Wafer fabs are among the most expensive factories you can build. Every piece of equipment costs a small fortune and the production space itself has to be pristine and dust free. None of that is cheap. But the Wall Street Journal reports that Texas Instruments is taking advantage of the recession to outfit a fab at bargain basement rates (Chip Maker Tries to Grow on the Cheap, Apr 27).
TI had a big empty building in Richardson, TX, and then pounced on the assets of a failed competitor:
In August, TI bid $172.5 million for the manufacturing equipment at Qimonda AG’s U.S. subsidiary. Qimonda had filed for bankruptcy in January 2009, a victim of the recession, which caused many customers to halt purchases because of concerns of a long downturn. After closing the deal in September, the first trucks filled with the giant machines left Qimonda’s Richmond, Va., facility and headed for Texas. “They got it for literally pennies on the dollar,” Gartner analyst Stephan Ohr said, adding that the tools would have cost hundreds of millions if purchased on the open market.
The equipment purchased from Qimonda will fill up roughly a third of the facility and is designed to produce 300 millimeter silicon wafers, larger than the 200 millimeter wafers used by analog chip makers today. When individual chips are cut from the larger piece of silicon, TI will be able to produce 2.5 times more chips at a time than competitors, TI said. TI also has agreed to purchase an additional 100 tools from Qimonda to begin construction of the second phase of the factory. The equipment, which will be shipped from Qimonda’s Richmond factory and a factory in Dresden, Germany, is expected to be running by mid-2011.
The equipment will be used for analog chips, a market in which TI is a leading competitor. They expect that in the near-term, the Richardson facility will bring in an extra $1 billion in revenue. Down the road, Richardson could be producing $3 billion in chips if TI fills up all the space.
This is an interesting play. To some extent, this is what should happen as part of a recession — resources and demand moving from firms to weak to survive the downturn to those that have the financial wherewithal to consolidate their position. Arguably, this is what has happened in the auto industry as Fiat scooped up Chrysler’s brands and North American networks and other firms decided that Swedish cars are cool. Of course, TI didn’t need government cash to grease the transaction.
How will it play out? The other chip makers quoted in the article seem wholly unimpressed with TI’s initiative. That view seems to ignore the uniqueness of the situation. There is no assertion in the article that TI would be expanding if they had to pay market rates. It is the combination of an existing facility and the discount equipment that makes this move feasible. On top of that, TI reads the market as turning around quickly and they are expecting supply constraints. If they can get the new fab up quickly, their bet might pay off.