By David Lammers
EE Times Oct 01, 2003

AUSTIN, Texas — A severe wafer shortage is looming, said Bob Bailey, president of PMC-Sierra Corp. (Burnaby, Canada), in a speech here Wednesday (Oct. 1).

"By next year or at the latest 2005 the industry will experience the most severe wafer shortage ever seen," Bailey predicted in a luncheon address at the Silicon Hills Summit here, an annual event which showcases startup companies in the Austin region to financial companies.

Bailey said the Semiconductor Industry Association has reported that capacity utilization for 0.15-micron and better is 95 percent, and in the "low 80s" for 0.25-micron technology.

Asked if he has spoken directly to foundry executives about their capacity expectations for next year, Bailey said he has not. However, Bailey said he is getting reports from the managers at PMC-Sierra who work directly with its wafer suppliers.

"All the signs are there for a shortage," he said, including a great reluctance by systems companies to maintain anything like normal levels of inventory. Customers try to order only a few parts at a time, rather than the minimum tray of 30 devices from his company, Bailey noted.

"The behavior of the supply chain now is to order nothing until an order is in place. Inventory levels are not prudent," he said.

Mark Grossman, a semiconductor analyst at Needham & Co. (Boston) noted that the major foundries are much more profit- oriented than a few years ago when they added capacity quickly in order to gain market share.

"The foundries are not going to add capacity until it needs to be done. We believe it is possible to add capacity faster than in past years. But this time, we have the major IDMs [integrated device manufacturers] who are outsourcing in a major way," Grossman said.