Semiconductor Oversupply Continues

By William Trent, CFA of Stock Market Beat

Although we have frequently noted what we view as alarmingly fast growth in semiconductor equipment purchases relative to the end demand for semiconductors, it looks as though the supply will continue to grow unabated for a while. DigiTimes reports:
Semiconductor Manufacturing International Corporation (SMIC) will sign a fab construction contract with the Wuhan city government (Hubei province, China) and the pure-play foundry will increase its monthly 12-inch wafer capacity by 25,000 wafers after the completion of construction in 2007, according to company officials. SMIC reportedly gained US$3 billion in investment aid from the Wuhan government for the new fab construction.

Furthermore, although some manufacturers including pure-play foundry Taiwan Semiconductor Manufacturing Company (TSM) are slowing their expansion plans by postponing equipment delivery, DRAM makers are still looking to continue with their expansion plans, according to sources at equipment makers.

Meanwhile, wafer maker Wafer Works will expand its 6-inch silicon wafer monthly capacity in Taiwan by 20% to 300,000 wafers in the third quarter. The company will mainly focus on 4- and 5-inch silicon wafer production at its China subsidiaries but will also supply 6-inch wafers for China-based customers.

This expansion has mild implications for semiconductors for two reasons: Wafer Works is a small company and it also manufactures wafers for solar cells. It is currently running at full capacity, and we doubt their capacity increases will be broadly felt.

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