SEMICONDUCTOR

UPDATE

June 2006

 

McIlvaine Company

 

SMIC Secures Loan for Shanghai Fabs

 

Semiconductor Manufacturing International Corporation (SMIC) has secured a 5-year term loan of $600 million from 18 banks, both international and PRC based for its Shanghai cluster of fabs.

"This represents SMIC's debut in the international syndicated loan markets and we are very pleased that we have received overwhelming support from a large number of international and PRC banks," Dr. Richard R. Chang, Chief Executive Officer of SMIC. "In total, eighteen banks, including ten international and eight PRC banks from eight different countries/regions have participated in this Facility. This Facility, one of the largest syndicated loans closed in China so far this year, was significantly oversubscribed - having received a total commitment of close to US$850 million. This Facility will provide significant benefits to SMIC Shanghai and will support SMIC Shanghai's future growth through improved loan pricing, more flexible loan covenants and extended maturity."

SMIC is currently constructing a second dedicated 300mm fab within the fab cluster of 200mm facilities in Shanghai. The facility is expected to be completed by the end of 2006 with tool install expected in 1Q07. The new funds are believed to be allocated to capital equipment purchases for the new 300mm fab.

The foundry also announced at the end of May that it had secured $300 million U.S. dollars from a group of Chinese banks in a 5-year loan to assist in the production ramp of its 200mm fab in Tianjin, Fab7.

The foundry expects to spend $1.1 billion US dollars on capital expenditure in 2006.

 

$3 Billion 'FAB City' Project takes Wings


The first semiconductor or silicon chip manufacturing unit of India is expected to be ready in a year's time, setting in motion of the process of making India self-sufficient in the crucial area of high tech and electronic hardware industry.

 

Foundation stone was laid in Hyderabad yesterday for $3 billion "FAB City" project, promoted by the US-based SemIndia.

 

Speaking on the occasion Indian Minister for Communication and Information Technology Dayanidhi Maran said that government will come out with a new policy and special package of incentives for semiconductor manufacturing in the country with in a few weeks to give a boost to the high-tech and electronic hardware industry.

 

Maran said that without a semiconductor-manufacturing base, India will not be able to emerge as a major hub of hardware manufacturing.

 

The first phase the FAB City will have an assembly and testing plant with an investment of $100 million. It is expected to be ready with in a year. Subsequently about six Fabs or the semiconductor and chip-manufacturing units will be built with an investment of 3 billion dollars in two phases.

 

The entire project will be spread over an area of 1,200 acres at Tukkuguda in Ranga Reddy district. The foundation stone plaque was formally unveiled by the State Chief Minister Y. S. Rajasekhara Reddy.

 

Dayanidhi Maran said that the FAB City will definitely be a Special Economic Zone to make it more viable and workable. "It is not for domestic consumption alone. It is also for exports to ensure that we utilize it fully by exporting to the neighboring countries," he said.

 

Quoting the recent study by Frost and Sullivan, Maran said that the demand for electronic consumption would touch $ 350 billion by 2015 and India would have to import semiconductors of $ 40 billion worth. He said that the Fab City project will help in substituting the imports with the locally manufactured semiconductors and it will bring down the cost by 15 per cent.

 

He said more and more companies were looking at India seriously for the semiconductor manufacturing as it gives them cost advantage also offers a very big market.

 

Vinod Kumar Agarwal, the Chairman and CEO of SemIndia announced strategic partnership with Base Oxygen Corporation (BOC) for providing infrastructure and equipment facilities, gases and vacuum products and services to the FAB City project.

 

After signing a formal MoU, Sanjiv Lamba, the managing director, South and South East Asia, BOC said that the company will be investing Rs120 crore (approximately $27 million) for each FAB unit of SemIndia in Hyderabad.

 

The SemIndia has already announced strategic partnerships with Flextronics of Singapore and AMD of the USA. Surbana International of Singapore will develop the Master Plan and township development study for the FAB City project.

 

On the financial closure of the project, Agarwal said that funds were in place for the $100 million assembly and testing plant and financial closure for the FAB units will be achieved once the government of India announces its policy for the industry and it becomes clear how much investment will come from the government. Pointing out that Intel for its project in Israel had got a package of 600 million dollars from the government. He said SemIndia will be looking for a comparative package of incentives.

 

BOC Begins Next-Phase Work in Taiwan


BOC Group PLC Edwards, in conjunction with its Taiwan joint venture partner, has begun work on the next phase of expansion of its nitrogen production and pipeline distribution network, at a cost of more than $30 million, in the Hsinchu Science Park in northern Taiwan.

 

This pipeline network supplies ultra-high purity nitrogen to more than 20 advanced wafer fabrication facilities within the park. The addition of this large-capacity plant will strengthen capability and provide for an uninterrupted and secure gas supply to meet the continuing growth of wafer fabs in Hsinchu, the center of Taiwan's semiconductor production and development.

 

BOC Edwards supplies integrated services for the manufacture of microelectronics devices, including semiconductors and flat panel displays. Partnering with fabs, foundries and process tool manufacturers, BOC Edwards provides electronic materials and process-enabling subsystems for its global customer base.

 

Mindspeed Technologies® Chooses Dubai Silicon Oasis for Their New Engineering Design Center

 

Dubai Silicon Oasis Authority (DSOA) announced that Mindspeed Technologies, Inc, a leading supplier of semiconductor solutions for network infrastructure applications, is establishing an engineering design center in Dubai for the development of communications ICs and software. The Mindspeed facility will be located at the DSOA Microelectronics Innovation Center.

 

"The decision of Mindspeed Technologies to locate their engineering design center in Dubai further establishes Dubai as an excellent location for electronics engineering companies who want to take advantage of our many offerings," said Dr. Mohammed Al Zarouni, Vice Chairman of DSOA. "Access to a large untapped pool of regional IC design talent, including analog and mixed-signal designers, subsidized EDA tools, and R&D laboratory facilities are just a few of the reasons why leading silicon companies such as Mindspeed are choosing Dubai for expanding their engineering operations. As DSOA expands and adds additional design and development centers and resources, we will continue to attract innovative and industry-leading companies such as Mindspeed."

 

Mindspeed plans to employ hardware and software engineers in the DSOA engineering design center supporting the company's broad family of communications products used in a variety of network infrastructure equipment. In addition to its facilities in the United States, Mindspeed operates design centers in China, India and the Ukraine.

 

Motorola Inc. is in Negotiations with Israel about Expansion

 

Motorola Inc. is in negotiations with Israeli government departments concerning the expansion of its operations in Israel. The company is planning to set up an additional R&D center in Israel on top of an established chip design facility.

 

According to local media reports, during a meeting last week between Motorola chief strategy officer Richard Nottenberg and Israeli Minister of Finance Avraham Hirchson, Nottenberg told the Israeli official that the company would consider setting up the new R&D center if the Israeli government would agree to subsidize part of the salaries of the center's employees. Nottenberg also told Hirchson that he would try to persuade other U.S. electronics companies to establish R&D centers in Israel, the reports said.

 

Nottenberg said that Motorola Israel's R&D facilities could become the main center for future development of Motorola's next generation of fourth-generation communications seamless mobility products.

 

In the past 18 months, Motorola has invested in eight Israeli wireless and data communications, and security startups in Israel via its corporate venture arm, Motorola Ventures.

 

Leading fabless chip company Marvell Technology Group Ltd has also embarked on a plan to expand its R&D activities in Israel and plans to hire 100 engineers and R&D professionals to join the its 620 people in Israel, which make up 25 percent of its global workforce.

 

Marvell has already invested $25 million in laboratories for Marvell Israel Semiconductor Ltd at Yokneam, Northern Israel. Its engineering effort in Israel targets remote access embedded controllers.

 

China Semiconductor Industry Association (CSIA) Accepted into WSC

 

The China Semiconductor Industry Association (CSIA) has accepted an invitation to apply for membership in the World Semiconductor Council (WSC).

 

The WSC includes the industry associations of most of the world's leading semiconductor-producing regions. The WSC was established in 1996 to facilitate cooperation among the semiconductor industry associations.

 

At its annual meeting in San Francisco last month, the WSC unanimously extended an invitation to the CSIA to join the world body.

 

"China is now the world's largest and fastest-growing major semiconductor market and therefore has a large stake in future growth of the microchip industry," Halla, chairman and CEO of national Semiconductor and chairman of the U.S. Semiconductor Industry Association (SIA),  said. "China's domestic semiconductor industry would benefit from active involvement in the WSC, which has become an increasingly important forum for cooperation to protect intellectual property, eliminate trade barriers, lower costs to consumers, and preserve the environment."

 

For years, China has been looking to join the WSC. But word on the street is that the Taiwan Semiconductor Industry Association (TSIA) was reportedly looking to block the CSIA from joining the WSC. The TSIA is a member of the WSC and apparently refuses to be marginalized by the CSIA. The SIA has dismissed those rumors.

 

The SIA and WSC also have some issues with China. Firing an apparent warning shot towards China, the WSC has addressed a number of public policy issues, including intellectual property, environment and trade.

 

Intel Opens Dublin Facility

 

Intel Corp. inaugurated a factory that manufactures the semiconductor company's newest chips, using an industry-leading technology that allows computers to work faster using less energy.

 

Chief Executive Paul Otellini officially opened the Fab 24-2 plant in Leixlip, west of Dublin, Intel's major manufacturing base in Europe since 1989. The plant, which began production three months ago, joins similar facilities in two U.S. states in making Intel's most efficient microprocessor, the chips that run computers and other electronic devices.

Intel's first plant that uses circuit widths of 65 nanometers (a human hair is about roughly 80,000 nanometers in diameter) began production last year in Portland, Ore. The second started up earlier this year in Chandler, AZ.

 

Intel officials say the Irish plant will be the most cost-effective of the three, citing Ireland's exceptionally low business tax rates and lower wages than in the United States.

"Intel's ability to ramp advanced 65-nanometer silicon technology into high-volume production in three factories clearly sets us apart," said Otellini, who revealed that more than half of Intel's worldwide output of chips for computers and servers now contains the 65-nanometer standard.

 

This technology means Intel can pack more transistors onto a single fingernail-sized chip than ever before. But Intel, which invests heavily to stay ahead of its main competitor Advanced Micro Devices Inc., is already planning to produce 45-nanometer chips by the end of 2007.

 

Intel completed the 60,000-square-foot plant despite losing about $210 million in state aid midway through the two-year project.

 

Ireland reluctantly withdrew the help in March 2005 after European Union competition authorities signaled they would reject the aid as illegal -- the first time EU authorities fought such aid for Intel in Ireland. Previously, the Santa Clara, Calif.-based company had received about $275 million in Irish state aid.

Underscoring the government's interest in Intel, Prime Minister Bertie Ahern attended Thursday's opening and praised the new plant as ensuring "that Intel Ireland remains at the leading edge in the semiconductor industry." He also signed a memorandum of understanding with Intel chiefs that commits the company to work with the government to promote home computer use in Ireland.

 

Semiconductor Plans for New York

With a massive semiconductor manufacturing facility planned in Malta -- and the possibility of more plants to come -- Schenectady County officials think their new technology park is in the right place at the right time.

 

Recently, Rep. Michael McNulty, said the U.S. General Services Administration had decided to mark 53 acres of federal property next to Scotia-Glenville Industrial Park as surplus and available to state and local government agencies. Under current plans, the former Scotia Navy Depot site will be combined with the existing 150-acre industrial park and be renamed the Scotia-Glenville Business and Technology Park. Metroplex Development Authority Chairman Ray Gillen said the park is accessible from Luther Forest Technology Campus in Malta and to other area research facilities.

 

Advanced Micro Devices Decides on Location

 

Semiconductor maker Advanced Micro Devices Inc., lured by about $1 billion in state incentives, will build a multibillion dollar chip manufacturing plant in upstate New York and create 2,000 permanent jobs.  AMD, based in Sunnyvale, Calif., chose to locate the new plant on a 600-acre site in Malta, about 25 miles north of Albany, after considering bids from East Asia and Germany, state officials said.  "The Hudson Valley is going to be America's next Silicon Valley," Pataki said. "We're well on our way to achieving that, I'm extremely confident this is just the beginning."  Pataki said the state and company would invest $3.2 billion initially adding another $2 billion over the next few years. The deal comes after several years of Pataki efforts to entice a major chip manufacturer to come to New York.

 

The company had also been considering another site in the central New York town of Marcy the state purchased 25 years ago, officials said. A state data processing center once expected to be built in Albany should now go there, said Senate Majority Leader Joseph Bruno.

 

AMD Chief Executive Hector Ruiz said the incentive package offered by the state was the key in getting his company's investment. "This area is really ripe for development with the combination of educational institutions, people and facilities," Ruiz said.  The state is providing about $1 billion in grants for construction and equipment, tax credits and other Empire Zone benefits. About $650 million of the money will come directly in grants.

 

Construction on the 1.2 million square foot plant is slated to begin in July 2007 and be completed by July 2009. The plant will be fully operational sometime between January 2012 and January 2014.  In addition to the permanent jobs, building the chip-making plant would create about 2,000 construction jobs for up to two years and help add an additional 3,000 jobs to companies created to support plant operations, Ken Green, president of the Saratoga Economic Development Corp., said earlier this week.

 

Worldwide chip sales are expected to total $249.6 billion this year, a 10 percent increase from last year, according to the Semiconductor Industry Association.

 

AMD is Intel Corp.'s biggest rival in the market for the microprocessors that act as the brains of personal computers.

 

In 2005, AMD, Armonk-based IBM Corp., Qimonda AG of Germany and Boise, Idaho-based Micron Technology Inc., and the state announced they would spend $600 million over the next several years on a research, education and economic development project at the College of Nanoscale Science and Engineering at the University at Albany. The project is focusing on creating the next generation of computer microchips while limiting costs.

 

The project is getting $200 million in funding and equipment from AMD, Armonk-based IBM Corp., Qimonda AG of Germany and Boise, Idaho-based Micron Technology Inc. The state is contributing $180 million to the project, dubbed INVENT.

 

The state has invested a total of $675 million in the nanotech facility - a complex of buildings that serves as home to offices of IBM Corp., Tokyo Electron Ltd. and others - in an effort to help create practical technologies that will also help create jobs in the area.

 

Austin-based Sematech, a consortium of nine of the world's largest computer chip makers, has located its newest research center on the University at Albany campus.

 

Hynix Raises Funds for Facilities


Hynix Semiconductor Inc. said it and its creditors have completed a sale of shares worth about $1.5 billion, a portion of which will help it raise funds for facilities investment.

 

Hynix said in a regulatory filing it has sold 10.81 million new shares worth $300 million. It issued global depository receipts (GDR) each worth $27.75.  The fund raised through the stock sale will be used to expand production lines, according to Hynix.

 

In a separate filing, Hynix said its creditors, led by the Korea Exchange Bank, sold a total of 43.1 million existing shares worth $1.2 billion, or 9.6 percent of the company, to domestic and overseas investors at the same price. The price involved in both deals was set at a lower-than-expected 2.2 percent discount from its June 23 closing share price, Hynix added. Market analysts had predicted the discount rate to range between 5 to 9 percent. Hynix said 16.14 million of the 43.1 million existing shares sold by the creditors went to foreign investors in GDRs, while the remaining 26.96 million shares were purchased by domestic investors in a block trade.

 

The sale is expected to help make Hynix partly independent from creditors, fund investments and government support. Creditors reportedly injected a total of $4.6 billion in 2001 and 2002 to keep the then debt-ridden company afloat by swapping its debts for equity shares.

 

U.S. Is Not Tax Competitive, Intel Boss Tells Lawmakers

 

To be competitive in the global marketplace, US tax policy needs to focus on offering tax treatment that is comparable, if not more favorable, than that which is offered by other nations competing for investments, according to Craig Barrett, Chairman of Intel, the semiconductor manufacturer.

 

Testifying last week at a House Ways and Means Committee hearing on international tax policy, Barrett observed that the US tax system has become uncompetitive in comparison to the many countries which offer "very significant incentive packages and have highly favorable tax systems," particularly in Asia.

 

Barrett pointed out that Malaysia provides a 10-year tax holiday, and tax depreciation for capital building and equipment costs equal to 160 percent of their cost. He also noted other countries with considerable tax advantages, including: Ireland, with its 12.5 percent corporate tax rate and a 20 percent research tax credit; Israel, with a capital grant of up to 20 percent, a 10 percent tax rate and a two-year tax holiday; and China, which grants a 5-year tax holiday, followed by 50 percent of the normal tax rate for 5 more years.

 

By comparison, the U.S. has a 35 percent corporate tax rate, few investment incentives, and relatively uneconomic and uncompetitive depreciation treatment, the Intel chief told lawmakers.

 

"From just this sample of tax systems and incentives available in other countries, you can see that the US compares relatively poorly, and effectively an economic penalty on investment in the US is imposed," he stated.

 

According to Barrett, a critical issue that Intel considers when deciding where to locate a new wafer fabrication plant is that it costs $1 billion dollars more to build, equip, and operate a factory in the US than it does outside the US - the largest portion of which is attributable to taxes.

 

Barrett explained that the billion dollars is the difference between the net present cost over ten years of building and operating the wafer fabrication facility in the US, estimated to be as much as $6.8 billion, compared to the net present cost over ten years of building and operating the same facility outside the US, estimated to be as little as $5.6 billion.

While the majority of Intel's plants are located in the United States, Barrett told the committee that "considerable business reasons exist for locating a number of our wafer fabrication facilities in foreign locations."

 

Last week, Intel officially opened its third high volume manufacturing facility in Ireland - said to be the most modern of its type anywhere in the world. However, in the industry in general, two-thirds of the new 300 millimeter wafer fabrication facilities currently under construction, being equipped, or in production are located in Asia. If all types of plants are considered, China leads with eighteen semiconductor plants.

 

Barrett argued that there are several potential solutions to close the gap in tax competitiveness between the US and the rest of the world. These include a corporate rate reduction, an investment tax credit (ITC), full expensing of a factory in year one (or expensing plus a write-off of an additional percentage above and beyond the facility’s cost), or a combination of these items.

 

Barrett also said that a permanent extension to the Research and Development Tax Credit, which expired last year, is "long overdue".

 

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