Chip makers weigh new wafer design

Makers of computer chips are stepping up efforts to begin processing silicon wafers that are 300 millimeters in diameter.

Those wafers, roughly 12 inches across, hold the promise of a big productivity boost: for 30% to 40% more in processing costs, they can yield 2.5 times more chips per wafer than the current 200-millimeter variety, also known as 8-inch wafers.

That historic conversion -- expected to trigger about $35 billion in spending on new factories over several years -- may be heavily influenced by a trade-show opening here Monday. About 70,000 people are expected to attend the Semicon West event, many of them to kick the tires on a new generation of 300-millimeter manufacturing tools.

Applied Materials Inc. (amat), the Santa Clara, Calif., company that is the largest equipment maker, will announce a line of 21 new machines that handle the new wafers. ASM Lithography Holding NV, a Netherlands company that specializes in machines used to define chip circuitry, also is expected to unveil its 300-millimeter technology.

"I think we are finally seeing a critical mass," said Stan Myers, president of SEMI, the trade group of equipment makers sponsoring the event. "It's the real beginning of the transition."

Some skepticism is in order. In 1997, Myers recalls, the trade group predicted that multiple companies by 1999 would be shipping chips from 300-millimeter factories, known as "fabs" in industry parlance.

Few did. One reason was that South Korean and other Asian manufacturers abruptly stopped spending in 1997 because of an economic downturn and the after-effects of an earlier factory expansion wave. But another factor was that production tools, the kind of products displayed at Semicon, were not reliable enough.

"One of the things people will be looking for at this show is to see just how mature these tools are," says Sue Billat, a chip-equipment analyst with Robertson Stephens. "They are going to find that they really are there."

James Morgan, Applied Materials' chief executive officer, estimates 12 chip makers have announced plans for 300-millimeter product lines, which will begin churning out chips in small quantities late next year. Intel Corp., for example, plans to outfit two factories for 300-millimeter wafers only, and build two others that will start at 200 millimeters and move to 300.

"This is a major inflection point in the history of chip making," Morgan said.

But bigger wafers also come with new questions about the industry's health. One analyst, Jonathan Joseph of Salomon Smith Barney, last week sent tremors through the stock market by predicting that product shortages could give way to excess production capacity in six to nine months. If that occurs, spending on 300-millimeter factories could slow.

A 300-millimeter factory is expected to cost up to $2.5 billion. As a result, Billat predicts some smaller manufacturers will decide to give up operating their own factories in favor of using contract manufacturers, known as foundries.

But one of the most obvious candidates to dodge that investment, Cypress Semiconductor Corp., says it hasn't any plans to do so. T.J. Rodgers, chief executive of that San Jose, Calif., company, estimates that it could begin processing 300-millimeter wafers for as little as $500 million and predicts it will do so in 2002. "The next fab we build will be 12-inch," he says.