 Total ICs 24,608 27,324 31,262 36,119 42,839 50,374 15.4 Discrete Devices 3,053 3,367 3,603 3,985 4,491 5,178 11.1 Optical Semiconductors 680 788 869 975 1,103 1,276 13.4 Total Semiconductor 28,341 31,479 35,734 41,079 48,433 56,828 14.9 Source: Dataquest (May 1996)

Table 6-3 European Semiconductor Market, Historic Revenue Growth, 1990-1995 (Percentage Revenue Growth over Preceding Year) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 25.0 15.5 30.8 48.3 34.0 29.6 31.2 Memory Total -15.4 3.2 24.2 50.7 62.3 51.3 36.5 Bipolar Memory -22.5 -21.8 -11.6 -28.9 3.7 -32.1 -19.2 MOS Memory -15.2 3.9 24.9 51.9 62.7 51.7 37.2 Logic/ASIC Total -3.4 10.8 2.5 7.6 15.7 22.0 11.5 Bipolar Logic -8.3 -13.1 -12.4 -6.4 -9.4 -11.6 -10.6 MOS Logic -1.4 19.7 6.5 10.7 20.4 26.7 16.6 Artalog ICs 39.4 0.7 3.0 21.7 23.2 22.5 13.7 Mor\olithic IC Total 7.0 7.1 15.1 34.0 37.3 35.1 25.1 Hybrid ICs 15.4 13.4 -15.2 18.5 -0.6 34.3 8.8 Total ICs 7.2 7.2 14.4 33.7 36.8 35.1 24.8 Discrete Devices 20.4 -3.5 -0.1 -3.1 19.2 44.8 10.0 Optical Semiconductors 14.4 19.8 -10.5 -13.8 53.7 18.3 10.9 Total Semiconductor 9.7 5.8 10.9 26.5 35.2 35.6 22.2 Source: Dataquest (May 1996)

Table 6-4 European Semiconductor Market, Forecast Five-Year Revenue Growth (Percentage Revenue Growth over Preceding Year) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 29.6 21.3 15.0 16.3 18.4 14.7 17.1 Memory Total 51.3 3.3 15.9 16.3 20.2 19.1 14.8 Bipolar Memory -32.1 -31.6 0 -23.1 -10.0 -11.1 -15.9 MOS Memory 51.7 3.4 15.9 16.4 20.2 19.1 14.8 Logic/ASIC Total 22.0 11.7 9.7 14.2 15.6 17.6 13.7 Bipolar Logic -11.6 -13.7 -19.1 -14.3 -13.2 -11.3 -14.4 MOS Logic 26.7 14.2 11.9 15.8 16.8 18.5 15.4 Analog ICs 22.5 12.2 14.6 14.0 18.2 20.0 15.8 Monolithic IC Total 35.1 11.1 14.6 15.6 18.7 17.7 15.5 Hybrid ICs 34.3 4.2 -1.6 1.2 4.0 1.9 1.9 Total ICs 35.1 11.0 14.4 15.5 18.6 17.6 15.4 Discrete Devices 44.8 10.3 7.0 10.6 12.7 15.3 11.1 Optical Semiconductors 18.3 15.9 10.3 12.2 13.1 15.7 13.4 Total Semiconductor 35.6 11.1 13.5 15.0 17.9 17.3 14.9 Source: Dataquest (May 1996)

Figiu-e 6-1 Product Comparison, Eiuopean Market, 1995 and 2000

1995 2000 Optical Semiconductors (2.4%) Optical Semiconductors (2.2%) Hybrid iC (0.8%) Hybrid IC (0.5%)

Total = $28.3 Billion Total = $56.8 Billion es29oa

Source: Dataquest (May 1996) i

SCMS-WW-MT-9601 ©1996 Dataquest I\/Iay13,1996 Chapter 7 Asia/Pacific Forecast by Product Famil^L The five-year forecast for the Asia/Pacific region shown on the following pages is based on the following assumptions:

• The PC business was slower than expected in 1995 and will slow again in 1996. DRAM, SRAM, and MPU growth have been reduced in 1996. The combined MOS memory growth will decline to 10 percent after 74 percent in 1995. Microcomponent growth will drop from 30 percent in 1995 to 21 percent in 1996. • Decreasing ASPs, down 40 percent over those of 1995, will offset much of the bit growth in Asia/Pacific, reducing DRAM revenue growth below 10 percent in 1996. • SRAM ASPs are declining, but not falling. SRAM revenue growth will drop to less than half of tifie 60 percent growth seen in 1995. • Asia/Pacific's microprocessor market is almost totally dominated by x86 architectures. With ever-shortening PC life cycles, most PC products are shipped without the MPU on-board—92 percent of motherboards, 83 percent of desktop PCs, and 80 percent of notebook computers from Taiwan are shipped this way. This frend will continue over the forecast period. • China and the southern Asia/Pacific regions have shown sfrong growth in telecom and consumer equipment. High-end telecommunications equipment is being built in China, and the shipment of pagers and cel lular phones continues to expand. • A sfrengthening yen continues to drive elecfronic equipment produc tion out of Japan and into the Asia/Pacific region. This production shift enhances the Asia/Pacific growth that comes with the growth of its own consuming markets. As a semiconductor consuming region, Asia/ Pacific will pass Japan in 1998. Tables 7-1 through 7-4 provide details on the Asia/Pacific semiconductor market.

Figure 7-1 shows the impact of the five-year product forecast on the rela tive shares of the total Asia/Pacific market. "Die combined memory-microcomponent IC share increased from 56 percent of the market in 1994 to 61 percent in 1995. Like the three other geographical regions, Asia/Pacific will see littie gain in the memory-microcomponent market (to 64 percent in 2000) as prices correct and the PC market slows. Arialog and logic ICs, less affected by price erosion, will maintain market position.

Table 7-1 Asia/Pacific Semiconductor Market, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 1,427 2,197 3,085 4,303 5,558 7,254 38.4 Memory Total 1,579 1,991 2,916 4,918 7,223 12,564 51.4 Bipolar Memory 22 17 12 7 7 4 -28.9 MOS Memory 1,557 1,974 2,904 4,911 7,216 12,560 51.8 Logic/ASIC Total 1,268 1,466 1,645 2,396 2,728 3,418 21.9 Bipolar Logic 374 352 369 381 365 317 -3.3 MOS Logic 894 1,114 1,276 2,015 2,363 3,101 28.2 Analog ICs 1,549 1,842 2,339 3,195 4,025 4,741 25.1 Monolithic IC Total 5,823 7,496 9,985 14,812 19,534 27,977 36.9 Hybrid ICs 111 112 125 176 251 284 20.7 Total ICs 5,934 7,608 10,110 14,988 19,785 28,261 36.6 Discrete Devices 1,199 1,386 1,649 2,080 2,527 3,419 23.3 Optical Semiconductors 200 200 275 418 520 737 29.8 Total Semiconductor 7,333 9,194 12,034 17,486 22,832 32,417 34.6 Source: Dataquest (May 1996)

Table 7-2 Asia/Pacific Semiconductor Market, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 7,254 8,811 10,437 12,740 15,842 19,699 22.1 Memory Total 12,564 13,874 16,101 19,053 23,065 29,292 18.4 Bipolar Memory 4 3 2 1 1 1 -24.2 MOS Memory 12,560 13,871 16,099 19,052 23,064 29,291 18.5 Logic/ASIC Total 3,418 3,955 4,474 5,373 6,574 8,073 18.8 Bipolar Logic 317 262 228 191 160 135 -15.7 MOS Logic 3,101 3,693 4,246 5,182 6,414 7,938 20.7 Analog ICs 4,741 5,556 6,231 7,535 9,131 11,067 18.5 Monolithic IC Total 27,977 32,196 37,243 44,701 54,612 68,131 19.5 Hybrid ICs 284 308 337 337 337 337 3.5 Total ICs 28,261 32,504 37,580 45,038 54,949 68,468 19.4 Discrete Devices 3,419 4,000 4,419 5,074 5,845 6,732 14.5 Optical Semiconductors 737 907 1,005 1,146 1,327 1,536 15.8 Total Semiconductor 32,417 37,411 43,004 51,258 62,121 76,736 18.8 Source: Dataquest (May 1996)

Table 7-3 Asia/Pacific Semiconductor Market, Historic Revenue Growth, 1990-1995 (Percentage Revenue Growth over Preceding Year) CAGR (%) 199Q 1991 1992 1993 1994 1995 1990-1995 Microcomponents 57.2 54.0 40.4 39.5 29.2 30.5 38.4 Memory Total -L6 26.1 46.5 68.7 46.9 73.9 51.4 Bipolar Memory 22.2 -22.7 -29.4 -41.7 0 -42.9 -28.9 MOS Memory -1.9 26.8 47.1 69.1 46.9 74.1 51.8 Logic/ASIC Total 9.7 15.6 12.2 45.7 13.9 25.3 21.9 Bipolar Logic -3.1 -5.9 4.8 3.3 -4.2 -13.2 -3.3 MOS Logic 16.1 24.6 14.5 57.9 17.3 31.2 28.2 Analog ICs 21.5 18.9 27.0 36.6 26.0 17.8 25.1 Monolithic IC Total 17.8 28.7 33.2 48.3 31.9 43.2 36.9 Hybrid ICs -19.0 0.9 11.6 40.8 42.6 13.1 20.7 Total ICs 16.8 28.2 32.9 48.2 32.0 42.8 36.6 Discrete Devices 16.7 15.6 19.0 26.1 21.5 35.3 23.3 Optical Semiconductors 16.3 0 37.5 52.0 24.4 41.7 29.8 Total Semiconductor 16.8 25.4 30.9 45.3 30.6 42.0 34.6 Source: Dataquest (May 1996) Table 7-4 Asia/Pacific Semiconductor Market, Forecast Five-Year Revenue Growth (Percentage Revenue Growth over Preceding Year) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 30.5 21.5 18.5 22.1 24.3 24.3 22.1 Memory Total 73.9 10.4 16.1 18.3 21.1 27.0 18.4 Bipolar Memory -42.9 -25.0 -33.3 -50.0 0 0 -24.2 MOS Memory 74.1 10.4 16.1 18.3 21.1 27.0 18.5 Logic/ASIC Total 25.3 15.7 13.1 20.1 22.4 22.8 18.8 Bipolar Logic -13.2 -17.4 -13.0 -16.2 -16.2 -15.6 -15.7 MOS Logic 31.2 19.1 15.0 22.0 23.8 23.8 20.7 Analog ICs 17.8 17.2 12.1 20.9 21.2 21.2 18.5 Monolithic IC Total 43.2 15.1 15.7 20.0 22.2 24.8 19.5 Hybrid ICs 13.1 8.5 9.4 0 0 0 3.5 Total ICs 42.8 15.0 15.6 19.8 22.0 24.6 19.4 Discrete Devices 35.3 17.0 10.5 14.8 15.2 15.2 14.5 Optical Semiconductors 41.7 23.1 10.8 14.0 15.8 15.7 15.8 Total Semiconductor 42.0 15.4 15.0 19.2 21.2 23.5 18.8 Source: Dataquest (May 1996)

Figure 7-1 Product Comparison, Asia/Pacific Market, 1995 and 2000

1995 2000 optical Semiconductc)r s (2.3%) Optical Semiconductors (2.0%) Hybrid IC (0.9%)^,„^J-| Hybrid IC (0.4%1„—i-| ^..^

l.^/^ Discrete y)^Discrete i / ^8.8%) 1

Microcomponent \ Microcomponent \ (22.4%) \ (25.7%) \ /Analog/Mixed \ I / Analog/Mixed X / (14.4%) \ (14.6%)

\ Logic/ASIC y^ \Logic/ASIC / \ (10.5%)/ l \ (10.5%) / Memory M Memory M (38.8%) # (38.2%) M

Total: $32.4 Billion Total = $76.7 Billion esasio

Source: Dataquest (May 1996)

SCMS-WW-MT-9601 ©1996 Dataquest May 13,1996 Chapter 8 I Forecast by Product Chapter 2 provided a brief discussion of the semiconductor product fami lies. This chapter focuses on the individual products and summarizes the regional splits for each product category. Figure 8-1 graphs the worldwide forecast by category for the forecast period. A major change to the forecast is the flat memory growth seen in 1996—a departure from last year's forecast, where we expected decelerat ing growth, but growth nevertheless. After this three-year correction period, memory revenue will again outpace microcomponent revenue growth, widening the gap toward the end of the forecast period. Each of these major product categories is discussed in the following sec tions, and a regional forecast table is provided.

Microcomponent ICs After six consecutive years of growth exceeding 20 percent, microcompo nent growth is slowing. Growth will drop below 20 percent in 1996 and remain in the high teens for the duration of the forecast. The PC market is slowing somewhat and will post growth under 20 percent worldwide over the coming five years. Microprocessor ASPs wiU not rise as rapidly as in the recent past, and the slowing growth of PCs and multimedia peripher als will limit microperipheral growth. Communications and digital enter tainment will keep DSP growth above 20 percent compounded. Microcontrollers continue to find new homes in every conceivable elec I tronic product and will help hold the microcomponent CAGR near 18 per cent. Table 8-1 shows the microcomponent growth by region for the coming five years, with some product detail presented below. Figure 8-1 Worldwide Semiconductor Forecast by Product

Billions of Dollars

liiU- * 1 * * Optoelectronic * * 100- Discrete * * * Hybrid IC

* y 80- * Jfc Bipolar Digital ^^ 60- MOS Memory * ^^^"^ + MOS • * 40- * Microcomponent

C^^-""""^ " _ ___ . MOS Logic 20 •< "iUTZ— — —' Analog ^— • "i 1 • '1 —T- T— T 1 I 1993 1994 1995 1996 1997 1998 1999 2000 Source: Dataquest (May 1996)

Table 8-1 Microcomponent IC Market, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 12,421 14,073 16,182 18,779 21,950 25,575 15.5 Japan 7,829 8,558 10,130 12,001 14,286 16,934 16.7 Europe 7,009 8,503 9,775 11,365 13,454 15,437 17.1 Asia/Pacific 7,254 8,811 10,437 12,740 15,842 19,699 22.1 Microcomponent IC Total 34,513 39,945 46,524 54,885 65,532 77,645 17.6 Source: Dataquest (May 1996) Memory ICs By accounting for 28 percent of total semiconductor revenue, DRAM has had an enormous effect on total semiconductor growth. With an 82 percent DRAM revenue growth in 1995, the semiconductor market grew by 37 percent; excluding DRAM revenue growth, all other semiconductor products showed a combined growth of 25 percent. In 1996, Dataquest anticipates no DRAM growth, a problem that will limit total semiconduc tor growth to 8 percent even as non-DRAM devices will grow by 14 per cent on average. Memory IC demand will continue unabated in 1996. The only difference is that we are in oversupply and prices have declined precipitously. The year 1996 marks the end of the DRAM shortage and the return to the "normal" declining price-per-bit scenario. Bit growth is expected to be substantial but not sufficient to counter the large price-per-bit declines that have dropped price-per-megabyte below $14. A compounded revenue growth rate of 17 percent for DRAM over the 1995-through-2000 period, although a drop from the past five years, will allow DRAM to grow faster than the semiconductor market and account for more than 30 percent of the semi conductor revenue in the year 2000. The five-year compounded growth for memory ICs has dropped to 16.5 percent. Despite a drop in revenue in Japan in 1996, all four regions will show double-digit CAGRs over the forecast period. Table 8-2 shows the memory IC forecast by region.

Table 8-2 Memory IC Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 20,530 21,145 24,297 28,647 36,710 47,307 18.2 Japan 12,337 10,409 11,853 13,481 17,163 22,162 12.4 Europe 9,990 10,321 11,962 13,917 16,728 19,919 14.8 Asia/Pacific 12,564 13,874 16,101 19,053 23,065 29,292 18.4 Memory IC Total 55,421 55,749 64,213 75,098 93,666 118,680 16.5 Source: Dataquest (May 1996)

Logic ICs

> Logic ICs include a broad and dissimilar set of products. These products can be cut by standard or ASIC, bipolar or MOS. A traditional cut used in this forecast is that of process technology—bipolar logic and MOS logic, which more or less track an "old versus new" division. After a two-year respite from rapidly declining revenue in 1993 and 1995, bipolar logic returned to a 14 percent decline in 1995, a "normal" rate that we expect to continue into 1996 and beyond. MOS logic showed a 28 percent growth in revenue in 1995 after 27 percent in 1994. We expect growth to drop to eleven percent in 1996 and then settle into a long-term 16 percent growth rate driven by the still strong MOS pro grammable logic device (PLD), MOS gate array, and MOS cell-based prod ucts. MOS ASIC is the major driver of the MOS logic category. The total logic data combines both bipolar and MOS logic, giving an aggregate growth of 22 percent for 1995 and a five-year CAGR of 14 percent over the forecast period. Table 8-3 gives the combined logic forecast.

Analog ICs Consumer entertainment products, being largely audio and video, are intrinsically analog in nature and have typically consumed about 40 per cent of all analog ICs. The big declines seen in 1992 in the consumer mar ket, especially in Japan and Europe, severely impacted the growth of analog ICs, resulting in a growth of only 6 percent. Since 1992, analog ICs have shown a consistent 23 percent annual growth. In 1995, we saw a drop from this trend, with a 15 percent growth. > Analog ICs show a very equal distribution among the four regions, with the Americas having the smallest share at 23 percent and Japan the largest at 27 percent. This distribution is changing as consumer equipment manu facturing increasingly migrates to Asia/Pacific sites. The increasing pres ence of analog ICs in computer and communications applications is stabilizing growth in the Americas and Europe. Table 8-4 shows the analog IC growth rate by region over the forecast period.

Total Monolithic ICs The combination of microcomponent, memory, logic, and analog ICs gives the total monolithic IC market. The five-year forecast for this summary category is shown in Table 8-5. Table 8-3 Logic IC Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 7,528 8,400 9,581 11,074 12,887 15,320 15.3 Japan 8,772 8,934 9,663 10,919 12,501 14,180 10.1 Europe 3,243 3,621 3,974 4,540 5,250 6,175 13.7 Asia/Pacific 3,418 3,955 4,474 5,373 6,574 8,073 18.8 > Logic IC Total • 22,961 24,910 27,692 31,906 37,212 43,748 13.8 Source: Dataquest (May 1996)

Table 8-4 Analog IC Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars)

CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 3,995 4,575 5,315 6,232 7,329 8,652 16.7 Japan 4,744 4,801 4,846 5331 5,922 6,612 6.9 Europe 4,127 4,630 5,306 6,049 7,149 8,580 15.8 Asia/Pacific 4,741 5,556 6,231 7,535 9,131 11,067 18.5 Analog IC Total 17,607 19,562 21,698 25,147 29,531 34,911 14.7 Source: Dataquest (May 1996)

Table 8-5 Total Monolithic IC Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 44,474 48,193 55,375 64,732 78,876 96,854 16.8 Japan 33,682 32,702 36,492 41,732 49,872 59,888 12.2 Europe 24369 27,075 31,017 35,871 42381 50,111 15.5 Asia/Pacific 27,977 32,196 37,243 44,701 54,612 68,131 19.5 Monolithic IC Total 130,502 140,166 160,127 187,036 225,941 274,984 16.1 Source: Dataquest (May 1996) Discrete Devices Discrete devices showed a 30 percent revenue growth in 1995. Although the discrete device category has been losing market share because of the relentless integration of components, this category remains viable because power and RF devices are not readily integrated. Power transistors repre sent about one-third of discrete revenue and are expected to lead the dis crete growth with a 14 percent CAGR. Table 8-6 gives the discrete forecast by region. The growing use of power discrete devices in power control and communications applications in the Americas has brought the com pounded Americas growth rate back into double digits.

Table 8-6 Discrete Device Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 2,870 3,225 3,650 4,190 4,895 5,700 14.7 Japan 4,681 4,708 4,845 5,232 5,813 6,641 7.2 Europe 3,053 3,367 3,603 3,985 4,491 5,178 11.1 Asia/Pacific 3,419 4,000 4,419 5,074 5,845 6,732 14.5 Discrete Devices Total 14,023 15,300 16,517 18,481 21,044 24,251 11.6 Source: Dataquest (May 1996)

Optical Semiconductors P Even more than analog ICs or discrete devices, optical semiconductors find their primary market in corisumer entertainment products. With scan ners and copiers using charge-coupled devices (CCDs), CD-ROMs using laser diodes, and optical-fiber data links using semiconductor receivers and transmitters, the data processing market is showing an increasing impact on the optical semiconductor market. This impact was seen as a 24 percent revenue growth in 1995. Growth in 1996 is anticipated to be 8 percent as the computer peripherals and consumer markets slow. Laser diodes have continued to lead the growth in this category; 1996 shows a 36 percent revenue growth for this product type. The optical semiconduc tor forecast by region is given in Table 8-7.

Table 8-7 Optical Semiconductor Market by Region, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Americas 627 715 840 1,060 1,325 1,625 21.0 Japan 2,767 2,789 2,874 3,105 3,452 4,089 8.1 Europe 680 788 869 975 1,103 1,276 13.4 Asia/Pacific 737 907 1,005 1,146 1,327 1,536 15.8 Optical Semiconductors 4,811 5,199 5,588 6,286 7,207 .8,526 12.1 Total > Source: Dataquest (May 1996)

•

SCMS-WW-MT-9601 ©1996 Dataquest May 13,1996 Chapter 9 I Forecast by Technology Digital MOS and Bipolar IC Forecast The five-year IC forecast includes the process categories of MOS digital and bipolar digital ICs. This process split is still important for the logic IC category but is of decreasing importance for the memory IC category. For microcomponent ICs, the bipolar subsegment has become fairly irrelevant and is no longer reported or forecast separately.

The forecast data for digital ICs, by process, is plotted in Figure 9-1. The graph shows that the bipolar portion of the digital IC market is declining at a 12 percent CAGR over the forecast period. By the year 2000, bipolar digital ICs will have declined to less than 0.5 percent of the total digital IC market.

Tables 9-1 and 9-2 show the five-year history and forecast, respectively, for the bipolar and MOS portions of the three main digital IC categories. It can be seen that, as a memory IC process technology, bipolar has been in a rapid slide that is slowing as revenue becomes insignificant. Bipolar logic ICs accounted for 14 percent of logic IC revenue in 1994. By 2000, it is expected that bipolar logic will represent less than 3 percent of the logic IC revenue. Figure 9-1 I MOS versus Bipolar Forecast

Billions of Dollars

•— -

100-

-"•^"^ —-^^

10-

Bipolar

1- 1 1 1 t . 1 1 .,., 1 ..... — 1 1 \ 19 90 1991 1992 1993 1994 1995 1996 1997 1998 1999 20 )0 962912

Source: Dataquest (May 1996) I

Table 9-1 Semiconductor Market by Process Technology, Six-Year Revenue History, 1990-1995 (Revenue in Millions of Dollars) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Bipolar Total 4,173 3,628 3,193 3,079 2,912 2,497 -9.8 Bipolar Memory 431 356 318 244 199 160 -18.0 Bipolar Logic 3,742 3,272 2,875 2,835 2,713 2,337 -9.0 MOS Total 30,152 34,315 39,710 56,374 76,021 110,298 29.6 MOS Micro 9,584 11,774 14,359 19,947 26,408 34,513 29.2 MOS Memory 12,128 12,841 15,308 23,306 33,505 55,261 35.4 MOS Logic 8,440 9,700 10,043 13,121 16,108 20,624 19.6 Total Digital IC 34,325 37,943 42,903 59,453 78,933 112,895 26.9 Source: Dataquest (May 1996) Table 9-2 Semiconductor Market by Process Technology, Five-Year Revenue Forecast, 1995-2000 (Revenue in Millions of Dollars) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Bipolar Total 2,497 2,131 1,752 1,508 1,298 1,137 -14.6 Bipolar Memory 160 119 108 93 79 71 -15.0 Bipolar Logic 2,337 2,012 1,644 1,415 1,219 1,066 -14.5 MOS Total 110,298 118,473 136,677 160,381 195,112 238,936 16.7 MOS Micro 34,513 39,945 46,524 54,885 65,532 77,645 17.6 MOS Memory 55,261 55,630 64,105 75,005 93,587 118,609 16.5 MOS Logic 20,624 22,898 26,048 30,491 35,993 42,682 15.7 Total Digital IC 112,895 120,604 138,429 161,889 196,410 240,073 16.3 Source: Dataquest (May 1996)

SCMS-WW-MT-9601 ©1996 Dataquest May 13,1996 Appendix A ^ Japanese Revenue History and Forecast in Yen, Revenue growth in shipments to the Japan region differs according to whether tihe dollar or yen is used as tiie currency basis. As the dollar has tjrpically weakened against the yen, Japanese growth has often been inflated by this exchange rate change. Figure A-1 shows the annual growth in each of these two currencies over both the historical 1988- through-1995 period and the forecast 1996-through-2000 period. Because Dataquest does not forecast exchange rates, the forecast growth rates are the same.

The following tables show the yen-based revenue shipment data for the Japan region. Tables A-1 and A-2 provide the Japanese revenue history and forecast, respectively, in yen. The historical exchange rates are shown at the bottom of these tables. Tables A-3 and A-4 show the annual growth associated with the year-to-year revenue growth. The rate of dollar appre ciation against the yen for the period from 1990 through 1995 is shown at the bottom of Table A-3. Over tt\e past five years, the dollar has declined in value, inflating the revenue growtti of the Japanese market in dollars.

Figure A-1 Comparison of Revenue Shipment Growth in the Japan Region—Dollars versus Yen

Annual Growth (%) 50- ^ 0 Growth in Dollars -•- Growth in Yen

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 962913

Source: Dataquest (May 1996)

Table A-1 Japanese Semiconductor Market, Six-Year Yen Revenue History, 1990-1995 (Revenue in Billions of Yen) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 428 487 413 443 570 735 11.4 Memory Total 632 597 528 634 748 1,158 12.9 Bipolar Memory 28 22 17 14 10 8 -22.7 MOS Memory 604 575 510 619 738 1,151 13.8 Logic/ASIC Total 710 728 613 635 724 824 3.0 Bipolar Logic 208 174 128 111 114 93 -14.9 MOS Logic 503 554 485 524 610 731 7.8 Arialog ICs 392 421 367 365 412 445 2.6 Monolithic IC Total 2,163 2,233 1,922 2,077 2,454 3,163 7.9 Hybrid ICs 112 117 95 91 91 97 -2.8 Total ICs 2,274 2,350 2,016 2,168 2,545 3,260 7.5 Discrete Devices 428 467 389 381 399 440 0.6 Optical Semiconductors 215 243 197 192 213 260 3.8 Total Semiconductor 2,917 3,059 2,602 2,741 3,157 3,959 6.3 Yen/U.S.$ Exchange Rate 144.00 136.00 126.45 111.20 101.81 93.90 Source: Dataquest (May 1996) Table A-2 Japanese Semiconductor Market, Five-Year Yen Revenue Forecast, 1995-2000 (Revenue in Billions of Yen) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 735 916 1,084 1,285 1,529 1,813 19.8 Memory Total 1,158 1,114 1,269 1,443 1,837 2,372 15.4 Bipolar Memory 8 7 6 6 5 5 -9.0 MOS Memory 1,151 1,108 1,262 1,437 1,832 2,368 15.5 Logic/ASIC Total 824 956 1,034 1,169 1,338 1,518 13.0 Bipolar Logic 93 88 68 58 52 47 -12.8 MOS Logic 731 868 966 1,110 1,286 1,471 15.0 Analog ICs 445 514 519 571 634 708 9.7 Monolithic IC Total 3,163 3,501 3,906 4,467 5,339 6,411 15.2 Hybrid ICs 97 112 115 115 115 115 3.5 Total ICs 3,260 3,613 4,022 4,582 5,454 6,526 14.9 Discrete Devices 440 504 519 560 622 711 10.1 Optical Semiconductors 260 299 308 332 370 438 11.0 Total Semiconductor 3,959 4,415 4,848 5,475 6,446 7,675 14.2 Yen/U.S.$ Exchange Rate 93.90 107.05 107.05 107.05 107.05 107.05 Source: Dataquest (May 1996)

Table A-3 Japanese Semiconductor Market, Yen Revenue Growth, 1990-1995 (Percentage Revenue Growth in Yen) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 16.6 13.7 -15.1 7.3 28.7 28.9 11.4 Memory Total -21.3 -5.5 -11.6 20.0 18.0 54.9 12.9 Bipolar Memory 6.0 -19.7 -22.2 -19.1 -29.4 -22.8 -22.7 MOS Memory -22.2 -4.8 -11.2 21.3 19.1 56.0 13.8 Logic/ASIC Total 7.2 2.5 -15.7 3.6 14.0 13.8 3.0 Bipolar Logic 3.2 -16.3 -26.0 -13.4 2.3 -18.5 -14.9 MOS Logic 8.9 10.2 -12.5 8.1 16.5 19.8 7.8 Analogies 3.9 7.3 -12.8 -0.7 13.1 8.1 2.6 Monolithic IC Total -2.2 3.2 -13.9 8.1 18.2 28.9 7.9 Hybrid ICs -3.7 4.7 -18.9 -3.9 -0.7 7.3 -2.8 Total ICs -2.2 3.3 -14.2 7.5 17.4 28.1 7.5 Discrete Devices 0.6 9.2 -16.6 -2.2 4.7 10.2 0.6 Optical Semiconductors 0.5 13.0 -19.0 -2.3 11.1 21.7 3.8 Total Semiconductor -1.6 4.9 -14.9 5.3 15.2 25.4 6.3 U.S.$ Appreciation versus Yen 4.35 -5.56 -7.02 -12.06 -8.44 7.77 -8.20 Source: Dataquest (May 1996) Table A-4 Japanese Semiconductor Market, Forecast Five-Year Yen Revenue Growth, 1995-2000 (Percentage Revenue Growth in Yen) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 28.9 24.6 18.4 18.5 19.0 18.5 19.8 Memory Total 54.9 -3.8 13.9 13.7 27.3 29.1 15.4 Bipolar Memory -22.8 -12.4 -4.8 -8.3 -10.9 -8.2 -9.0 MOS Memory 56.0 -3.8 14.0 13.8 27.5 29.2 15.5 Logic/ASIC Total 13.8 16.1 8.2 13.0 14.5 13.4 13.0 Bipolar Logic -18.5 -4.9 -22.7 -14.3 -11.0 -10.1 -12.8 MOS Logic 19.8 18.8 11.3 14.9 15.8 14.4 15.0 Analog ICs 8.1 15.4 0.9 10.0 11.1 11.7 9.7 Monolithic IC Total 28.9 10.7 11.6 14.4 19.5 20.1 15.2 Hybrid ICs 7.3 15.2 2.9 0 0 0 3.5 Total ICs 28.1 10.8 11.3 13.9 19.0 19.7 14.9 Discrete Devices 10.2 14.7 2.9 8.0 11.1 14.2 10.1 Optical Semiconductors 21.7 14.9 3.0 8.0 11.2 18.5 11.0 Total Semiconductor 25.4 11.5 9.8 12.9 17.7 19.1 14.2 U.S.$ Appreciation versus Yen -7.77 14.00 0 0 0 0 2.66 Source: Dataquest (May 1996)

SCI\^S-WW-iVIT-9601 ©1996 Dataquest May 13,1996 Appendix B I European Revenue History and Forecast in ECU Revenue growth in shipments to the European region differs whether the dollar or ECU is used as the currency basis. The dollar has not had any consistent long-term change with the ECU; the exchange rate in 1995 was essentially the same as in 1990, although there were annual fluctuations. Figure B-1 shows the annual growth in each of these two currencies over both the historical 1988-through-1995 period and the forecast 1996- through-2000 period. Because Dataquest does not forecast exchange rates, the forecast growth rates are the same.

Tables B-1 and B-2 provide the European revenue history and forecast in ECU. The historical exchange rates are shown at the bottom of these tables. Tables B-3 and B-4 show the annual growth associated with the year-to-year revenue growth. The rate of dollar appreciation against the ECU for the period from 1990 through 1995 is shown at the bottom of Table B-3. Over the past seven years, the exchange rate has shown little fluctuation, on average.

Figure B-1 Comparison of Revenue Shipment Growth in European Region—Dollars versus ECU

Annual Growth (%) 50- I Growth in Dollars Growth in ECU

-10 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 962914

Source: Dataquest (May 1996)

Table B-1 European Semiconductor Market, Six-Year ECU Revenue History, 1990-1995 (Revenue in MUlions of ECU) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 1,420 1,689 2,097 3,464 4,543 5,425 30.7 Memory Total 1,659 1,761 2,077 3,489 5,546 7,732 36.1 Bipolar Memory 43 35 29 23 24 15 -19.4 MOS Memory 1,615 1,727 2,048 3,466 5,522 7,718 36.7 Logic/ASIC Total 1,483 1,691 1,645 1,973 2,234 2,510 11.1 Bipolar Logic 402 359 299 311 276 225 -10.9 MOS Logic 1,081 1,332 1,347 1,661 1,957 2,285 16.1 Analog ICs 1,709 1,771 1,732 2,347 2,831 3,194 13.3 Monolithic IC Total 6,271 6,912 7,551 11,273 15,153 18,862 24.6 Hybrid ICs 124 144 116 154 150 185 8.4 Total ICs 6395 7,057 7,668 11,427 15,302 19,047 24.4 Discrete Devices 1,493 1,483 1,406 1,518 1,771 2,363 9.6 Optical Semiconductors 319 393 334 321 483 526 10.5 Total Semiconductor 8,207 8,932 9,408 13,266 17,556 21,936 21.7 ECU/U.S.$ Exchange Rate 0.788 0.811 0.77 0.858 0.84 0.774 Source: Dataquest (May 1996) Table B-2 European Semiconductor Market, Five-Year ECU Revenue Forecast, 1995-2000 (Revenue in MilUons of ECU) CAGR(%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 5,425 6,887 7,918 9,206 10,898 12,504 18.2 Memory Total 7,732 8,360 9,689 11,273 13,550 16,134 15.8 Bipolar Memory 15 11 11 8 7 6 -15.1 MOS Memory 7,718 8,349 9,679 11,265 13,542 16,128 15.9 Logic/ASIC Total 2,510 2,933 3,219 3,677 4,253 5,002 14.8 Bipolar Logic 225 203 164 141 122 109 -13.6 MOS Logic 2,285 2,730 3,055 3,536 4,130 4,893 16.5 Analog ICs 3,194 3,750 4,298 4,900 5,791 6,950 16.8 Monolithic IC Total 18,862 21,931 25,124 29,056 34,491 40,590 16.6 Hybrid ICs 185 202 198 201 209 213 2.9 Total ICs 19,047 22,132 25,322 29,256 34,700 40,803 16.5 Discrete Devices 2363 2,727 2,918 3,228 3,638 4,194 12.2 Optical Semiconductors 526 638 704 790 893 1,034 14.5 Total Semiconductor 21,936 25,498 28,945 33,274 39,231 46,031 16.0 ECU/U.S.$ Exchange Rate 0.774 0.81 0.81 0.81 0.81 0.81 Source: Dataquest (May 1996)

Table B-3 European Semiconductor Market, Historic Revenue Growth, 1990-1995 (Revenue Growth in ECU) CAGR (%) 1990 1991 1992 1993 1994 1995 1990-1995 Microcomponents 8.5 18.9 24.2 65.2 31.2 19.4 30.7 Memory Total -26.6 6.2 17.9 68.0 58.9 39.4 36.1 Bipolar Memory -32.8 -19.5 -16.1 -20.8 1.5 -37.5 -19.4 MOS Memory -26.4 6.9 18.6 69.2 59.3 39.8 36.7 Logic/ASIC Total -16.2 14.0 -2.7 19.9 13.2 12.4 11.1 Bipolar Logic -20.4 -10.6 -16.8 4.2 -11.3 -18.5 -10.9 MOS Logic -14.5 23.2 1.1 23.3 17.8 16.7 16.1 Analog ICs 21.0 3.6 -2.2 35.6 20.6 12.8 13.3 Monolithic IC Total -7.1 10.2 9.2 49.3 34.4 24.5 24.6 Hybrid ICs 0.2 16.7 -19.5 32.1 -2.6 23.7 8.4 Total ICs -7.0 10.4 8.7 49.0 33.9 24.5 24.4 Discrete Devices 4.5 -0.7 -5.2 8.0 16.7 33.4 - 9.6 Optical Semiconductors -0.7 23.2 -15.0 -4.0 50.5 9.0 10.5 Total Semiconductor -4.8 8.8 5.3 41.0 32.3 24.9 21.7 U.S.$ Appreciation versus ECU -13.22 2.92 -5.06 11.43 -2.10 -7.86 -0.36 Source: Dataquest (May 1996) Table B-4 European Semiconductor Market, Forecast Five-Year ECU Revenue Growth, 1995-2000 (Percentage Revenue Growth in ECU) CAGR (%) 1995 1996 1997 1998 1999 2000 1995-2000 Microcomponents 19.4 27.0 15.0 16.3 18.4 14.7 18.2 Memory Total 39.4 8.1 15.9 16.3 20.2 19.1 15.8 Bipolar Memory -37.5 -28.4 0 -23.1 -10.0 -11.1 -15.1 MOS Memory 39.8 8.2 15.9 16.4 20.2 19.1 15.9 Logic/ASIC Total 12.4 16.8 9.7 14.2 15.6 17.6 14.8 Bipolar Logic -18.5 -9.7 -19.1 -14.3 -13.2 -11.3 -13.6 MOS Logic 16.7 19.5 11.9 15.8 16.8 18.5 16.5 Analog ICs 12.8 17.4 14.6 14.0 18.2 20.0 16.8 Monolithic IC Total 24.5 16.3 14.6 15.6 18.7 17.7 16.6 Hybrid ICs 23.7 9.0 -1.6 1.2 4.0 1.9 2.9 Total ICs 24.5 16.2 14.4 15.5 18.6 17.6 16.5 Discrete Devices 33.4 15.4 7.0 10.6 12.7 15.3 12.2 Optical Semiconductors 9.0 21.3 10.3 12.2 13.1 15.7 14.5 Total Semiconductor 24.9 16.2 13.5 15.0 17.9 17.3 16.0 U.S.$ Appreciation versus ECU -7.86 4.65 0 0 0 0 0.91 Source: Dataquest (May 1996)

SCIVIS-WW-MT-9601 ©1996 Dataquest May 13,1996 Appendix C I Definitions, Analog ICs Analog ICs are a group of semiconductors that deal with electrical signals and electrical power. Analog components carry information as voltage, current, frequency, phase, duty cycle, or other electronic parameters. Because they are not based on number values, analog information is not limited to a finite range of values and has no inherent quantization noise or quantization error. The downside is that analog signal information exists in the time domain and can be corrupted as the information-carry ing parameter is influenced by noise, drift, bandwidth, and component instability—all the vagaries of time.

Bipolar These are semiconductor devices that use bipolar transistors rather than MOS transistors. Bipolar transistors are found in both ICs and discrete products. Bipolar transistors are so named because they carry electricity with two different types of "carriers"—holes and electrons.

Digital ICs Digital ICs handle numbers in the binary format of ones and zeros. Digital ICs comprise logic, microcomponent, and memory ICs. The number-han dling nature of digital electronics makes the data more immune to physi I cal changes in the electronic components.

Discrete Devices A discrete semiconductor is defined as a single semiconductor component such as a transistor, diode, or thyristor. Although multiple devices may be present in a package, they are still considered discretes if they have no internal functional intercormection and are applied in the same manner as other discrete devices. Some discrete devices may actually be similar to ICs in having integrated protection and sensing circuitry. Even if a device is an integrated circuit, it will be considered a discrete if it is used like one.

Hybrid IC A hybrid is an IC that mixes semiconductor technology with other elec tronic technologies in a single package. It is this mixing of technologies within the IC package that gives these products the "hybrid" IC name. Other technologies include thin and thick film resistors and chip capaci tors. A multiple-chip IC is not a true hybrid IC and is counted in the monolithic IC category. The mixing of technologies is most often done for analog hybrid ICs. Because of this, hybrid ICs are often added to mono lithic analog IC revenue to provide the total analog IC market.

IC An integrated circuit is a chip in which multiple transistors and diodes are intercormected to perform an electronic function. The function-specific r\ature of an IC differentiates it from the nonspecific array of discrete transistors.

Logic This is an electronic function where bits (one and zeros) are processed. This bit processing is defined by hardwiring, mask programming, or field programming. Microcomponents and memory ICs are logic ICs, but they are logic ICs that are either dedicated to a function (such as microperipherals and memory ICs) or are software programmable (such as microproces sors and microcontrollers). Logic ICs also include customer-specific logic ICs.

Microcomponent A microcomponent is a digital IC that can be programmable such as a microprocessor (MPU), microcontroller (MCU), digital signal processor (DSP), or an application-specific logic device that provides a supporting function to an MPU, MCU, or DSR

Monolithic IC A monolithic IC is an IC formed on a single chip of semiconducting mate rial. This designation has been applied more broadly to mean any device, even a multiple-chip packaged device, that does not contain other, nonsemiconductor, components. This differentiates monolithic ICs from hybrid ICs that may also be multiple-chip, but represent a "hybrid" in the sense of mixing other technologies within the IC package, such as film resistors or chip capacitors.

MOS MOS is an acronym for metal oxide semiconductor, a t5^e of transistor used in ICs and discrete devices. Although the actual device may use dif ferent materials than metal or oxide, this acronym is used to define the whole family of similar processes that provide an insulated gate field- effect transistor (FET). MOSFETs, like all field-effect transistors, differ from bipolar devices in having an insulated gate and only a single carrier of electrical current (either electrons or holes). MOSFETs are found in both N and P channel varieties. A special IC process combines both the N and P charmel device in a complementary configuration, an arrangement known as CMOS.

Memory IC Memory ICs are ICs that can store and retrieve logic bits. Two major memory types are read-only memories (ROM), preloaded with data, or random-access memories (RAM), where data can be both stored and accessed. RAM subcategories include DRAM and SRAM. Memory ICs that do not lose their data when power is removed are called nonvolatile

memories. DRAM and SRAM do not retain data when power is removed from the device. ROM, EPROM, EEPROM, and flash memory ICs are non I volatile memory devices. Optical Semiconductors These devices are the semiconductor subset of optoelectronic products. This family includes light-sensing products such as photosensors and CCDs as well as light-emitting devices such as LEDs and lasers. Optocouplers and interrupters use both functions. Semiconductors These electronic components are manufactured by introducing impurities into a semiconductor material to create special current conducting devices such as diodes, bipolar transistors, and MOS transistors. Semiconducting material is so named because its conducting capability falls between the range of insulators and metallic conductors.

SCMS-WW-I\/IT-9601 ©1996 Dataquest May 13,1996 Appendix D > Historical Exchange Rates Table D-1 shows 10 years of exchange rates of the yen and ECU versus the U.S. dollar. The appreciation of the dollar against these local currencies is given in the last two columns. Table D-1 Exchange Rates U.S.$ Growth U.S.$ Growth Year Yen per U.S.$ ECUperU.S.$ versus Yen (%) versus ECU (%) 1980 227 - 3.6 - 1981 221 - -2.7 .- 1982 248 -. 12.2 - 1983 235 - -5.2 - 1984 237 - 0.9 - 1985 238 - 0.4 - 1986 167 - -29.8 - 1987 144 - -13.8 - 1988 130 0.846 -9.7 -2.5 1989 138 0.908 6.2 7.3 1990 144 0.788 4.3 -13.2 1991 136 0.811 -5.6 2.9 > 1992 126.5 0.770 -7.0 -5.0 1993 111.2 0.858 -12.1 11.4 1994 101.8 0.840 -8.4 -2.1 1995 93.90 0.774 -7.8 -7.9 Source: Dataquest (May 1996)

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For More Information... Gary Grandbois, Vice President/Chief Analyst (408) 468-8251 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and analysis of infbrination generally available to the puUic or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does iK>t contain material provided to us in confidence by our dients. Re[>roduction or disdosure in whole or in i part to other parlies shall be made upon the written and express consent of Dataquest. Dataquest ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dataquest is a registered trademark of A.C. Nielsen Company DATAQUEST WORLDWIDE OFFICES

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I>ataQuest i

DataQuest

Semiconductor Contract Manufacturing

Focus Report

Program: Semiconductor Contract Manufacturing Worldwide \ Product Code: SCMS-WW-FR-9601 Publication Date: April 1,1996 Filing: Reports Semiconductor Contract [Manufacturing

Focus Report

Program: Semiconductor Contract i\/lanufacturing Worldwide Product Code: SCMS-WW-FR-9601 Publication Date: April 1,1996 Filing: Reports Semiconductor Contract Manufacturing

Table of Contents Page 1. Structure of the Semiconductor Contract Manufacturing Industry 1 Definition of Semiconductor Contract Manufacturing 1 Characteristics of Foundry, OEM ASIC, and End-Customer ASIC Businesses 1 Differences between OEM ASIC and End-Customer ASIC 3 SCM Service Market Share: Manufacturing Power Database 5 Comparing Semiconductor Market Power versus Manufacturing Power 5 2. Semiconductor Contract Manufacturing in Previous Years 9 Summary of 1993 and 1994 9 A Comparison of the Japanese and North American Demand Markets 9 Fundamental Differences in the Approach to SCM in Japan 10 Implications of the Internal Japanese Market on Pricing 11 3. SCM Capacity Supply/Demand Analysis 13 SCM Capacity Supply/Demand Research Methodology 13 Comparing Supply and Demand 14 SCM Market Forecast 16 SCM Technology Analysis and Key Findings 20 4. SCM Supply/Demand Update, February 1996 27 Recent Capacity Events and Their Impact 27 SCM Market Forecast Update, February 1996 29 SCM Contribution to the Semiconductor Market 32 5. Economics of Semiconductor Contract Manufacturing 33 Fab Cost Drives SCM Growth 33 Method of Financing Fab Capacity: Fab Affordability 34 Greenfield Fabs 34 Shared Investments 35 Contractual Capacity 36 Arm's-Length Foundry Capacity: Wafer Purchases 36 Are Fabless Companies in Joint Ventures Still Fabless? 37 Comparison in Capacity-Financing Methods 37 SCM User Strategies 38 Fabless SCM User Strategies 38 IDM Company Strategies for Using SCM Services 39 6. Foundry Wafer Pricing 41 Summary of September 1995 Survey 41 February 1996 Update 42 Overview by Technology and Region of Supply 42 Pricing of Process Options 43 Volume Pricing Discounts and Premiums 44 Foundry Wafer Revenue Productivity—Another Measure of Pricing 44

Table of Contents (Continued) Page 7. Future Trends in SCM 47 How Will SCM Change over Tmie? 47 Expansion of the Traditional Foundry Model 47 Manufacturing Integration 48 Design Integration 48 SCM Technology Will Continue to Lag Leading-Edge IC Manufacturers 49 Dedicated Foundry Positioned to Dominate SCM Market 50 New Entrants in SCM 51 Value-Added Manufacturing Services Are the Key to Success 52 Appendix A—Glossary 53 Appendix B—Worldwide Semiconductor Contract Manufacturers 55 Appendix C—Fabless Companies in 1995 57

List of Figures .^^^^^^.^^_^^^^^^^^^_ Figure Page 1-1 Characteristics of the Foundry, OEM ASIC, and End-Customer ASIC Business Models 2 1-2 Semiconductor Companies' Manufacturing Power and Market Power 6 2-1 Regional SCM Supply Pricing by Technology and Market/Cost Drivers 12 3-1 Worldwide "Realistic" SCM Supply and Demand Imbalance Projection 19 4-1 "Realistic" Worldwide SCM Capacity Imbalance Projection, February 1996 31 4-2 SCM Market Forecast and Contribution to the Semiconductor Market 32 5-1 The Rising Cost of New Fabs 33 5-2 Annual Revenue as a $1 Billion Fab-Affordability Index, 1995 and 2000 34 5-3 Revenue versus Fab Cost Map: Companies Primed for Increased Use of SCM Services 40 7-1 Contract Manufacturing Services Strategies 47 7-2 Leading-Edge Line Widths of SCM and the Semiconductor Industry 50

List of Tables _^..^...^^..^^^..^^.^^..^^. Table Page 1-1 ASIC Supplier-Customer Relationship 4 1-2 Description of Transactions in Market Power Databases 7 1-3 Description of Transactions in Manufacturing Power Databases 8 2-1 SCM Market Demand by Region and by Type of Provider and Customer, 1993 and 1994 10 3-1 SCM Supply and Demand, Regional Summary, 1993-2000 14 3-2 SCM Supply and Demand Sources, 1993-2000 16 3-3 SCM Market Forecast by Region, 1993-2000 17 3-4 SCM Market Forecast by Region, 1993-2000 17 3-5 Dataquest Interpretation of the SCM Supply and Demand Analysis by Year, 1995-2000 18 3-6 SCM Supply-Side Capacity by Technology, Worldwide 21 3-7 SCM Supply-Side Capacity by Technology, North America 22 3-8 SCM Supply-Side Capacity by Technology, Japan 23 3-9 SCM Supply-Side Capacity by Technology, Asia/Pacific-ROW 24 3-10 SCM Supply-Side Capacity by Technology, Europe 25 4-1 SCM Supply and Demand, Regional Summary 1993-2000 28 4-2 SCM Supply and Demand Sources, 1993-2000 28 4-3 Dataquest Interpretation of the SCM Supply and Demand Analysis by Year, 1995-2000 29 4-4 SCM Market Forecast by Regions, 1993-2000, February 1996 Update (Millions of Square Inches of Silicon) 31 4-5 SCM Market Forecast by Regions, 1993-2000, February 1996 Update (Millions of U.S. Dollars) 31 5-1 Trade-Offs in Methods of Financing Fab Capacity 38 5-2 Rising Cost of New Fabs Means Fewer Companies Can Afford to Go Solo 38 6-1 1995 Foundry Wafer Prices, CMOS Unprobed Wafers, 13 to 15 Mask Levels 41 6-2 Estimated 1996 Foundry Wafer Process Option Pricing 43 6-3 150mm Foundry Wafer Revenue Productivity 45 6-4 Semiconductor Industry End-Chip Merchant Revenue 45

Definition of Semiconductor Contract IVIanufacturing When Dataquest embarked on the study of the semiconductor foundry industry several years ago, a key issue that quickly emerged was the con siderable variation that existed in the defirution and descriptions of the term "semiconductor foundry." Ideas of what constitutes foundry vary frorri company to company and from region to region. In order for a defi nition of a market segmentation to be meaningful in the characterization of the market's changing dynamics, it should describe how companies compete, be it through manufacturing, design, or marketing. A new framework has been developed to address how companies are competing in the growing market that we define as semiconductor contract manufac turing (SCM) services.

Dataquest realizes that semiconductor contract manufacturing is not new as a concept. In fact, packaging, assembly, and test (also referred to as back-end manufacturing) have been contracted to dedicated compaiues for many years. Our broad definition of SCM does include these back-end functions. This report, however, will focus on front-end manufacturing, primarily. Throughout this report, the term "SCM" will refer to the front end of semi conductor manufacturing.

Characteristics of Foundry, OENI ASIC, and End-Customer ASIC Businesses Figure 1-1 identifies the key characteristics of the foundry, OEM ASIC, and end-customer ASIC business models. Dataquest has chosen to define a business operation as foundry, OEM ASIC, or end-customer ASIC by its capabilities, the way in which it interfaces with its customers, and whether the products it manufactures are resold.

SCM is defined as including foundry and OEM ASIC businesses. The ASIC business comprises two segments: OEM ASIC and end-customer ASIC. By classifying companies' offerings in these categories, Dataquest expects to be able to track the evolution of the contract manufacturing and ASIC industries and classify companies in terms of their business strategy. It should be pointed out that the "product resold" criterion can be some what fuzzy. For example, a system OEM that works with a manufacturer at the GDS-II level interacts with its supplier essentially in a foundry rela tionship, even though the system OEM is not reselling the product. (GDS- II is an electronic format that transmits exact specifications for mask con struction and represents a complete design of the chip, including silicon layout.)

Figure 1-1 Characteristics of the Foundry, OEM ASIC, and End-Customer ASIC Business Models

Wafer Fab Has a fab Has a fab May (or may not) have a wafer fab

Customer Interface Mask or pattern Netllst or higher level Netllst or higher level generator tape (GDS-II, GIF or equivalent) EDA Tools No Yes Yes

Design Libraries No Yes Yes

Product Resold? Yes, supplier Yes, supplier No, supplier sells manufactures manufactures product directly to product for company product for company end customer who will resell it to end who will resell it to end customer or distributor customer or distributor

Product Branding Generally supplied Generally supplied Generally supplied with customer's logo with customer's logo with supplier's logo

Source: Dataquest (February 1996)

The fabrication of another company's product is, by definition, the central premise of semiconductor contract manufacturing. In Dataquest's frame work, we identify foundry and a new category—OEM ASIC—as a subcat egory of SCM. As shown in Figure 1-1, the OEM ASIC segment spans both the contract manufacturing and the traditional ASIC business model.

The key similarity between contract manufacturing and the ASIC business is that companies fabricate other companies' products. The first point of differentiation, however, is at the customer interface. The foundry desig nation should be at a GDS-II, mask-level, or similar interface. In contrast, the ASIC business, be it OEM ASIC or end-customer ASIC, is at netlist or higher level design interfaces. (Such interfaces have chip design specifica tions but not silicon layout information.) As such, OEM or end-customer ASIC suppliers have electronic design automation (EDA) tools and physi cal or circuit libraries that a pure foundry wouldn't have.

The next element of differentiation is whether the chip product manufac tured is resold by the customer. In an SCM business model, the answer to that question is yes. Typically, the product is even branded with the cus tomer's logo as if it had been fabricated in its own facilities. The end- customer ASIC supplier is, by definition, making a product for the end customer. In this case, the product may carry the supplier's logo or even, in some cases, the customer's logo.

Chartered Semiconductor is a good example of a company that historically has worked only at the GDS-II/mask interface with its customers. How ever, we understand that the company may be expanding its strategy to encompass more OEM ASIC-type business. Taiwan Semiconductor Manu facturing Co. (TSMC) provides both the traditional foundry interface and OEM ASIC services at a netlist interface through its agreement with Compass. Many of the Japanese integrated device manufacturers (IDMs) span both foundry and OEM ASIC segments and, indeed, offer full end- customer ASIC products as well. (Note that Dataquest uses "IDM" to describe semiconductor companies that have their own front-end fabs and are merchant or captive suppliers of semiconductors. It can refer to either a foundry user or a foundry provider.)

It is worth noting that the purpose of providing OEM ASIC services often varies from supplier to supplier. TSMC made its decision to offer OEM ASIC capability in order to assist small start-up companies that did not have the resources to establish rn-house EDA tools and libraries (cus tomer-owned tooling, or COT). As these start-up companies grow in size, they would develop that capability internally and migrate to the tradi tional foundry relationship with a supplier at the GDS-II/mask interface. In contrast, Japanese IDMs often offer OEM ASIC services as a means to establish a solid customer relationship with the potential to grow into a traditional end-customer ASIC relatioriship.

Differences between OEM ASIC and End-Customer ASIC An important difference between OEM and end-customer ASIC suppliers has been the extent of EDA capabilities and the degree of optimization by which the physical library is tied to the silicon process. A well-established ASIC supplier, with its full range of EDA capabilities, can take responsibil ity for optimizing the chip's performance at the system level. An OEM ASIC vendor traditionally has been capable only of receiving design hand- off at the netlist level. Moreover, at the netlist level, an end-customer ASIC vendor typically develops its own cell libraries optimized to its own in- house silicon process. In contrast, an OEM ASIC vendor usually acquires third-party-developed physical libraries that are, at best, loosely tuned to the vendor's silicon process. The OEM ASIC services offered by most SCM suppliers are justifiably not as competitive, in terms of device performance and density, as that of end-customer ASIC vendors such as LSI Logic, NEC, or Toshiba which have been in the ASIC business much longer than SCM suppliers.

Another distinction between OEM ASIC and end-customer ASIC busi nesses stems from who the supplier (and the customer) is. When the ASIC service is provided to an ASIC vendor, such as LSI Logic, NEC, or Toshiba, the relation is of an end-customer ASIC type. This means that the ASIC revenue, in terms of semiconductor market share, is claimed by the ASIC

vendor supplier. A complication enters, however, when the customer is another semiconductor company. Because the manufactured ASIC part may be resold by the customer to its end customer (a system house, say), revenue from the ASIC part, as it is resold, is also claimed by the semicon ductor customer. This results in two semiconductor companies, an ASIC house and one other chip company, claiming revenue for the same ASIC part. While this is all right for an individual company's reporting of its sales revenue, it results in double-counting in the tabulation of semicon ductor market share.

Dataquest adopts a convention that prevents double-counting by attributing the ASIC revenue only to the ASIC vendor. This would, how ever, require that the ASIC customer deduct the cost of the part from its revenue for the purpose of reporting semiconductor market share. The various supplier-customer ASIC relations are shown in Table 1-1. As shown, the establishment of the convention permits a simple distinction between end-customer ASIC and OEM ASIC. When the ASIC part is man ufactured by an ASIC vendor, the relation is an end-customer ASIC busi ness. Conversely, ASIC service provided by a foundry supplier is an OEM ASIC relationship.

This table does not show a perfect solution. The imperfection stems from the possibility of an ASIC company also providing significant foundry ser vice. In such a case, should the company be designated as a foundry or an ASIC supplier? The answer is not clear. At present, TSMC is considered a foundry with a minor portion of its revenue from ASIC service. Conse quently, TSMC is considered a supplier of SCM services as SCM encom passes both (OEM) ASIC and foundry. But suppose one of the established ASIC suppliers (say VLSI Technology or LSI Logic) began to offer foundry service, and its foundry business became an increasingly large source of

Table 1-1 ASIC Supplier-Customer Relationship Supplier-Customer Supplier Hand-Off Customer Type of ASIC Business ASIC Vendor (Example: NetUst or higher Nonsemiconductor End-customer ASIC LSI Logic) Companies (Example: Sun Microsystems) ASIC Vendor (Example: Netlist or higher Semiconductor compa End-customer ASIC LSI Logic) nies (Example: Sony (provided the customer Microelectronics) attributes the revenue to the supplier) SCM Provider (Example: NetUst or higher Nonsemiconductor com OEM ASIC TSMC) panies (Example: Sun Microsystems) SCM Provider (Example: Netlist or higher Semiconductor compa OEM ASIC TSMC) nies (Example: Sony Microelectronics)

Source: Dataquest (February 1996)

the company's overall revenue. At v^hat stage should it be reclassified and moved from the ASIC camp into the SCM universe? Fortunately such a possibility appears remote at present, and Dataquest expects the defini tions delineated in the table to hold for the foreseeable future. SCM Service Marlcet Share: Manufacturing Power Database As defined, the SCM services framework encompasses all aspects of confract manufacturing in semiconductors. Recognizing that manufacturing is the essence of an SCM's business and to characterize the competitive arena of the growing SCM market, Dataquest has developed a new data base concept, to be implemented during 1996, that provides the means of measuring the "manufacturing power" of the SCM players.

The semiconductor manufacturing power database is designed to capture the manufacturing power of all front-end wafer fabrication. This includes the revenue of all semiconductor manufacturers: IDMs, foundries (dedi cated or joint-venture), and ASIC service providers (OEM or end-cus tomer). As a comparison of the manufacturing output of semiconductor producers, this database will allow SCM suppliers a meaningful metric for determining their sfrength and competitiveness relative to other semicon ductor manufacturers.

Comparing Semiconductor Market Power versus Manufacturing Power The fraditional semiconductor merchant market share database is a "mar ket power" database that measures companies' presence in the market in terms of sales of products bearing the companies' labels, irrespective of which company actually manufactured the product. This database con tains revenue of companies selling semiconductor products to the mer chant market that may either be end customers or disfributors. Companies covered in the market power database include semiconductor manufac turers that sell under their own brand, fabless semiconductor companies that sell under their own brand, and semiconductor manufacturers or fabless semiconductor companies that sell custom or ASIC designs to an end customer with the customer's markings on the chip.

Because SCM suppliers manufacture products that are necessarily resold by another company on the merchant market, they have no presence in the merchant market and are not recognized in the fraditional "market power" market share database. On the other hand, the "manufacturing power" database measures market share in terms of the companies that manufac ture the semiconductor products, regardless of the brand marked on the package. What is not captured in the traditional "market power" database is covered in the "manufacturing power" database. Hence, with the "man ufacturing power" market share database, SCM suppliers now have a means of measuring their sfrength and competitiveness relative to each other and to other semiconductor producers.

Moreover, because the semiconductor manufacturers, including the SCM vendors, have been taking charge of the industry's fab capacity expansion and manufacturing technology development, a manufacturing power database, by covering all the semiconductor manufacturers, could provide a means of identifying the companies that will have a significant impact on the building of the industry's infrastructure.

Figure 1-2 illustrates how an individual company's revenue would be measured in terms of market power and manufacturing power. For exam ple, Advanced Micro Devices (AMD) manufactures, markets, and sells microprocessors and other products, which are reflected in its overall mar ket share in a market power database. However, when it comes to manu facturing power, TSMC, instead of AMD, would receive credit for the 486 microprocessors it manufactures for AMD, as well as the other products that TSMC makes for other companies. In a market power database, the contribution of TSMC and other semiconductor contract manufacturers to the manufacturing output of the industry is not recognized. In a manufac turing power database, however, the SCM suppliers are fully recognized, as their contribution is reflected in their respective SCM revenue in the manufacturing power market share. Moreover, a manufacturing power database would reflect all semiconductor manufacturing, not just that associated with contract manufacturing services.

Tables 1-2 and 1-3 describe the types of business transactions that belong to the market power and manufacturing power databases, respectively. Also included in the tables are examples of customer/supplier relation ships that fall into each category.

Through the definitional guidelines provided in these tables, the market power and the manufacturing power databases should jointly provide a useful approach for tracking revenue and competitiveness for all players in the semiconductor industry, including SCMs (foundry and OEM ASIC) and IDMs (including end-customer ASIC).

Figure 1-2 Semiconductor Companies' Mantif acturing Power and Market Power

Market Power

OEM Foundry Internal Production Buy ' ASIC 1 1

Manufacturing Power

IDM Revenue

Semiconductor Contract Fabless Revenue Manufacturer Revenue 9613S1

Source: Dataquest (February 1996)

Table 1-2 Description of Transactions in Market Power Databases Type of Business Transactions Examples Company Tracked Sale of a standard or custom product to Motorola selling Motorola-branded Motorola an end customer by an IDM, whether products to system manufacturers or manufactured by the IDM or another distributors, regardless of whether company products were manufactured by Motorola or by one of its fotmdries Sale of a custom or standard product to Products sold by Oak Technology vmder Oak Technology an end customer by a fabless company, its brand and manufactured by whether manufactured through a another company foxmdry or ASIC relationship with its wafer supplier Sale of a custom product to an end cus Products manufactured by NEC to NEC tomer by a foundry services supplier SanDisk for use in SanDisk's solid state PC card memory products Sale of a standard or custom product to Hitachi selling to end customers its Hitachi : an end customer by an IDM manufac branded DRAMs manufactured by tured under an exclusive manufactur LG Semicon ing agreement or joint venture TI selling its branded DRAM products TI manufactured by TI-Acer Production of ASIC products sold to Hypothetical example: TSMC produces "XYZ" (But not TSMC) a fabless semiconductor company, ASICs from a netlist hand-off from a which are then resold to the fabless customer, "XYZ" company TSMC company's end customers under its delivers either finished wafers or brand packaged parts bearing XYZ's company logo (turnkey).

Source: Dataquest (February 1996)

Table 1-3 Description of Transactions in Manufacturing Power Databases Type of Business Transactions Examples Company Tracked Production of products from an IDM's Intel's production of microprocessors Intel own fab facilities, xmder the IDM's from its own fabs brand, and sold to an end customer or distributor AMD's production of microprocessors AMD from its fabs Production of products sold to an IDM, TSMC's production of 486 microproces TSMC which are then resold under the IDM's sors for AMD brand to an end customer Sharp's production of flash memory for Sharp Intel

LG Semicon's production of DRAMs for LG Semicon Hitachi Production of products sold to a fabless Chartered's production of ASSPs for Chartered company, which are then resold under any of its fabless semiconductor Semiconductor the fabless company's brand to an end customers customer Production of ASIC products sold to a Hypothetical example: TSMC's produc TSMC (But not "XYZ") fabless semiconductor company, tion of ASICs from a netUst hand-off which are then resold to the fabless from a customer, "XYZ" company. company's end customers under its TSMC delivers either finished wafers brand or packaged parts bearing XYZ's com pany logo (turnkey service).

Source: Dataquest (February 1996)

Summary of 1993 and 1994 Dataquest began developing market statistics for the semiconductor con tract manufacturing industry in 1993 in terms of both revenue and silicon area produced. Table 2-1 summarizes SCM market demand in terms of revenue by region and by type of provider and customer for 1993 and 1994. Japan and Asia/Pacific are ttie two dominant suppliers of SCM ser vices, accounting for 55 percent and 33 percent, respectively, of the market in 1994. Japanese SCM providers are all IDMs, but the Asia/Pacific region is heavily dominated by dedicated foundries. In 1994, Asian dedicated foundry revenue came primarily from TSMC, followed by Chartered Semiconductor of Singapore, and, to a smaller extent, from ASMC of Shanghai.

On the demand side. North America is the largest regional market, repre senting almost 50 percent of total world demand for SCM services in 1994. The major source of that demand is the fabless companies, which repre sented about 60 percent of North American demand in 1994. Japan is a close second, representing almost 40 percent of total world demand. A Comparison of the Japanese and North American Demand iVIarlcets The North American market demand for SCM services is the largest in terms of revenue, but the Japanese market is the leading area from the per spective of demand for SCM capacity measured in wafer area. The reason for this lies in the product mix of the demand for each region and in the way that the Japanese SCM industry has evolved historically. The average North American demand produces SCM revenue of about $32 per square inch (translating to about $90 to $100 per square inch of end-chip revenue) and is driven primarily by the mainstream-to-leading- edge logic chip market of the fabless companies. In comparison, the mainstream-to-leading-edge end-chip revenue per square indi for the total semiconductor industry (excluding microprocessors) ranges from $70 to $130.

The Japanese SCM market has a much longer history than the emerging SCM market outside of Japan. The Japanese SCM market was first devel oped during the semiconductor recession of 1985 when the industry was laden with overcapacity. The sustaining force that kept SCM capacity in Japan growing during the 1980s and early 1990s was the practice of migrating DRAM capacity to foundry production with each transition to a new DRAM generation (256K/lMb or lMb/4Mb, for example).

About 70 percent of the SCM supplied by Japan is consumed within Japan. This "internal" market is fundamentally different from the SCM market outside of Japan. Internally in Japan, the use of older chip manufacturing capacity has been "optimized within itself—that is, the production of

Table 2-1 SCM Market Demand by Region and by Type of Provider and Customer, 1993 and 1994 (Millions of Dollars) 1993 1994 1993 1994 Supply Supply Change(%) Demand Demand Change(%) By Region North America 225 419 86 1,537 2,200 43 Japan 1,951 2,478 27 1,367 1,789 31 Europe 67 170 154 248 471 90 Asia/Pacific-ROW 979 1,499 53 69 105 52 Worldwide 3,222 4,565 42 3,222 4,565 42 By Provider Type Dedicated Foundries 639 1,068 67 IDM Foundries 2,583 3,497 35 Total 3,222 4,565 42

Dedicated Foundries as 19.8 23.4 Percentage of Total IDM Foundries as Per 80.2 76.6 centage of Total By Customer Type Fabless Companies 1,039 1,425 37 IDM Foundry Users 2,070 2,908 40 System OEMs 112 233 108 Total 3,222 4,565 42

Fabless Companies as 32.2 31.2 Percentage of Total IDM Foimdry Users as 64.2 63.7 Percentage of Total System OEMs as 3.5 5.1 Percentage of Total Note: Columns may not add to totals shown because of rounding. Source: Dataquest (February 1996) older generation products (such as lagging-edge DRAM and analog) using older, fully depreciated equipment has been made into an efficient and well-established practice. This has led to the creation of an environment in which trailing-edge products are manufactured at the lowest cost. As a result, the average Japanese demand for SCM services produces SCM rev enue of about $15 per square inch (translating to about $45 per square inch of end-chip revenue) and is driven primarily by the lagging-edge prod ucts. This is consistent with the market for analog and lagging-edge DRAM, which tj^ically has end-chip revenue per square inch of between $30 and $50.

Fundamental Differences in the Approacli to SCIVI in Japan Japanese SCM suppliers also tend to view pure foundry—manufacturing a chip from a GDS-II tape or mask set—as a lower-value or low-margin

business. Japanese companies enter into SCM supply relationships for two important reasons. First, providing SCM services helps foster goodwill that can be translated into an exchange of favors for obtaining capacity within the Japanese market. When a company needs capacity for a partic ular product, a reciprocal arrangement could be set up with a customer— in this case, another semiconductor company. Second, and perhaps more important, a foundry agreement can develop into a closer relationship when the business migrates to the higher-margin (and higher-prestige) ASIC business and could involve future technology transfer.

Most SCM service businesses within Japanese companies are decentral ized operations, where separate product divisions have the authority to make supply agreements. But without a centralized, corporate-level focus on the SCM business, the Japanese SCM suppliers have not been as com petitive in markets outside of Japan. The only exceptions are those who have sought major North American customers in order to stay technologi cally competitive in SCM or indeed have determined that operating a foundry can be a profitable business in itself (such as Seiko Epson).

Implications of the Internal Japanese Market on Pricing The pricing strategy of the Japanese SCM suppliers can be characterized as more cost-driven than market-driven. This suggests that the Japanese suppliers are more concerned with the overall cost of maintaining the operation of older fabs. Although upgrading older fabs may allow for pro duction of higher-margin products, the high upgrade costs and the uncer tainties surrounding the economics of extending the life of an older fab have generally led to "making do" with the existing technologies. The overall objective is to minimize the costs of operating older facilities while fully using their production output. This could be accomplished by run ning the company's own products or by providing SCM services.

Overall, wafer prices from Japanese SCM suppliers are lower than that of SCM suppliers outside of Japan. Japa nese suppliers who provide SCM ser vices to North American fabless or system/OEM customers generally could charge higher prices than those serving the internal Japanese SCM market. Companies such as Seiko/Epson, Fujitsu, Toshiba, Yamaha, and Rohm have had a long tradition of providing SCM services to non- Japanese companies.

Figure 2-1 presents a conceptual view of the varying characteristics in the SCM product mix and the cost-base pricing of the regional supply bases. The large Japanese SCM supply is divided into two camps: a larger supply with wide-ranging technologies and cost-based pricing serving the inter nal Japanese market and a smaller supply with advanced technology addressing mostly non-Japanese SCM customers. The U.S. SCM supply (represented by suppliers such as IBM and Texas Instruments) provides leading-edge technologies but with limited capacity available. The Asia/ Pacific supply, represented largely by the dedicated foundries, has a more focused SCM business approach: providing sufficient SCM capacity to the world at prices reflective of SCM market dynamics. The European SCM supply is relatively less developed but may see a spurt in growth when the major European SCM suppliers such as Newport WaferFabs and Tower Semiconductor complete tiieir capacity expansion.

Figure 2-1 Regional SCM Supply Pricing by Technology and Market/Cost Drivers

Leading-Edge Product Mix

Japanese Suppjy Base

Cost-Driven Market-Driven Pricing Pricing

Lagging-Edge Product Mix 961363

Source: Dataquest (February 1996)

SCM Capacity Supply/Demand Research Methodology From July to September 1995, Dataquest conducted a large-scale survey of supply capacity and demand requirements for foundry providers and foundry users for each year from 1993 through 2000. Projections of suppli ers' capacity in terms of processed wafer area, segmented by line width, metal levels, wafer size, and process technology, were collected from SCM providers. SCM users provided Dataquest with their projected foundry demand with the same segmentation.

The goal of the study was to achieve a minimum 85 percent of market cov erage of users' projected demand and suppliers' planned capacity. The sur vey of individual SCM users and suppliers was performed on a by- company basis to allow for a bottom-up methodology. This methodology, with a high degree (85 percent or higher) of market coverage, provided the foundation for a meaningful analysis of the supply and demand dynamics in SCM.

On the supply side, over 95 percent market coverage was achieved from direct survey responses (based on 1995 capacity), with an additional 3 per cent to 4 percent derived from Dataquest estimates, using secondary sources, previous analysis of the market, informal industry source inter views, and company visits. The Dataquest study surveyed dedicated foundry providers including TSMC, Chartered Semiconductor, Tower Semiconductor, Asia Semicon ductor Manufacturing Corporation (ASMC) in Shanghai, and Newport Wafer Fab. IDM SCM providers participating in the study included Gould AMI, Fujitsu, Hitachi. IBM Microelectronics, LG Semicon, Matsushita, Mitsubishi, NEC, Nippon Steel Semiconductor, Oki, Ricoh, Rohm, Sam sung, Seiko/Epson, SGS-Thomson, Sharp, Sony, Thesys, Toshiba, United Microelectronics Corporation (UMC), Winbond, and Yamaha. Dataquest was also able to obtain direct responses from two companies that have no production capability at present, but plan to enter the market within the next three years (SubMicron Technology and ASMC-Taiwan).

In analyzing the supply capacity available in SCM, no distinction can be made between the foundry and the OEM-ASIC segments. A stepper that is installed in a fab does not distinguish between the wafers that come in through a GDS-II or a netlist origin at the user-provider hand-off. It is not meaningful to derive a forecast specifically for "foundry" or specifically for "OEM-ASIC" since the capacities are interchangeable. Consequently, Dataquest will refer to the total semiconductor contract manufacturing services market, including both foundry and OEM ASIC, in the following supply and demand discussions.

Comparing Supply and Demand The summary of SCM supply and demand in terms of millions of square inches (MSI) of silicon is shown in Table 3-1. As mentioned, this table is derived from a bottom-up summation of the supply and demand inputs from direct surveys and Dataquest analysis. The SCM supply/demand findings also include the capacity allocated in exclusive contract manufac turing relationships. An exclusive contract manufacturing relationship refers to a situation in which the SCM supplier is either a sole supplier for a specific product or shares proprietary technology with its SCM customer over a period of three years or longer.

The supply and demand analysis shown in the previous table also took into account the following: • The three joint venture fabs recently announced by UMC before October 1995 have been included in this analysis. • The fabless semiconductor industry in Taiwan is just forming and evolving and is expected to lead to significantly higher demand later in the decade. This higher demand has not been factored into the present analysis. • Dataquest believes that, over the next year, there will be several projects to buUd semiconductor foundries armounced after October 1995 that will increase supply in 1998 and beyond, many of these from new entrants into the market. These new entrants have not been factored into the analysis in Table 2-1. Table 3-1 SCM Supply and Demand, Regional Summary, 1993-2000 (Millions of Square Inches of SDicon) CAGR(%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Demand 166.7 213.3 261.2 316.5 372.8 434.0 505.2 605.6 19.0 North America 54.8 68.6 99.1 128.0 161.4 198.4 240.5 305.3 28.3 Japan 94.4 117.4 126.9 147.4 164.5 181.2 199.4 219.6 11.0 Europe 15.2 23.8 29.6 33.9 37.4 42.5 50.0 60.9 16.9 Asia/Pacific 2.4 3.5 5.6 7.3 9.4 12.0 15.3 19.8 33.6 Total Supply 166.7 213.3 266.6 310.4 372.3 461.1 558.8 638.5 20.0 North America 8.5 10.9 14.7 20.1 26.0 31.6 38.4 47.0 27.7 Japan 121.8 147.6 179.2 191.6 209.0 230.5 251.6 273.4 10.8 Etirope 2.0 5.5 9.3 13.0 14.2 19.2 23.5 28.7 31.6 Asia/Pacific 34.4 49.3 63.4 85.7 123.0 179.9 245.3 289.4 34.3 Note: Includes exclusive contract manufacturing relationships (a company is either the sole supplier for a specific product or shares pro prietary technology over a three-year period or longer) Source: Dataquest (September 1995)

• There exists the possibility of additional SCM capacity emerging during 1996 and 1997 as a result of the migration of the DRAM market from 4Mb to 16Mb. It is likely that some older 4Mb DRAM fabs will be con verted to provide contract manufacturing services. This potential con verted SCM capacity has not been factored into the present analysis. (Chapter 4 does discuss the impact of the recent memory price weak ness on the SCM market, however.) • Dataquest defines "oversupply" and "undersupply" in SCM to be a min imum of a 7 percent imbalance between the supply and demand. • The characteristics of the SCM market are expected to vary with wafer prices, which are in turn subject to the changing dynamics of SCM sup ply and demand. Moreover the SCM market is assumed to be price elastic. Thus, SCM demand will fluctuate with changing wafer prices. Table 3-2 presents the sources of the supply and demand in SCM services. For 1996 through 2000, new SCM capacity at dedicated foundries is expected to grow much more rapidly than IDM SCM capacity. The per centage of total SCM supply residing in dedicated foundries will rise from 18 percent in 1995 to a projected 37 percent by 2000. Also, in terms of long- term availability, dedicated foundry capacity is generally more consistent than IDM SCM capacity because there is an inherent element of opportun ism in the approach of IDMs to the SCM business.

Capacity constraint and the heightened semiconductor demand of recent years have resulted in an increasing use of SCM by IDMs. In fact, given the huge appetite of IDMs, which still account for nearly 95 percent of merchant semiconductor revenue, changes in IDM decisions "to make or to buy" will have probably the strongest impact on SCM supply and demand. Althou^ the bulk of IDM consumption of SCM output now stems from Japanese IDMs, most of tlie nearly 100 percent increase in SCM consumption (by IDMs) in the next five years will come from IDMs out side Japan.

Outside Japan, fabless companies (and most of them are in North Amer ica) have been the principal consumers of SCM services. As a group, the fabless companies' demand for wafers will rise from 25 percent of total SCM output in 1995 to 35 percent by 2000. Unlike IDM users, which may fall back on their own internal capacity, the very nature of fabless compa nies results in a user-provider relationship that is necessarily mutually beneficial. As fabless companies' businesses grow, so will their wafer demand and so will the SCM market. System OEM companies will con tinue to grow their consumption of SCM services. But their share of total SCM demand is expected to remain small (about 3 percent). System OEM customers are likely to continue to rely on end-customer ASIC services for most of their chip needs.

Table 3-2 SCM Supply and Demand Sources, 1993-2000 (Millions of Square Inches of Silicon) CAGR(%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Demand 166.7 213.3 261.2 316.5 372.8 434.0 505.2 605.6 19.0 Fabless Companies 41.4 47.1 66.1 83.7 105.5 132.9 162.9 210.7 28.3 IDMs 123.7 162.3 189.8 225.9 258.5 290.0 328.2 376.0 15.0 System OEMs 1.6 3.9 5.3 6.9 8.8 11.1 14.1 18.9 30.3 Total Supply 166.7 213.3 266.6 310.4 372.3 461.1 558.8 638.5 20.0 Dedicated Fabs 24.0 36.5 47.8 67.7 94.3 139.1 189.1 235.5 36.4 IDM 142.7 176.8 218.8 242.6 277.9 322.0 369.7 403.1 14.7 Source: Dataquest (September 1995) SCM Market Forecast The data presented in the first table of this chapter is based on a straight forward summation of survey input with a some of Dataquest estimates for a selected group of additional companies. The results from this approach are called the "calculated" SCM supply/demand results. How ever, the actual SCM market supply/demand dynamics must take several factors into account that a bottom-up analysis cannot provide. In deter mining the SCM market forecast, the following considerations are taken into account: • For 1995,1996, and 1997, all known SCM capacity increases have been included. It may be possible to grow capacity slightly faster than our analysis would dictate. But the possibility seems witiun noise levels, given the current restrictions in semiconductor production equipment availability. On the other hand, demand for SCM services during these years is likely to be limited to our surveyed scope, given the historic upward pressure in foundry wafer prices. • For 1995 through 1997, the SCM market forecast is based on the average of the "calculated" supply and demand figures. • Dataquest believes that there will be several semiconductor foundry construction projects armounced over the next year that will increase supply in 1998 and beyond, many of these from new entrants into the market. Also, some older 4Mb DRAM fabs will be allocated to contract manufacturing above the current plan. This new capacity has been fac tored into the forecast, starting in 1998 and gradually increasing the capacity available to 2000. The net addition of 3.5 new 200mm fabs by 2000 has been assumed. • Demand will increase if the combination of lower prices and available capacity is present. This is the projected scenario for 1998,1999, and 2000. An expansion in SCM capacity from 1998 to 2000 has been built into the forecast. This, coupled with the assumption that the SCM mar ket is price-elastic, provides the basis for SCM market growth during the forecast years.

Tables 3-3 and 3-4 summarize the forecast for the SCM market in terms of MSI of silicon demand and dollar revenue, respectively. Also shown is the regional distribution of the SCM market. Japan is currently the largest SCM market in terms of MSI demand, but is expected to be surpassed by North America in the next few years. In dollar revenue, the North Ameri can SCM market is larger than the Japanese SCM market because Japanese SCM suppliers tend to provide favorable foundry pricing for their long time customers—mostly other Japanese companies. This has resulted in the formation of a Japanese "internal" SCM market and a dichotomy in wafer pricing between the Japanese SCM market and the external world (see Chapter 2). The long-term SCM relationship between Japanese suppli ers and users stems from a long history of strategic cooperation that is unlikely to change and that will allow a continuation of relatively lower average selling prices in the Japanese SCM market.

Continual expansion in personal computer usage and telecommunicatiorts applications is the principal driver in the European semiconductor mar ket. Reliance on SCM for semiconductor supply is expected to increase because it is likely that captive manufacturing capacity alone will not be able to satisfy Europe's continual growth in semiconductor consumption. Asia/Pacific's purchase of SCM services is small but is expected to grow rapidly as the development of indigenous fabless industries in Taiwan and Singapore leads to increasing demand for SCM wafers. Table 3-3 SCM Market Forecast by Region, 1993-2000 (Millions of Square Inches of Silicon) CAGR {%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Forecast 166.7 213.3 263.9 313.4 372.5 445.7 542.5 649.9 20.4 North America 54.8 68.6 100.1 126.7 161.3 203.7 258.2 327.6 29.8 Japan 94.4 117.4 128.2 146.0 164.4 186.0 214.2 235.7 12.3 Europe 15.2 23.8 29.9 33.5 37.4 43.6 53.7 65.3 18.3 Asia/Pacific 2.4 3.5 5.6 7.2 9.4 12.3 16.4 21.3 35.1 Source: Dataquest (September 1995) Table 3-4 SCM Market Forecast by Region, 1993-2000 (MUlions of U.S. Dollars) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Forecast 3,222 4,565 6,219 7,505 9,204 11,320 14,075 17,502 25.1 North America 1,537 2,200 3,265 4,153 5,242 6,606 8,386 10,694 30.2 Japan 1,367 1,789 2,192 2,467 2,923 3,452 4,087 4,801 17.9 Europe 248 471 592 669 754 894 1,113 1,371 19.5 Asia/Pacific 69 105 170 216 284 369 490 635 35.0 Source: Dataquest (September 1995)

Table 3-5 highlights the characteristics of Dataquest's projection of the "realistic" supply-demand dynamics in the SCM market for each of the forecast years. The key difference between the "calculated" and the "realis tic" oversupply or undersupply figures is the assumption that, in a bal anced market, the total supply figures would be 3 percent to 5 percent higher than the demand figures.

Table 3-5 Dataquest Interpretation of the SCM Supply and Demand Analysis by Year, 1995-2000 "Calculated" "Realistic" Oversupply or Oversupply or Market Dataquest Forecast Year Undersupply Undersupply Characteristics Assumptions 1995 2 percent oversupply 1 percent to 3 percent Tight supply Average of supply and undersupply demand figures Price firmness

Seller's market 1996 2 percent undersupply 5 percent to 7 percent Continued seller's Average of supply and undersupply market demand figures

Slight price increases 1997 Balanced 3 percent to 5 percent Continued seller's Average of supply and undersupply market demand figures

Becoming balanced Price firmness soflien- by end of year ing by end of year 1998 6 percent oversupply 1 percent to 3 percent Convert to buyer's Increase supply: one oversupply marke 200mm fab

(Essentially balanced) Price softness Increase demand to absorb 30 percent of Increased demand excess supply coming from elasticity 1999 11 percent oversupply 6 percent to 8 percent Buyer's market Increase supply: oversupply, but 2.5 200mm fabs increased demand More aggressive anticipated to pricing Increase demand to absorb supply absorb 45 percent of More increased excess supply demand 2000 5 percent oversupply Balanced to 2 percent Neutral market to Increase supply: oversupply buyers and sellers 3.5 200mm fabs

Price declines Increase demand to lessening absorb 60 percent of excess supply New investment begins again Source: Dataquest (September 1995)

This is primarily because the market has inefficiencies built into it caused by mismatches between a buyer's requirements and a supplier's capabili ties (technology, volume, and yield). Suppliers generally provided infor mation based on full capacity assumptions. However, a longer-term realistic operating model suggests that about 3 percent of capacity would be used by engineering and sample lots, which are deemed nonproduc tive. Mismatches in the regional distribution of buyers and suppliers may also contribute to inefficiency.

The aim of the "realistic" oversupply or undersupply projection is to pro vide a meaningful and somewhat practical means of characterizing the SCM capacity availability. Also important is the recognition that SCM users' perceptions of the SCM supply situation tend to have a great impact on wafer pricing and the notion of an oversupply or an undersupply in SCM. The "realistic" over- or undersupply indicator is designed to capture the projected users' perception about the SCM market in the years ahead.

Figure 3-1 shows the projected "realistic" SCM supply and demand imbal ance. Undersupply in SCM capacity ranging from 1 percent to 7 percent during 1995 and 1996 will boost SCM suppliers' business and embolden plans for aggressive SCM capacity buildup. New foundry fabs plus the transition of older DRAM capacity (4Mb and 1Mb) to SCM services will cause a surge in overall SCM supply by 1998. This oversupply in SCM capacity is expected to take a couple of years (1998 to 1999) for price elas ticity and demand growth to absorb the excess.

Figure 3-1 Worldwide "Realistic" SCM Supply and Demand Imbalance Projection

Source: Dataquest (September 1995)

SCM Technology Analysis and Key Findings Table 3-6 presents the worldwide SCM supply capacity projection seg- m.ented by line width, wafer size, interconnect level, and process technol ogy. Technology segmentations of SCM supply for the four geographical regions (North America, Japan, Asia/Pacific-ROW, and Europe) are shown in Tables 3-7 to 3-10.

Analysis of the technology segmentation of the SCM supply and demand base reveals some notable issues indicative of the SCM market business model. The first is the aggressive migration of suppliers toward 200mm wafers. SCM providers are projected to have more than half of their wafer slice capacity at 200mm by 1999, as compared with an expected 20 to 25 percent for the semiconductor industay in general. This aggressiveness in the migration to larger wafers is necessitated by the business model that drives low-cost production. Dataquest does not, however, expect any near- term activity in the SCM market in 300mm w^afers because technologies need to be fairly mature and established before they can be cost-effective, a critically important criterion in the SCM business model. Dataquest expects SCM suppliers to begin migration toward 300mm after 2004.

Another finding is that there exists a potential mismatch in the area of multilevel interconnect metallization. Input from SCM users indicated demand for SCM capacity capable of three or more levels of interconnect that far exceeds the expected ramp-up in multilevel supply. Motivated by higher device performance and lower wafer costs, SCM customers are designing ICs with ever-higher transistor density. A clear method is to employ multilevel interconnect metal layers in the chip design. Although customers look forward to incorporating three, four, or even more layers of interconnect into their design, SCM suppliers seem to be less optimistic about ramping up yield in multilevel intercormect processes quickly enough to meet the customers' expectations. It is very common in semi conductor manufacturing for the users to lead the suppliers in the arrival and maturing of new process technologies. Fabrication of multilevel inter connect ICs, requiring chemical mechanical polishing (CMP) and advanced gapfiU and deposition techniques, is symptomatic of some the inherent mismatch between the supplier's and the user's expectation.

Table 3-6 SCM Supply-Side Capacity by Technology, Worldwide Percentage of Worldwide Wafer Supply Thousands of Wafers 1994 1997 2000 1994 1997 2000 By Wafer Size (mm) 100 3.5 0 0 294 2 3 125 31.6 17.8 5.1 2,619 2,006 778 150 57.6 48.9 26.3 4,776 5,522 4,041 200 7.2 33.3 68.6 597 3,754 10,533 Total 100.0 100.0 100.0 8,286 11,284 15,355 Percentage of MSI MSI 1994 1997 2000 1994 1997 2000 By Line Geometry (Microns) >1.0 17.9 6.8 3.7 38.1 25.2 23.5 0.8 to <1.0 22.7 10.5 6.4 48.5 39.1 41.1 0.6 to <0.8 31.6 24.2 9.6 67.5 90.2 61.3 0.5 to <0.6 23.6 38.4 32.4 50.3 142.9 207.0 0.35 to <0.5 4.2 16.5 34.2 8.9 61.5 218.4 <0.35 0 3.6 13.7 0 13.3 87.2 Total 100.0 100.0 100.0 213.3 372.3 638.5 By Interconnect Level (Levels of Metal) 1 30.3 18.2 10.8 64.7 67.8 68.7 2 44.7 33.9 21.8 95.4 126.0 139.1 3 23.6 40.2 45.2 50.3 149.7 288.4 4 1.3 7.6 16.0 2.9 28.2 102.1 >4 0 0.1 6.3 0.0 0.4 40.3 Total 100.0 100.0 100.0 213.3 372.3 638.5 By Process Technology CMOS 79.2 82.8 87.0 168.9 308.2 555.6 BiCMOS 18.2 15.1 11.5 38.8 56.0 73.2 Bipolar and Others 2.6 2.2 1.5 5.6 8.0 9.8 Total 100.0 100.0 100.0 213.3 372.3 638.5 By CMOS and BiCMOS Product Technology Segments DRAM/Flash 32.7 26.9 20.5 69.8 100.3 130.9 Analog 7.8 9.3 7.4 16.7 34.6 47.0 AU Others 59.5 63.8 72.1 126.8 237.4 460.6 Total 100.0 100.0 100.0 213.3 372.3 638.5 Note: Columns may not add to totals shown because of rounding. Source: Dataquest (September 1995)

Table 3-7 SCM Supply-Side Capacity by Technology, North America Percentage of Worldwide Wafer Supply Thousands of Wafers 1994 1997 2000 1994 1997 2000 By Wafer Size (mm) 100 0 0 0 0 0 0 125 75.1 19.3 3.2 372 136 34 150 20.4 28.8 17.7 101 203 189 200 4.5 51.9 79.1 22 367 845 Total 100.0 100.0 100.0 495 706 1,068 Percentage of MSI MSI 1994 1997 2000 1994 1997 2000 By Line Geometry (Microns) >1.0 71.0 14.8 5.4 in 3.9 2.5 0.8 to <1.0 29.0 43.9 44.3 3.1 11.4 20.8 0.6 to <0.8 0 12.5 3.1 0 3.2 1.5 0.5 to <0.6 0 28.8 30.4 0 7.5 14.3 0.35 to <0.5 0 0 16.7 0 0 7.9 <0.35 0 0 0.0 0 0 0 Total 100.0 100.0 100.0 10.9 26.0 47.0 By Intercormect Level (Levels of Metal) 1 14.1 3.6 2.3 1.5 0.9 1.1 2 78.0 49.2 17.0 8.5 12.8 8.0 3 5.2 32.8 50.3 0.6 8.5 23.6 4 2.6 14.4 22.8 0.3 3.8 10.7 >4 0 0 7.6 0 0 3.6 Total 100.0 100.0 100.0 10.9 26.0 47.0 By Process Technology CMOS 99.4 99.2 99.1 10.8 25.8 46.6 BiCMOS 0.6 0.8 0.9 0.1 0.2 0.4 Bipolar and Others 0 0 0 0 0 0 Total 100.0 100.0 100.0 10.9 26.0 47.0 By CMOS and BiCMOS Product Technology Segments DRAM/Flash 0 0 0 0 0 0 Analog 13.0 18.8 25.1 1.4 4.9 11.8 AU Others 87.0 81.2 74.9 9.4 21.1 35.2 Total 100.0 100.0 100.0 10.9 26.0 47.0 Note: Columns may not add to totals shown because of rounding. Source: Dataquest (September 1995)

Table 3-8 SCM Supply-Side Capacity by Technology, Japan Percentage of Worldwide Wafer Supply Thousands of Wafers 1994 1997 2000 1994 1997 2000 By Wafer Size (mm) 100 4.9 0.0 0.0 283 0 0 125 35.5 20.6 3.8 2,061 1,387 264 150 51.7 54.5 37.2 3,004 3,675 2,568 200 8.0 24.9 58.9 465 1,683 4,066 Total 100.0 100.0 100.0 5,813 6,744 6,897 Percentage of MSI MSI 1994 1997 2000 1994 1997 2000 By Line Geometry (Microns) >1.0 8.2 1.9 1.3 12.1 4.0 3.6 0.8 to <1.0 15.4 6.8 1.0 22.8 14.2 2.7 0.6 to <0.8 38.3 22.6 7.9 56.5 47.2 21.6 0.5 to <0.6 32.1 40.0 27.7 47.4 83.7 75.9 0.35 to <0.5 6.0 22.3 38.6 8.9 46.6 105.5 <0.35 0 6.4 23.4 0 13.3 64.1 Total 100.0 100.0 100.0 147.6 209.0 273.4 By Interconnect Level (Levels of Metal) 1 33.7 26.0 20.2 49.7 54.2 55.2 2 31.8 32.6 25.8 47.0 68.1 70.6 3 32.7 32.4 31.8 48.3 67.8 87.0 4 1.8 8.8 13.0 2.6 18.5 35.6 >4 0 0.2 9.1 0 0.4 24.9 Total 100.0 100.0 100.0 147.6 209.0 273.4 By Process Technology CMOS 70.2 69.9 70.0 103.7 146.0 191.4 BiCMOS 26.2 26.6 26.4 38.7 55.6 72.3 Bipolar and Others 3.5 3.5 3.6 5.2 7.4 9.8 Total 100.0 100.0 100.0 147.6 209.0 273.4 By CMOS and BiCMOS Product Technology Segments DRAM/Flash 41.5 40.8 41.0 61.3 85.2 112.2 Analog 9.0 9.2 9.1 13.3 19.1 24.8 AU Others 49.5 50.1 49.9 73.0 104.7 136.5 Total 100.0 100.0 100.0 147.6 209.0 273.4 Note: Columns may not add to totals shown because of rounding. Source: Dataquest (September 1995)

Table 3-9 SCM Supply-Side Capacity by Technology, Asia/Pacif ic-ROW Percentage of Worldwide Wafer Supply Thousands of Wafers 1994 1997 2000 1994 1997 2000 By Wafer Size (mm) 100 0 0 0 0 0 0 125 6.9 10.1 5.7 122 342 382 150 88.1 43.6 16.5 1,558 1,475 1,101 200 5.0 46.2 77.7 88 1,563 5,175 Total 100.0 100.0 100.0 1,767 3,380 6,658 Percentage of MSI MSI 1994 1997 2000 1994 1997 2000 By Line Geometry (Microns) >1.0 30.8 12.0 5.1 15.2 14.7 14.7 0.8 to <1.0 41.6 7.8 4.6 20.5 9.6 13.2 0.6 to <0.8 21.7 28.7 11.4 10.7 35.4 33.1 0.5 to <0.6 5.9 39.8 37.2 2.9 48.9 107.7 0.35 to <0.5 0 11.7 33.8 0 14.4 97.9 <0.35 0 0 7.9 0 0 22.8 Total 100.0 100.0 100.0 49.3 123.0 289.4 By Interconnect Level (Levels of Metal) 1 24.8 8.5 3.7 12.2 10.4 10.7 2 72.6 30.1 16.9 35.8 37.1 48.8 3 2.6 56.6 57.1 1.3 69.6 165.1 4 0 4.8 18.4 0 5.9 53.3 >4 0 0 4.0 0 0 11.5 Total 100.0 100.0 100.0 49.3 123.0 289.4 By Process Technology CMOS 99.3 99.5 100.0 48.9 122.4 289.4 BiCMOS 0 0 0 0 0 0 Bipolar and Others 0.7 0.5 0 0.4 0.6 0 Total 100.0 100.0 100.0 49.3 123.0 289.4 By CMOS and BiCMOS Product Technology Segments DRAM/Flash 15.8 11.0 5.1 7.8 13.5 14.6 Analog 2.9 6.3 2.0 1.4 7.7 5.7 All Others 81.3 82.7 93.0 40.1 101.7 269.1 Total 100.0 100.0 100.0 49.3 123.0 289.4 Note: Columns may not add to totals shown because of rounding. Source: Dataquest (September 1995)

Table 3-10 SCM Supply-Side Capacity by Technology, Eiu"ope Percentage of Worldwide Wafer Supply Thousands of Wafers 1994 1997 2000 1994 1997 2000 By Wafer Size (mm) 100 5.2 0.3 0.4 11 2 3 125 30.7 31.1 13.4 64 141 98 150 53.9 37.4 25.1 113 169 183 200 10.3 31.2 61.1 22 141 447 Total 100.0 100.0 100.0 209 453 731 Percentage of MSI MSI 1994 1997 2000 1994 1997 2000 By Line Geometry (Microns) >1.0 56.8 18.6 9.3 3.1 2.6 2.7 0.8 to <1.0 37.5 27.1 15.4 2.1 3.9 4.4 0.6 to <0.8 5,7 31.5 17.9 0.3 4.5 5.1 0.5 to <0.6 0 19.3 31.7 0 2.7 9.1 0.35 to <0.5 0 3.4 24.7 P 0.5 7.1 <0.35 0 0 1.1 e 0 0.3 Total 100.0 100.0 100.0 5.5 14.2 28.7 By Interconnect Level (Levels of Metal) 1 21.3 15.5 5.9 1.2 22 1.7 2 75.4 56.8 40.7 4.2 8.1 11.7 3 3.3 26.6 43.9 0.2 3.8 12.6 4 0 1.0 8.4 8 0.1 2.4 >4 0 0 1.1 0 0 0.3 Total 100.0 100.0 100.0 5.5 14.2 28.7 By Process Technology CMOS 98.9 98.4 98.4 5.5 14.0 28.2 BiCMOS 1.1 1.6 1.6 0.1 0.2 0.5 Bipolar and Others 0 0 0 D 0 0 Total 100.0 100.0 100.0 5.5 14.2 28.7 By CMOS and BiCMOS Product Technology Segments DRAM/Flash 11.9 10.8 14.4 0.7 1.5 4.1 Analog 10.5 19.8 16.1 0.6 2.8 4.6 All Others 77.6 69.4 69.4 4.3 9.9 19.9 Total 100.0 100.0 100.0 5.5 14.2 28.7 Note: Columns may not add to totals shown because ot rounding. Source: Dataquest (September 1995)

Recent Capacity Events and Their Impact In the months since Dataquest completed the comprehensive worldwide SCM supply/demand analysis, there have been a number of new develop ments in the supply side of SCM that warrant a revisit of the analysis. These new developments include the following:

• Announcement of a joint venture by TSMC, Altera, and other customers to build a dedicated foundry in the United States. The decision to locate the joint-venture fab in the United States has moved capacity of 25,000 wafers per month from Asia/Pacific to North America but left the total worldwide SCM supply unchanged. • InterCormect Technology (ICT), a new dedicated foundry venture in Malaysia, has been added to the SCM supply base. SCM capacity to be brought up by ICT's new 8-inch fab has been factored into ti\e supply analysis. • ASMC-Taiwan was removed from the SCM supply base. Capacity pro jection was provided by ASMC-Taiwan to Dataquest in 1995 and included in the September 1995 SCM supply/demand analysis. Subse quent input from Dataquest contacts suggests the ASMC-Taiwan foundry fab may be put on hold. Also, the recently armounced HP/WK technology joint venture fab in Taiwan is not included in the current SCM capacity update. Plans for the HP/WK joint venture fab were can celled because of changing market and political conditions in Taiwan. • The favorable reception of TSMC's recentiy introduced capacity option program has allowed acceleration of TSMC's Fab 3 production buildup and construction of Fab 4. This is accounted for in the supply analysis by a sbc-month advance in TSMC's 1996-to-1997 ramp-up. TSMC's total projected new SCM capacity for 1995 to 2000 remains the same, however. • There have been a few transitions of IDMs from production of standard products to foundry. VLSI Technology is offering foundry services at its San Jose, California, facility. UMC has reduced its SRAM production output to devote more capacity to SCM services. • Signs of slowing semiconductor orders have begun to surface. The North America semiconductor book-to-bill ratio declined to 0.90 in Feb ruary 1996, a level that the industry bellwether has not reached in five years. Also, Cirrus Logic, the biggest consumer of SCM services, has announced a slowing in orders in the current quarter. These and other events indicating weakening in semiconductor demand will be closely monitored. However, Dataquest has not factored in any changes in SCM demand (compared with the September 1995 forecast) for the present analysis. We view the weak order rate as a near-term inventory correc tion and Cirrus Logic's issue as competitive in nature. Long-term indus try trends remain intact.

• Dataquest continues to use the guideline that a supply and demand-bal anced SCM market would require about 3 to 5 percent higher supply than demand to allow for the inevitable inefficiencies in mismatch of customer requirements and supplier capability. The assumption that the SCM market is price-elastic is also maintained. Tables 4-1 and 4-2 present the revised SCM supply and demand seg mented by regional distribution and types of sources, taking into account these recent developments. Table 4-1 SCM Supply and Demand,* Regional Summary, 1993-2000 (Millions of Square Inches of Silicon) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Demand 166.7 213.3 261.2 316.5 372.8 434.0 505.2 605.6 19.0 North America 54.8 68.6 99.1 128.0 161.4 198.4 240.5 305.3 28.3 Japan 944 117.4 126.9 147.4 164.5 181.2 199.4 219.6 11.0 Europe 15.2 23.8 29.6 33.9 37.4 42.5 50.0 60.9 16.9 Asia/Pacific 2.4 3.5 5.6 7.3 9.4 12.0 15.3 19.8 33.6 Total Supply 166.7 213.3 266.6 314.5 382.4 464.7 562.4 639.8 20.1 North America 8.5 10.9 14.7 22.1 31.6 46.0 53.9 62.2 33.8 Japan 121.8 147.6 179.2 191.6 209.0 230.5 251.6 273.4 10.8 Europe 2.0 5.5 9.4 13.1 14.3 19.4 23.8 29.0 31.8 Asia/Pacific 34.4 49.3 63.4 87.7 127.4 168.9 233.2 275.3 33.2 'Includes exclusive contract manufacturing relationships; that is, a company is either a sole supplier for a specific product or has shared proprietary technology for three years or longer Source: Dataquest (February 1996)

Table 4-2 SCM Supply and Demand Sources, 1993-2000 (Millions of Square Inches of Silicon) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Demand 166.7 213.3 261.2 316.5 372.8 434.0 505.2 605.6 19.0 Fabless 41.4 47.1 66.1 83.7 105.5 132.9 162.9 210.7 28.3 Companies IDMs 123.7 162.3 189.8 225.9 258.5 290.0 328.2 376.0 15.0 System OEMs 1.6 3.9 5.3 6.9 8.8 11.1 14.1 18.9 30.3 Total Supply 166.7 213.3 266.6 314.5 382.4 464.7 562.4 639.8 20.1 Dedicated 24.0 36.5 47.8 67.8 98.8 138.3 188.1 232.5 36.1 IDM 142.7 176.8 218.8 246.7 283.5 326.5 374.3 407.3 14.9 Source: Dataquest (February 1996)

SCM Market Forecast Update, February 1996 As in the previous chapter, analysis of the updated "calculated" SCM sup ply and demand figures (shown in the first table in this chapter) is carried out to arrive at a "realistic" SCM supply and demand outlook that captures what will likely be the users' perception of the capacity available in the SCM market in the years ahead. This analysis and Dataquest forecast assumptions are shown in Table 4-3.

Table 4-3 Dataquest Interpretation of the SCM Supply and Demand Analysis by Year, 1995-2000 "Calculated" "Realistic" Oversupply or Oversupply or Market Dataquest Forecast Year Undersupply Undersupply Characteristics Assumptions 1995 2 percent oversupply 1 percent-to-3 percent Tight supply Average of supply and undersupply demand figures Price firmness

Seller's market 1996 1 percent undersupply 3 percent-to-4 percent Continued seller's Average of supply and imdersupply overall marke demand figures

Balanced-to-1 percent Bifurcation of SCM oversupply in main market into main stream capacity by stream and leading year's end edge

3 percent-to-6 percent Mainstream (0.6 to undersupply in lead O.Spm) transitions to ing-edge capacity buyer's market

Slight price rises in leading edge (0.5pm and lower 1997 3 percent oversupply 0.5 percent undersup Continued seller's Average of supply and ply in overall SCM market in leading demand figures market edge until second or third quarter 2 percent-to-4 percent undersupply in lead Price firmness begins ing-edge capacity to soften starting begins to ease by midyear midyear 1998 7 percent oversupply 2 percent-to-4 percent Convert to buyer's Increase supply: one oversupply naarket 200mm fab

Essentially balanced Price softness Increase demand to with "comfortable" absorb 30 percent of slack Increased demand excess supply coming from elasticity (Continued)

Table 4-3 (Continued) Dataquest Interpretation of the SCM Supply and Demand Analysis by Year, 1995-2000 "Calculated" "Realistic" Oversupply or Oversupply or Market Dataquest Forecast Year Undersupply Undersupply Characteristics Assumptions 1999 11 percent oversupply 6 percent-to-8 percent Buyer's niarket Increase supply: oversupply, but 2.5 200mm fabs anticipate increased More aggressive demand to absorb pricing Increase demand to the supply absorb 45 percent of Greater increase in excess supply demand 2000 5 percent oversupply Balanced-to-2 percent Neutral market to Increase supply: oversupply buyers and sellers 3.5 200mm fabs

Price declines lessen Increase deniand to absorb 60 percent of New investment excess supply begins again Source: Dataquest (February 1996) An updated projection of the "realistic" SCM supply and demand imbal ance for 1995 to 2000 is shown in Figure 4-1. Compared with the forecast of September 1995, updated supply and demand SCM data suggest a signifi cant amelioration in the undersupply of SCM will occur in 1996 and 1997. Specifically, a nearly 7 percent undersupply for 1996 expected in the September 1995 analysis is now reduced to a 3 percent undersupply. Undoubtedly, SCM suppliers, both existing and new players, have responded to what was seen as an imminent serious shortage of SCM sup ply by adding or accelerating new capacity during the past few months. Much of the added capacity, however, will come on line in the second half of 1996 and in 1997. Continuation of the SCM capacity ramp-up in 1997, as now planned, will likely lead to a significant oversupply of 3 percent in 1998 and 7 percent in 1999. An oversupply will exert downward pressure on foundry wafer prices—a situation ttiat may spur demand growth that will, in turn, bring more balanced SCM supply and demand by the year 2000.

Tables 4-4 and 4-5 show the February 1996 SCM market forecast by regions in terms of MSI of processed silicon and dollar revenue, respectively. The principal difference between the current and the September 1995 forecasts is the increase in projected SCM silicon consumption in cormection to the announced increases in SCM supply. The actual difference is about 0.6 per cent for 1996 and 1.5 percent for 1997. In dollar revenue terms, a similar percentage increase is expected for 1996 and 1997. An oversupply in 1998 and 1999 is expected to keep SCM suppliers focused on technology migra tion and transition to a higher-margin product mix. This should help attract higher SCM usage and permit higher foundry wafer prices. The net result, as shown in the new forecast, is a significant increase in the average selling price (ASP) of SCM services by 2000. This also means a higher overall SCM market, in dollar revenue terms.

Figure 4-1 "Realistic" Worldwide SCM Capacity Imbalance Projection, February 1996

Percent MSI Oversupply/Undersupply 8-fl

w///^M/^

1995 1996 1997 1998 1999 2000 9813»

Source: Dataquest {February 1996)

Table 4-4 SCM Market Forecast by Regions, 1993-2000, February 1996 Update (Millions of Square Inches of Silicon) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Forecast 166.7 213.3 263.9 315.5 377.6 446.7 544.1 650.6 20.4 North America 54.8 68.6 100.1 127.6 163.5 204.2 259.0 328.0 29.8 Japan 94.4 117.4 128.2 146.9 166.7 186.5 214.8 235.9 12.3 Europe 15.2 23.8 29.9 33.8 37.9 43.7 53.9 65.4 18.3 Asia/Pacific 2.4 3.5 5.6 7.2 9.6 12.3 16.4 21.3 35.2 Source: Dataquest (February 1996) Table 4-5 SCM Market Forecast by Regions, 1993-2000, February 1996 Update (Millions of U.S. Dollars) CAGR (%) 1993 1994 1995 1996 1997 1998 1999 2000 1994-2000 Total Forecast 3,222 4,565 6,219 7,555 9,329 11,655 14,731 18,525 26.3 North America 1,537 2,200 3,265 4,180 5,313 6,801 8,776 11,319 31.4 Japan 1,367 1,789 2,192 2,483 2,963 3,554 4,278 5,082 19.0 Europe 248 471 592 674 765 920 1,165 1,452 20.6 Asia/Pacific 69 105 170 218 288 380 513 672 36.3 Source: Dataquest (February 1996)

SCM Contribution to tlie Semiconductor ii/iarlcet Figure 4-2 shows the forecast for the SCM market and its contribution to the semiconductor market on a revenue basis. A previous Dataquest study revealed that SCM products are sold on the merchant semiconductor mar ket at a multiple of the wafer price paid by the SCM customers. This multi ple ranges from 1.6 to as high as 4, depending on the specific market (for example, graphic chips, chipsets, mass flow controllers for the PC, pro grammable logic devices, or mixed-signal devices) and the SCM cus tomer's marketing power (distribution, brand recognition, and design- wins). In the present analysis, an average of 2.3 for 1995, rising to 3 for 2000, is used to account for the migration of SCM products to the higher- margin mix enabled by SCM suppliers' continued adoption of advanced semiconductor process technologies. As shown in the figure, the contribu tion of SCM products to the overall merchant semiconductor market is expected to rise from about 10 percent in 1995 to 16 percent by the year 2000. In other words, by 2000,16 percent of the semiconductor products sold worldwide will be manufactured by semiconductor contract manufacturers. Figure 4-2 SCM Market Forecast and Contribution to the Semiconductor Market (Revenue Basis)

Billions of U.S. Dollars Percent 20- 18

18 Worldwide Foundry 16- Revenue 14- Percentage Contributed by Foundries 12- 10 8 6 4 2 0 1993 1994 1995 1996 1997 1998 1999 2000 961365

Source: Dataquest (February 1996)

Fab Cost Drives SCM Growth The most important driving force in the growth of SCM is the escalating cost of new fabs. The semiconductor industry's continual march toward ever-finer line width results in each new generation of wafer fab equip ment incorporating more complex and sophisticated features. This has led and will continue to lead to higher costs for semiconductor production equipment. Moreover, requirements for a higher level of in-fab cleanliness and reduced particle count means cleanrooms will get more expensive, too. Collectively, wafer fab equipment, cleanrooms, and higher-purity chemical and gas standards will ensure that each generation of new fabs will be significantly costlier. Figure 5-1 shows the rising cost of a new fab. In 1993, a new fab cost about U.S.$500 million. In recent years, the cost has been typically quoted as U.S.$800 million to U.S.$1 billion. The price for a new fab is projected to rise to U.S.$1.8 billion by the year 2000, when the industry will be building plants for the 0.25-micron (and less) line width generation.

Figure 5-1 The Rising Cost of New Fabs

Millions of U.S. Dollars 1,800-

1,600-

1,400-

1,200

1,000

800

600

400

200

0 1982-1986:1.2- 1986-1990:1.0- 1990-1994:0.8- 1993-1996:0.5- 1995-1998:0.35- 1997-2001:0.25- Micron, 4-Incm^h Micron, 5-Inch Micron, 6-Inch Micron, 8-Inch Micron, 8-Inch Micron, 8-Inch 961366

Source: Dataquest (February 1996)

Method of Financing Fab Capacity: Fab Affordability The impact of the escalating cost of new fabs on the IC industry is simply that fewer and fewer companies will be able to justify the costs of building captive fabs. In addition, there are many operation, process technology R&D, and overhead costs associated with running a modern fab. Using a company's armual revenue as a measure of new fab affordability. Figure 5-2 provides a measure of the revenue thresholds that a company needs to achieve in considering the various methods of obtaining manufacturing capacity. It is very important to note ithat this figure assumes a fab cost of $1 billion. Fabs come in all shapes and sizes, so actual figures may change based on specific situations. Greenfield Fabs Giving that the cost of an 8-inch fab manufacturing logic devices built new from the ground up can be as much as U.S.$1 billion, the financial resources required to build and sustain a fab today would require a com pany to have about U.S.$1.6 billion or more in armual revenue and a prof itability comparable to the industry average. In 1995, there are about 25 IDM companies worldwide with revenue streams that fit the bill. These companies will continue to rely principally on internal manufacturing in existing and new fabs to provide the capacity for future growth. Figxu"e 5-2 Annual Revenue as a $1 Billion Fab-Aff ordability Index, 1995 and 2000

'n \ \ $1.6 Billion Annual Revenue 1995 $100 Million $250 Million $50b Million

•^n \ T" $3 Billion Annual Revenue 20D0 $100 Million $400 Million $1 Billion 961367

Source: Cirrus Logic, Dataquest (February 1996)

This figure, however, does not apply to companies in the foundry busi ness. Foundry companies are, by the nature of the SCM business, critically dependent on fab expansion for growth. This means a foundry company must seek to expand and/or upgrade its manufacturing capability at a sig nificantly higher capital cost ratio relative to revenue and invest in tech nology to secure revenue in the future. The very nature of the SCM service is to provide IC manufacturing with the capacity and technology that cus tomers demand. Perhaps the most important goal for any foundry pro vider is to develop cost-effective methods of financing its manufacturing expansion and technology migration.

Shared Investments Shared investment arrangements are of two common types: equity invest ments and joint ventures. Equity investments are arrangements in which a foundry user purchases an equity stake in a foundry company that ranges from less than one percent to a few percent of the foundry's total outstand ing shares. Such equity investments have been popular and generally involve an exchange of guaranteed future wafer capacity for a sharing of the financial burden of a foundry's maintenance and expansion of its fab capacity. The most notable examples of equity participation are the arrangements between Qiartered Semiconductor and Actel, Rockwell, Brooktree, LSI Logic, and Toshiba.

Shared investments in which the investment by the foundry user is greater than a few percent have also been popular, especially with larger fabless companies that have considerable financial resources and are looking for sizable fab capacity to continue their revenue growth. Shared investments of this type usually take the form of a joint venture. A joint venture is a separate legal entity (company) in which the foundry provider and its cus tomers partner to fund construction of a new foundry fab jointly. The part ners in the joint venture have right-of-first-refusal access to the new fab capacity. The recentiy armounced three joint ventures between UMC and many fabless companies are prime examples of joint ventures. (The three joint ventures are UMC joint venture No. 1, United Semiconductor, formed by UMC, S3, and Alliance Semiconductor; UMC joint venture No. 2, United Integrated Circuits, which includes UMC, Oak Technology, ATI, OPTi, Lattice Semiconductor, Trident, Integrated Silicon Solution Inc., and ESS; and United Silicon, UMC joint venture No. 3, formed by UMC, Xilinx, Cirrus Logic, and Alliance Semiconductor.)

Joint venture arrangements such as UMC's involve partners of two types. One is the foundry or manufacturing partner (UMC), which has sole responsibility in the joint venture fab's manufacturing and process tech nology R&D. The other partners (which are all fabless companies in UMC's joint ventures) contribute funds for building the joint venture fab. The contributors become part owners of the joint venture fab and receive a portion of the fab's output. Although both will share in the gain or loss of the joint venture fab's operation, the manufacturing/foundry partner and the funding partners do have somewhat distinct (but overlapping) sets of responsibility. The foundry partner is responsible for the manufacturing of the wafers and the fund partners take care of consumption of the wafers. Under this type of arrangement, the funding partners could be considered to be fabless because their participation is strictly financial.

A joint venture arrangement in which the partners have more overlapping responsibility is MiCrus, the joint venture between Cirrus Logic and IBM. Cirrus Logic is the majority owner of MiCrus and takes an active role in all aspects, including operations, R&D, and direction, of the joint venture fab's manufacturing. This arrangement was likely motivated by Cirrus Logic's extensive portfolio of analog products. Good designs of analog IC products, in general, require an intimate knowledge of the device's manu facturing. Cirrus' desire to gain control of the joint venture fab's manufac turing was probably an important reason for its majority share in the joint venture. In this situation. Cirrus Logic is considered to own a fab because of its participation in manufacturing.

Because manufacturing is the essence of a foundry's competence, the difference between the UMC-type joint ventures and MiCrus-type joint ventures is noteworthy. Dataquest calls the UMC-type joint venture a "nonpartidpatory joint venture," with the implication that the fund part ners do not participate in the manufacturing aspects of the joint venture's fabs. A MiCrus-type arrangement, on the otiier hand, is called a "participa tory joint venture." Moreover, as most foundry demand stems from CMOS digital designs that do not require close access to manufacturing, nonpar tidpatory joint ventures are likely to gain popularity and could be the model of many future joint ventures. Contractual Capacity Foundry capacity achieved through contractual agreements tends to be of two types: prepa5ntnent agreements and options for the right to future foundry capacity. Contractual foundry agreements are generally intended to secure capacity for six month to a few years—prepayment for future foundry capacity involves paying a portion or all of the expenses for the delivery of an agreed amount of foundry wafers. An option for foundry capacity is the a right to purchase a certain amount of wafers to be deliv ered at a spedfied date. Purchase money for the option can be applied toward payment of the foundry wafers when they are delivered. The option to purchase future capacity has been offered by TSMC, which is reporting an enthusiastic response from its customers. Strong participation in the option program has emboldened TSMC to set a goal of raising U.S.$1 billion from options to help accelerate its fab expansion plan. In fact, TSMC is scheduled to bring up two new 8-inch fabs before mid-1997.

In contrast to prepayment, capacity option arrangements tend to be used when the wafer volume is larger, the delivery date is more distant, and the supply agreement is longer term. Arm's-length Foundry Capacity: Wafer Purcliases For many medium-size and smaller fabless companies, securing wafers is much like a straightforward purchase of foundry wafers. Because of its relatively fewer product lines and smaller volume requirement, a small fabless company may find it somewhat easier and less pressured to secure supply on a long-term basis. But when industry capacity does get very tight or when resources are insufficient to pay for wafers, trading tecltnol- ogy for capacity has also been practiced.

For larger SCM users, short-term foundry wafer purchases may often complement other capacity-securing arrangements (such as the ones men tioned previously). Tfiis would accommodate a sudden surge of customer orders or potential mishaps in one of the long-term suppliers. A combina tion of shared-rnvestments/contracts for long-term, high-volume supply and wafer purchases for short-term, low-volume needs may be the ideal, risk-balanced solution toward overall wafer supply. Such an arrangement would, however, also suggest maintaining relationships with a larger number of SCM suppliers than might seem required.

Are Fabless Companies in Joint Ventures Still Fabless? An interesting issue precipitated by the rush of fabless companies entering into joint ventures is the question of how the definition of "fabless" is altered by the fact that the fabless partners have, by the virtue of a joint venture's fab construction, become part-owners of a fab. In other words, does being part-owner of a fab disqualify a company from being fabless? Dataquest has adopted the convention that a fabless company ceases to be fabless and becomes an IDM when it enters into a participatory joint ven ture that produces more than 25 percent of the wafers it requires. Fabless involved in nonparticipatory joint ventures continue to be recognized as fabless.

Comparison in Capacity-Financing Methods Traditional wafer fab investment have principally been driven by the need to secure guaranteed production capacity, by an attractive wafer cost structure—obtaining wafers at cost, and by the need to ensure access to state-of-the-art process technologies. Table 5-1 compares the trade-offs in the various capacity financing methods. Clearly, building one's own fab is the most risky venture with the strongest positive return. Shared invest ment in a new fab through a joint venture arrangement will provide all three advantages but also incurs a good portion of the high costs associ ated with operating a captive internal fab. Contractual capacity agree ments and foundry purchases have reduced risks at the expense of reduced advantages.

As fab costs continue to rise, more and more companies will shy away from building new plants and look for an alternative that meets its needs and resources most appropriately. Arrangements such as shared invest ments (joint venture and equity participation), contractual supply agree ments (prepayments and options), as well as straight wafer purchases, have allowed companies a range of choices. Dataquest believes that as new fabs get more expensive and bigger, fewer new fabs will be built. As shown in Table 5-2, fewer new fabs means that fewer companies in the semiconductor industry will be building them. Dataquest estimates that by 2002, about 30 percent of semiconductor companies wiU be building their own fabs, compared with about 50 percent in the first half of the 1990s. The rest, 70 percent of all semiconductor companies, will be resort ing to supply arrangements with SCMs for mo^t, if not all, of their wafer needs.

Table 5-1 Trade-Offs in Methods of Financing Fab Capacity Positive Negative Fab costs from ope Access to latest ration, R&D, and Guaranteed Capacity Attractive wafer cost process technology overhead Own Fab Indefinite XXX XXX XXX Shared Investment/ Indefinite XXX XX XX Joint Ownership Contractual Capacity Long term to medium XX XX - term Foundry Purchases Short term X X - Note: Number of Xs indicates degree of importance. Source: Dataquest (February 1996)

Table 5-2 Rising Cost of New Fabs Means Fewer Companies Can Afford to Go Solo 1985-1990 1991-1996 1997-2002 New Fabs 258 202 About 175 Companies Building Solely Owned Fabs 80 percent 50 percent About 30 percent Companies Relying on SCM 20 percent 50 percent About 70 percent Source: Dataquest (February 1996) SCM User Strategies There can be many advantages in using SCM services to meet manufactur ing needs, including decreased capital outlay requirements and more focused company direction. However, not all advantages are afforded to all users of SCM. In general, optimal SCM user strategies can be classified by the two principal types of users: fabless and IDM companies.

Fabless SCM User Strategies Fabless companies, by design, rely completely on the SCM market for manufacturing their products. In a tight market such as today's, this group of companies is most at risk when negotiating for capacity. The fabless companies have, by and large, four choices in today's tight market: to limit growth, to acquire an existing fab (thus becoming an IDM), to enter into a joint venture with others to build a fab, or to make sizable cash payments either in advance for wafers or as an equity investment in a fab operated by someone else. All of these options are being adopted by fabless compa nies today. As manufacturing capacity continues to be tight over the course of 1996, there will probably be more creative methods developed for securing capacity.

When should a fabless company build a fab? At what level of revenue? There is not a single magic number, but rather a set of conditions that must be met in order for the construction of a fab to qualify as the lowest-risk alternative. The first condition is only indirectly related to the level of business and involves management of the number of suppliers and the products they produce. A fabless company's business is at risk, in terms of reliability of a device produced, if different suppliers of the same part

produce chips of different quality and performance. Quality control for the shipped device may be difficult to manage if the fabless company has too many suppliers. Dataquest understands that Cirrus Logic has on the order of a dozen or so suppliers for its products, and the motivation to consoli date production was one of the key reasons in Cirrus' investing in MiCrus.

The second condition, which does relate to the size of the company is related to what kind and size of fab needs to be built or planned. A finan cial model in which capital spending exceeds 25 percent of revenue on an annual basis would be risky compared with alternatives such as prepay ment and equity investment in a joint venture. The average capital spend ing for the semiconductor industry has been around 20 percent of the total market, historically. Including a reasonable assumption of how an invest ment in a fab would be spread over time, we conclude that for a fabless company to build a fab, it should have an armual revenue stream that exceeds 1.6 times the cost of the project. For example, to build a U.S.$1 bil lion fab over 2.5 years, the minimum annual revenue for the fabless com pany today should be $1.6 billion. The 1.6 revenue-to-fab-cost ratio is also consistent with the analysis based on a comparison of fab cost versus com pany' revenue in recently announced projects (see Figure 5-3). As shown in the figure, companies building fab or fab expansion projects typically have revenue that is at least 1.6 times the cost of the project. The handful of companies that fall below the "fab affordability line" are not significantly below, and many of them are tempering the project risk by pursuing con currently an SCM solution. Likewise, an IDM with a current project that exceeds 1.6 times its revenue may be taking on excess risk, considering the capacity procurement options available in the SCM market.

IDM Company Strategies for Using SCIM Services There are principally three distinct strategies that IDM companies are employing in their use of SCM services.

The first strategy may be characterized as a "low-cost" strategy in which the decision about outsourcing production is based on achieving the low est cost of manufacturing the chip. This is the traditional "make or buy" decision in which the costs of outsourcing (wafer costs and managing and monitoring the SCM relationship) are weighed against those of internal production (direct costs for labor and materials, overhead, and inventory costs). IDMs using this approach can move in or out of the market based on internal capacity availability or the cost from the supplier. An example of a company that has used this approach is Motorola.

The second strategy views the SCM market capacity as an extension of the IDM customer's own capacity. Dataquest calls this approach the "risk- aversion" strategy. The IDM bases the decision to subcontract on attaining the most efficient balance between the two sets of capacity—internal ver sus external. This can lead to more efficient overall capacity use if lower- volume products are subcontracted or if higher-volume products with a unique set of process requirements are subcontracted. This would free up the IDM's internal capacity and allow it to be managed at a higher-capac ity utilization. IDMs employing the "risk-aversion" strategy tend to have longer-term and more stable volume requirements, as they are more stra tegic users of capacity. An example of a company that is likely to follow this practice is LSI Logic.

Figure 5-3 Revenue versus Fab Cost Map: Companies Primed for Increased Use of SCM Services

1994 Revenue (Millions of Dollars) 3,000 • Motorola, Intel • SGS-Thomson IBM/Toshiba, Tl, 2,500- Samsung

2,000- AMD

Fab Affordablllty 1,500- Line (Slope = 1.6) Micron

1,000- • LSI Logic A Analog Devices A Hewlett-Packard A VLSI Technology 500- Linear •IRC • IDTAtmel Technology GEC-Plessey 1 T I 1 1— —I— 1,000 1,200 Microchip 400 600 806 Cost of Fab Project (Millions of Dollars)

A Companies Already Using SCM Strategically • Companies Beginning to Use SCM • Companies with No Significant SCM asiasa

Source: Dataquest (February 1996)

The final IDM user strategy that has been identified is one that may be labeled a "growth" strategy, where the IDM uses more advanced capability external to the company to develop new products and grow the business strategically. This kind of strategy is more typical of a company whose internal capacity is significantiy behind the leading edge (such as 1 micron or higher today) or that uses its internal capacity to manufacture high- margin proprietary products. An example of a company with this type of strategy is Analog Devices.

Summary of September 1995 Survey Table 6-1 summarizes the foundry wafer pricing for CMOS unprobed wafers in the fourth quarter of 1995. The table shows one representative price level and a range that reflect the variance in pricing for each process combination for both the 150mm and 200mm wafer sizes. Information on 150mm and 200mm wafer pricing at or below 0.6 micron is well estab lished because wafers of these sizes and at 0.6 micron and higher were standards for the vast majority of foundry capacity at the time of the pric ing survey. Pricing information shown in the table for 200mm wafers at 0.5 microns is based on projections provided by foundry users and provid ers surveyed by Dataquest. Manufacturing of 200mm foundry wafers is likely to begin at least at the 0.8-micron line width level and most likely at the 0.6-micron line width level. Thus, no pricing for 200mm wafers at line widths greater than 0.8 micron is available.

Wafer pricing is a moving target, swayed by the changing supply and demand dynamics in foundry capacity. Although foundry wafer pricing shown in tiie table will probably change within six months of the survey (and already have, to some degree), the information presented could still be used as a guide for future wafer pricing. Considering that foundry capacity will remain in tight supply through 1996, there is a greater proba bility of increases than of decreases in foundry wafer prices at 0.5-micron and 0.6-micron technologies. This table could be viewed as providing a minimum in foundry wafer pricing, especially in the technologies that have higher demand (0.6-micron and smaller line width and 200mm wafers) through the projected tight-supply period of 1996 to 1997.

Table 6-1 1995 Foundry Wafer Prices, CMOS Unprobed Wafers, 13 to 15 Mask Levels* (U.S. DoUars per Wafer) 150mm Wafers 200mm Wafers Line Geometry (Microns), Metal Levels Est. Average Price Price Range Est Average Price Price Range 1.0,2 636 475 to 780 NA NA 1.0,3 684 544 to 830 NA NA 0.8,2 772 670 to 860 1,352 1,200 to 1,613 0.8,3 844 720 to 1,000 1,391 1,250 to 1,613 0.6,2 927 775 to 1,050 1,844 1,680 to 2,000 0.6,3 1,031 800 to 1,300 1,958 1,600 to 2,400 0.5,2 1,205 875 to 1,400 2,169 1,700 to 2,600 0.5,3 1,307 910 to 1,700 2,370 1,800 to 3,000 NA = Not applicable 'Assumes no epitaxial; single-level polysillcon Source: Dataquest (October 1995)

February 1996 Update Since the conclusion of the survey, the memory market (particularly SRAM) has softened. Older SRAM-type capacity has found its way into the foundry market and is putting downward pressure on prices at 0.8 micron and higher. Dataquest has heard of declines of as much as 15 percent to 20 percent, but we believe that 10 percent is more typical. The high end of the range, typically from Southeast Asian suppliers, is under the greatest pressure, tightening the range of prices found in the market

Overview by Technology and Region of Supply For 1.0-micron wafers, the primary sources of supply are Europe and the United States, with some in Japan and Asia/Pacific. The only regional variation in 1.0-micron wafer pricing was that European providers tended to be lower than average. This could be a result of more plentiful capacity. The supply of 0.8-micron wafers is broad, with a relatively narrow price range. There are no clear variations among the regions in pricing. For 0.6-micron and 0.5-micron wafers, there is a significant difference in supply and pricing among the regions. Regional pricing variation is most pronounced at the 0.5-micron level. The bulk of the capacity for 0.5-micron (and even 0.6-micron) line width is in Japan and Asia/Pacific, where the customers are most likely to get favorable pricing. Moreover, it has been reported that the most favorable wafer pricing is enjoyed by Japanese foundry customers in Japan. Because the SCM market is more developed in Japan than in other regions and Japanese manufacturing is very much at the leading edge, wafer pricing issues in that market tend to be a bit more settled. Also, foundry relationships in Japan, especially between a Japa nese manufacturer and a Japanese customer, have traditionally been long term, so that continuing a relationship of trust is often as important as wafer pricing. Another difference in Japan is that there are relatively fewer new customers bidding for the same foundry capacity (most start up fabless companies are in the United States and Asia/Pacific), so there is less urge on the part of the suppliers to set premium prices. Asia/Pacific providers are more closely following the letter of the law of supply and demand. If the demand for foundry capacity exceeds supply, the imbalance quickly and efficiently translates into higher prices. How ever, if the customer is a fast-growing U.S. fabless company or prefers to do business with a dedicated foundry, the Asia/Pacific providers can be a little more accommodating. Flexibility has been cited as an important element in a successful foundry relationship, and many Asian providers seem to be more inclined to "deal." BiCMOS processes currently account for less than 20 percent of worldwide foundry supply, and most BiCMOS foundry capacity belongs to Japanese suppliers. The technologically more complex BiCMOS process is likely to continue to decline in popularity. This could result in a greater imbalance between the supply and demand of BiCMOS capacity, with an increasing mismatch in the regional distribution of BiCMOS users and suppliers. A typical BiCMOS process today involves about 18 to 20 mask levels, com pared with 13 to 15 for the base CMOS process flow. Also, most BiCMOS processes include an epitaxial silicon layer and two levels of polysilicon

(as opposed to no epitaxial layer and one polysilicon level for CMOS). Generally, for comparable line widths and metal layers, BiCMOS wafer pricing can range between 25 and 40 percent higher than CMOS pricing. Pricing of Process Options Table 6-2 provides an estimate of the pricing for various processing options. Again, the optional process pricing tends to be lower in Europe and Japan and higher in Asia/Pacific. Some foundry suppliers, notably Japanese companies, have internal capability for epitaxial depositions, which allows lower pricing than if these wafers were obtained from a merchant silicon company. Perhaps a more critical consideration for choosing a process or a provider is not pricing, but rather the expertise and experience of the provider's ability to execute the process option cor rectly. An example is the salicide process, a difficult process where the actual yield may vary considerably from one foundry to another.

Chemical mechanical polishing (CMP) is another critical application essential for the fabrication of sub-0.5-micron devices with multilevel interconnects. However, the CMP process technology is not fuUy mature and true process ownership is not available in current CMP equipment offerings, so much of the CMP process capability has to be provided by the IC manufacturers. Given that dedicated foundry companies, in general, have devoted relatively fewer resources to R&D, CMP and other advanced processing techniques (for example, salicide and some critical etch and lithography processes) may not be readily available in foundry for a few more years. Alternatively, customers with advanced process option requirements may need to bring their own process technology to a foundry. An example is AMD's providing CMP technology to TSMC for the manufacturing of 486 microprocessors. While manufacturing capacity remains tight, technology-for-capacity trades wiU remain a viable option.

For customers that do not have or do not choose the technology-for-capac ity option, IDM foundries with extensive processing R&D programs, such as IBM, SGS-Thomson, NEC, and Fujitsu, have clear advantages over ded icated foundries in providing advanced IC manufacturing capabilities.

Table 6-2 Estimated 1996 Foundry Wafer Process Option Pricing (U.S. Dollars per Wafer) 150mm Wafers 200mm Wafers Process Option Est. Average Price Price Range Est. Average Price Price Range Epitaxial Silicon 58 40 to 90 144 100 to 225 Salicide 109 50 to 150 200 200 Tungsten (per Level) 40 20 to 60 90 75 to 100 Added Polysilicon Level 69 50 to 80 140 130 to 150 (Above One) CMP NA NA 300 250 to 350 Bach Added Mask Level 69 50 to 100 170 150 to 190 (Above 15) NA = Generally not available on 150mm wafers Source: Dataquest (January 1996)

This table also shows that the differeiices in the prices of process options for 150mm and 200mm wafers are greater than tiie difference in square inches of silicon between the two wafer sizes. This is probably caused by the greater demand for the relatively newer and fewer 200mm foundry wafers. (For instance. Chartered and TSMC began volume production of 200mm foundry wafers orJy in late 1995.) The imbalance in supply and demand of 200mm foundry wafers has allowed suppliers to increase mar gins on process options on the 200mm wafers. This situation is likely to persist well into 1997. Volume Pricing Discounts and Premiums Most foundry suppliers place a minimum on the number of wafer deliv ered to a customer. The minimum may range from a few hundred to as many as a couple of thousand processed wafers per month. The actual minimums also vary according to the agreement made with the customer. Price premiums begin as customers take delivery on volumes under the minimum. Premiums typically start at about 10 percent and can scale up to 30 percent. Although the practice of take-or-pay (pay for the agreed minimum number of wafers) is not widespread now, it could become more common as a capacity surplus begins in the next few years. In the more developed Japanese foundry industry, volume discounts are an established practice. For a CMOS foundry in Japan, volumes of 7,000 to 10,000 wafers per month can command about a 5 percent discount and volumes over 10,000 command a 7 percent to 8 percent discount. For BiC- MOS, volumes of 5,000 to 10,000 wafers per month can command a 5 per cent discount, going up to 7 percent to 8 percent for volumes over 10,000. Wafer price premiums, not discounts, have been reported for volume demand in technologically leading-edge products. A maximum, not a minimum, is likely to be applied on the number of 0.5-micron wafers cus tomers can receive from a foundry supplier. Until 1997, when the con straint in advance capacity will begin to ease, requests for volumes of foundry wafers greater than the maximum are likely to be met with higher prices. Foundry Wafer Revenue Productivity—Another Measure of Pricing A useful metric for gauging productivity in the foundry industry is the dollar revenue per square inch of processed ICs. Table 6-3 shows foundry • wafer revenue productivity on the basis of dollar revenue per square inch, using an average of 27.5 square inches of revenue area per 150mm wafer (excluding 3 percent for the wafer edge). For IDMs using or considering using foundries, this provides a convenient means for comparing the rela tive economics and efficiency of the IDM's captive manufacturing versus outsourcing. For fabless companies, foundry wafer revenue represents the cost basis of their products. A recent Dataquest study has found that, in general, merchant revenue—revenue from finished chips sold on the mer chant market—ranges from 1.5 to 4 times the foundry costs. The average ratio of merchant revenue to foundry cost is about 3. Semiconductor products manufactured by foundries have been logic devices. Table 6-4 shows the semiconductor industry's end-chip merchant revenue productivity (in dollars per square inch) for different device types at three levels of technology. Mainstream logic device production

Table 6-3 150mm Foimdry Wafer Revenue Productivity (U.S. Dollars per Square Inch) ISOinm Wafers Line Geometry (Microns), Foundry Wafer Revenue Levels of Metal Est Average Price per Wafer ($) Productivity 1.0,2 636 23.1 1.0,3 684 24.9 0.8,2 772 28.1 0.8,3 844 30.7 0.6,2 927 33.7 0.6,3 1,031 37.5 0.5,2 1,205 43.8 0.5,3 1,307 47.5 Source: Dataquest (January 1996)

Table 6-4 Semiconductor Industry End-Chip Merchant Revenue (U.S. Dollars per Square Inch) Leading Edge Mainstream Lagging Edge Microprocessor $300-5600 • ^'^"*"'' S1,S0-$25O S90-S150 ASIC, Logic, and Microcontroller ^^K;. $l(K>r$l

Another area in which contract manufacturing will remain significant is in the production of lagging-edge logic devices. This will stem from the migration into foundry services of older, fully depreciated IDM fabs. Fully depreciated fabs with low overhead costs could find many more good, profitable years serving as foundry fabs making technologically less demanding products with high yields.

How Will SCM Change over Time? In this chapter, Dataquest explores the future of the SCM industry. As the SCM players grow in sales and resources, they are expected to expand into related businesses to gain greater competitive advantages. We will describe the two expansion strategies that are being adopted by existing and new SCM suppliers. Competitive issues such as SCM's technological lag, dedicated foundries' competitive strengths, and potential new SCM entrants are also discussed. Expansion of the Traditional Foundry Model Early participants in the SCM market had relatively simple product and service concepts. They offered to manufacture wafers for fabless or IDM customers that provided them with pattern generator tapes or masks. This "traditional" foundry model is being expanded in two different directions. One strategy is described as "manufacturing integration" and the second strategy is called "design integration." These two strategies are depicted in Figure 7-1. Figure 7-1 Contract Manufacturing Services Strategies

Manufacturing Integration

Drop Ship i i

Assembly and Test

Fab

Tradi tional Fou ndry

GDS-II or Masks Netlist VHDLor Verilog Files

Design Integration

Source: Dataquest (February 1996)

Manufacturing Integration Today, less than 20 percent of the SCM industry supplies the complete process from wafer start to either packaged chip or known good die. Fully 60 percent of capacity is produced as unprobed wafers. This is likely to change significantly. Semiconductor contract assembly manufacturers are expected to be the most common new entrants into SCM services, embark ing on a strategy that we call manufacturing integration. The first Asia/ Pacific entrants from this group seem to have a well-conceived strategy. For example, Alphatec, a Thailand-based contract assembly manufacturer, has armounced its entry into the foundry business through its establish ment of SubMicron Technology. The strategy is to offer to Alphatec's exist ing contract assembly customers, as well as potential new customers, the combined services of Alphatec's contract assembly services and SubMi- cron's semiconductor front-end foundry capabilities to provide turnkey contract manufacturing, including wafer fab, assembly and test, and drop ship to the end customer.

This is a compelling strategy and must be considered as a viable market entry position. QPL Holdings Ltd. has implemented a similar strategy. Other major contract assembly companies are expected to make similar announcements during the next year. Dataquest believes that five to 10 new entrants from Thailand, Malaysia, Indonesia, Korea, Taiwan, China, and Singapore will adopt this strategy during the next five years. This approach is further supported by the backward integration of the dedicated foundry companies into contract assembly for their customers. Chartered Semiconductor already offers tunikey services because it has both front-end manufacturing and assembly operations. TSMC also offers turnkey services through alliances with a number of contract assembly companies.

Dataquest believes that the turnkey model will be a strong strategy for SCM. We also think that the strongest turnkey suppliers will offer wafer processing through drop shipment of products to customers. They will take total responsibility for semiconductor manufacturing and logistics for their customers. Dataquest believes that the turnkey model may become the predominant model that the industry will follow.

Design Integration Today, just under 90 percent of the SCM services market interfaces with the customer at GDS-Il or masks. Silicon layout is not generally done at the foundry. TSMC, the current leader in semiconductor foundry services, has expanded its offerings to include access to ASIC libraries, a move that makes TSMC look more like an ASIC supplier. This model has been pio neered by Japanese companies that prefer to interface with their customers at a higher design level than GDS-II/mask manufacturing. Our pricing survey has shown that companies in Asia/Pacific and Japan have different pricing structures for their services. Japanese companies' prices are some what lower than those of Asia/Pacific foundry suppliers today, in spite of the fact that Japanese companies typically provide services at the netlist interface level, which is more profitable tihan the GDS-II interface level preferred by the Asia/Pacific companies. This apparent contradiction can be explained by examining the evolution of the market inside Japan.

When the contract manufacturing services market developed in Japan in the late 1980s, Japanese companies tended to price their services with rela tively low margins compared with today's standards. By the early 1990s, Japanese companies wished to increase their margins on these services and they migrated to a higher interface level. The SCM market outside of Japan has been evolving primarily along a GDS-II interface path serving PC chipset companies. These chips typically have higher value per square inch of silicon, and thus the non-Japanese foundry companies have enjoyed higher prices.

Many foundry users prefer to use GDS-11 tapes or masks as the interface with their foundry sources. This approach has the advantage of providing control of the layout design of their products and also provides some pro tection of their intellectual property. Although several years ago some fabless companies transferred their designs to their foundry sources by netlist, by 1995, those companies switched to GDS-11 or masks, indicating a clear shift in this direction. Dataquest believes that only small fabless companies will use a netlist interface until they have the financial resources to acquire electronic design automation (EDA) layout tools and can produce their own GDS-11 tapes. We think that TSMC offers cell libraries and netlist interface in order to provide such companies these services when they are small and grow ing and establish itself as their preferred foundry supplier.

Dataquest believes that design integration will play a less significant role than manufacturing integration as a strategy for success in contract manu facturing services. The key interface will be GDS-11 or masks for the fore seeable future. ASIC libraries and netlist interfaces will be a preferred way of doing business for only a small minority of customers of SCM services. SCM Technology Will Continue to Lag Leading-Edge IC Manufacturers Although the SCM technology road map is being driven by user demand toward increasingly advanced levels, Dataquest believes that SCM ser vices providers will continue to lag the leading-edge IC manufacturers in technology. This is a natural result of the SCM business model. The SCM business is designed to offer customers low-cost manufacturing of proven process technology. Instead of investing resources in the development of advanced technologies, SCM providers are investing in cost-effective 200mm capacity with technology that lags leading-edge capability by one- half generation to one full generation. Figure 7-2 shows the technology gap, as measured by minimum line width, between the leading-edge capa bilities of SCM and the semiconductor industry. During the past 10 years, SCM suppliers have gained ground, catching up with tibieindustr y leaders in semiconductor process technology, and the gap has shrunk from about 1.3 micron to less than 0.15 micron in 1996. The lag between SCM and the semiconductor leaders is likely to be maintained at about a 0.1-micron sep aration, or a lag of one-half to one generation, for the remainder of the decade.

Figure 7-2 Leading-Edge Line Widths of SCM and the Semiconductor Industry

Microns 2.5-

SCM Leading-Edge Line Width 2.0- Semiconductor Leading-Edge Line Widtti 1.5-

1.0-

0.5-

—I— —I— 1985 1990 1995 2000 961370

Source: Dataquest (February 1996)

Dedicated Foundry Positioned to Dominate SCIVI li/larlcet Dataquest asked foundry users if they preferred dedicated or IDM foundry providers, and 65 percent of the respondents stated a preference for dedicated foundries over IDM SCM providers. Most of the remaining responses expressed no preference for either dedicated or IDM SCM pro viders, while a few stated a preference for IDM foundries. In analyzing the SCM users' stated preference for dedicated foundries, the following seven key reasons were identified, all of which Dataquest categorizes as having an emphasis on customer focus:

• Better customer service • Lower cost • Better turnaround time • No potential competitive situation • More flexibility regarding design rules • No conflict with internal demands • Better assurance of available capacity These key reasons provide insight as to why dedicated foundries are pre ferred. The success of dedicated foundry companies is totally dependent on satisfying their foundry customers' needs. IDMs generally have other priorities to balance with the demands of their foundry customers.

The few responses that indicated a preference to IDM foundries also gave important insights into the benefits of doing business with IDM SCM pro viders. These benefits are grouped into three categories as follows: • Manufacturing experience a Better at solving problems requiring knowledge of both the manufacturing process and the product Q More experience in testing a Established quality control process in place a Driven to high yield and quality by total manufacturing economics • Applications experience Q Understand applications better • Leading-edge technology • Offer more advanced technology Dataquest believes that the dedicated manufacturers will close the manu facturing experience gap over time. However, companies that require more advanced technology and applications support may well continue to use IDMs to support their foundry needs. In this regard, system OEM users are the most likely to require applications support for their product designs.

New Entrants in SCM A significant long-term threat to the current SCM provider is new entrants. Although these new entrants may contribute to excess capacity in 1998 to 1999, Dataquest believes that they will not have a significant competitive impact on the market until 2001 to 2003. Near-term competitive threats to the SCM industry could come from two directions: Japan and Korea. We consider these threats to be only moderate at best. The Japanese IDM SCM suppliers can be characterized as a wild card. These companies would have to reposition themselves to become compet itive threats outside of Japan. This is because foundry operations are decentralized operations within the companies. They tend to make inde pendent decisions about providing foundry services to their customers. This decentralized approach means that there is no corporate-level strat egy toward pursuing foundry as a business opportunity. Japanese IDMs, for the most part, prefer technology alliances and joint ventures rather than long-term foundry relationships. Foundry or OEM ASIC relation ships are viewed as a means to build the initial relationship with target companies. There are a few exceptions to this strategy, for example, Seiko Epson and Sharp.

The second possible short-term threat is the large Korean DRAM manufac turers. Dataquest believes that they pose no immediate threat today. These companies are focused on pursuing other product strategies that provide them with greater visibility in the global semiconductor market. They have stated that they do not intend to become major players in the

foundry business. Korean companies have little revenue to date from sup plying nonexclusive SCM services. This is a result, in part, of a negative cultural connotation that can be seen in Korea: that if a company produces someone else's product, it is not really a manufacturer. Dataquest believes that this cultural issue may become less significant over time. We note, however, that Korean companies should not be discounted entirely. Their strengths are formidable, and they could become serious competitors if they chose to enter the SCM services business. They have manufacturing strength, access to resources, and can apply single-minded focus to projects if they choose to do so. SCM services companies should monitor the Korean companies carefully, particularly if there is weakness in the DRAM market. Value-Added Manufacturing Services Are tiie Key to Success It is critically important to understand that the SCM services business is not a manufacturing business, but a service business. That's why we call it SCM services. Although an SCM services supplier cannot exist without offering manufacturing, it will not succeed if its management is not cus tomer-focused. Once a customer focus is established, we believe that offer ing value-added services is the key to success. Value-added services reduce the customers' cost of doing business while increasing the margins of the supplier. We think that a successful model for the SCM services business will incorporate the following services with basic wafer fab capability:

• Appropriate technology that provides the right technology for the customer's needs at the optimum cost • Manufacturing effectiveness in the form of reduced cycle times and high yields, resulting in lower manufacturing costs that can be passed on to the customer • Assembly and test capability to relieve or minimize the customer con cerns witti test and manufacturing-related issues. Manufacturing will become a given, just as quality has become a given. With a fully verti cally integrated (turnkey) SCM provider, the customer can provide the design to a supplier, which will manufacture and ship the product directly to the end customer. • Inventory and logistics management that will provide the customer with real-time information about the status of its products just as if it had its own manufacturing operation By focusing on these value-added services, SCM service providers and their customers can be cost-competitive compared with the vertically inte grated device manufacturers. This is also the essence of the SCM model, that a clear division of labor is established between product design and product manufacturing. While SCM customers focus on product design, marketing, and sales, SCM suppliers concentrate on providing cost- effective manufacturing with competitive turnaround of finished products.

Definitions of Terms

Dedicated Foundry Providers Dedicated foundry providers include any of the following companies whose charter is to fabricate devices for other companies exclusively. Dedicated foundries that Dataquest recognizes are Taiwan Semiconductor Manufacturing Company, Chartered Semiconductor, Tower Semiconduc tor, Newport WaferFab, SubMicron Technology, Advanced Semiconductor Manufacturing Company, MidWest Microelectronics, and Orbit Semiconductor.

Integrated Device Manufacturer (IDM) An IDM is a company that has its own front-end fabrication facilities and is a merchant or captive supplier of semiconductors; can refer to either a foundry user or a foundry provider.

Fabless Companies Fabless companies are merchant semiconductor companies that purchase more than 75 percent of their wafers (or product) from a foundry (for example Altera, S3, Xilinx, and Brooktree, among others. See also Appendix C).

System OEM A system OEM is an electronics equipment company that is not a mer chant or captive semiconductor company (for example, Apple Computer, Sun Microsystems, and Compaq).

Foundry Purchases Foundry purchases include unprobed wafers, probed wafers, tested wafers (known good die), or packaged chips.

SCMS-WW-FR-9601 ©1996 Dataquest 53 Appendix B Worldwide Semiconductor Contract IIAanufacturers The following are companies that participate in semiconductor contract manufacturing: • ABBHafo • Allegro Microsystems • Applied Micro Circuits Corporation • Asia Semiconductor Manufacturing Company (Shanghai, China) • Atmel • Chartered Semiconductor • Daewoo • Fujitsu • GMT MicroElectronics • Gould AMI • Hitachi • Holtek • Honeywell • Huajing • Hualon Microelectronics Corporation • H5^ndai • IBM Microelectronics • IC Works • IMP • Interconnect Technology • LG Semicon • Matra • Matsushita • Micrel • MidWest Microelectronics • Mitel • Mitsubishi • NEC • Newport Wafer Fab • NMB (Nittetsu)/Nippon Steel Semiconductor • Oki

• Orbit • Raytheon • Ricoh • Robert Bosch • Rohm • Samsung • Sanyo • Seiko/Epson • SGS-Thomson • Sharp • Sony • SubMicron Technology • Symbios Logic • Texas Instruments • Thesys (Austria Mikro Systeme) • Toshiba • United Microelectronics Corporation • VLSI Technology • Virginia Technology • Wafertek • •V^^nbond • Yamaha

SCI\/iS-WW-FR-9601 ©1996 Dataquest April 1,1996 Appendix C Fabless Companies in 1995 The following are fabless companies: • 3Dfx • ACC Microelectronics • Acer Labs • Actel • Adaptec • Admos Inc. • Advanced Hardware Architectures • Advanced Logic • Advanced Microelectroruc Products • Alliance Semiconductor • Altera • Aptos Semiconductor • Arcus Technology • Array Microsystems • ASIC Technologies Solutions • ASPEC Technologies • AuraVision • Benchmarq Microelectronics • Brooktree • C-Cube • Catalyst • Chip Design Technology Inc. • Chips & Technologies • Chrontel • Cirrus Logic • Crosspoint Solutions • Cyrix • DSP Group • ESS • ETEQ Microsystems • Etron Technology • Exar

• Eupec (Germany) • Fagor • Genesis Microchip Inc. • Hall Technologies • IChips • Ideal Semiconductor • Information Storage Devices • Integrated Circuit Systems • Integrated Information Technology • Integrated Silicon Solution Inc. (Taiwan) • Integrated Silicon Solution Inc. • Integrated Telecom Technology Inc. • International CMOS Technology • International Microcircuits • Irvine Sensors • KMOS Semiconductor Designs • Lattice Semiconductor • Level One • Logic Devices • Lucas Novasensor • Micro Linear • Mosdesign Semiconductor Corporation • MoSys Incorporated • Myson Technology • NeoMagic • NexGen • NVidia • Oak Technology • OPTi • Optimum Semiconductor • Pericom Semiconductor • Q Logic (formerly Emulex) • Quality Semiconductor • Quality Technologies • QuickLogic • Rambus

• Realtek Semiconductor Corporation • S3 • Seeq Technology • Sensory Circuits • SiArc • Sierra Semiconductor • Silicon Integrated Systems (Taiwan) • Silicon Storage Technology • Silicon Systems • Siquest • Standard Microsystems • Star Semiconductor Inc. • Startech • Sunplus Technology Company • Symphony Laboratories • Syntek Design Technology • Tamarack • TCS • TranSwitch • Trident Microsystems • Tseng Labs • ULSI Systems • Unichip • United Technologies Microelectronics Center • Vandem Inc. • Vivid Semiconductor • WaferScale Integration • Weitek • Weltrend Semiconductor Company • Western Digital • V\^nbic Semiconductor Inc. • Worltek International • Xilinx • Zycad (Formerly Appian Technology)

For More Information... Calvin Chang, Industry Analyst (408) 468-8605 Internet address [email protected] Via fax (408) 954-1780

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. ^^ It does not contain material provided to us in confidence by our clients. Reproduction or disclosure in whole or in IjOTO/^l I^^Cf P3rt to other parlies shall be made upon the written and express consent of Dataquest. ^"^•^^^^•^Sr ©1996 Dataquest—Reproduction Prohibited A Gartner Group Company Dauquest is a registered trademark of A.C. Nielsen Company i DATAQUEST WORLDWIDE OFFICES

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