Extreme Makeover: The Chip Fab Edition

Don’t you just hate it when you spend $1 billion building something, only to find out it’s obsolete within a decade? That’s the fate of semiconductor managers who have old manufacturing facilities filled with old equipment. The question is how to make the best of a very expensive problem.

Surprisingly, if an older fab is retrofitted it generally doesn’t go on to make photovoltaic chips or become a nanomanufacturing center. In many cases, the fabs continue to make chips, but those that require less cutting-edge technology.

Once a company puts $1 billion into building a plant, they’d like it last for years — preferably decades. But in the fast-paced world of semiconductor manufacturing that can take a lot of work. Speaking on Wednesday at a SEMI meeting held in Austin, the managers of three older fabrication plants tried to read the tea leaves on the fate of older chip-making facilities around the country. After hearing them talk I have to tell you, managing an old fab looks to be more competitive than hitting the top of Techmeme.

Surprisingly, most of the older 200mm fabrication plants are still in use and will remain so for a long time. The key is for the people running them to find products that can be made on older technologies while staying cost effective. Freescale Semiconductor started to revamp processes at its 17-year-old Oakhill fab in the third quarter of last year. That effort should end in mid-2009 and result in more than 30 different products lines being manufactured at the fab. Chris Magnella, the facility’s director of operations, says his goal is to remain competitive with the manufacturing costs of more advanced plants in other countries.

To meet that challenge, he’s selected a mix of products that benefit from being made at 200mm wafers, such as MEMs chips, as well as high-voltage power management chips. Additionally, he’s using equipment that’s incredibly old, trying to keep the costs associated with fab operations down. We’ve written about startups trying this same tack. Magnella declines to make big investments in technology at the fab that won’t pay for themselves in a year or less, and he’s embraced a lean manufacturing ethos that pushes the employees to innovate.

Spansion is operating a fab built in 1994. That facility started out making logic chips for AMD that required constant innovation; it switched to making NOR flash memory in 2002 at a cost of $500 million in upgrades. And in 2006 it switched again to build memory on copper rather than aluminum interconnects, again requiring the replacement of lots of equipments and various upgrades.

Why spend so much money and effort to keep a chip plant making chips? Largely because it’s hard to find buyers who can pay as much as these buildings are worth. Building a fabrication plant requires a lot of special features, among them large allocations of freshwater, incredible foundations and clean rooms. Once the basic infrastructure is laid out, multimillion-dollar tools are installed.

An ideal buyer — a PV manufacturer, for example — might be able to use the building infrastructure, and even some of the tools. A few companies trying to make nanomateirals or biomedical devices in tiny packages would likely be able to use fewer tools, but would still appreciate sterile rooms and the extra water connections. And the lowest tier of buyers might be a data center or basic lab facility.

So the next time you start to worry about the value of your house plummeting, just think about how easy you have it compared with the chip makers.