July 31, 2002 7:25 AM PDT

IBM fires up chip foundry

IBM has big plans for small technology at its new chip plant.

IBM Microelectronics was set to cut the ribbon Wednesday morning at the new plant in East Fishkill, N.Y.

IBM plans to use the new 140,000-square-foot plant as a foundry to forge chips for other companies. The plant will use 300-millimeter wafers and advanced manufacturing and materials technologies such as silicon on insulator and low-capacitance dielectrics, which shield transistors from electrical interference that can hinder performance.

This mix will allow IBM to create higher-performance chips for use in servers or communications equipment. Or the techniques can be used to greatly reduce a chip's power consumption for use in consumer electronics that run on batteries.

The new plant, which cost $2.5 billion to build, will allow IBM to roughly double its production capacity for making chips.

Some analysts argue that the plant will swing open its doors at an inopportune time for IBM, as the semiconductor market is only just beginning a long recovery from its doldrums in 2001. Meanwhile, the market for computer equipment such as servers has also been slow, as companies await an overall economic recovery

IBM, which has been facing lower revenue and profits due to slower sales of chips and hardware like servers, cannot afford to have the new chip plant running at less than full capacity. During the second quarter, revenue from its Technology group, most of which comes from chips, was down 30 percent year-over-year from 2001. But it saw a 7 percent increase from the first quarter.

But the company has implemented a restructuring plan to stem losses in the Technology group--which includes IBM Microelectronics--and refocus on more profitable areas of the chip market. Under the plan announced in June, IBM has turned the new plant into a chip foundry, which will produce a wide range of chips on a contract basis for customers in the communications or consumer electronics industries, among others.

IBM has manufactured chips for outside companies before--Transmeta's first Crusoe processors, for example. But it typically worked with only a few customers, who didn't always have access to its latest and greatest chip-manufacturing technologies.

This time, the "majority of production capacity will be dedicated to customers," said Bijan Davari, vice president of semiconductor development at IBM Microelectronics.

IBM is manufacturing chips using the 130-nanometer process at the plant. The company plans to increase manufacturing quickly and reach full capacity early next year. It also plans a quick move to 90-nanometer production, which will reduce the size of the chips, allowing them to reach higher speeds and increase its manufacturing capacity yet again.

Big Blue will couple the manufacturing services with a new chip design practice began with the reorganization of IBM Microelectronics.

Though IBM will offer foundry services, it does not expect to compete with the likes of Taiwan Semiconductor Manufacturing Co., the largest chip foundry in the world.

"We don't have the plans to have the production capacity they have. Rather we're focusing on the high end of the market...working with the cream of the crop," Davari said.

The new plant is part of $5 billion capital investment plan to boost IBM's semiconductor business worldwide. IBM will also expand capacity at its Burlington, Vt., and Yasu, Japan, chip-manufacturing facilities, as well as in Altis Semiconductor, a joint venture between IBM and Infineon located in Corbeil-Essonnes, France.

 

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