Red Viking journal: Chip Production Set to Post Double-Digit Growth in 2006

VLSI: chip production will increase 12% in 2006. Measured in terms of silicon consumption in millions of square inches, chip production will reach 5995 msi this year. It is in stark contrast to the previous year, when silicon consumption grew at a mere 2.8%, and reminiscent of the boom year of 2004 when it grew 14%.

On a quarterly basis, chip production fell close to 1% in 1Q06 from 4Q05, but grew almost 4% in 2Q06. VLSI Research expects a steady quarterly growth through the rest of the year given that the second half is seasonally strong due to the holiday season.

The major driver to this has been the tremendous growth in IC units produced. The industry shipped 77.8B units of IC from January to July. This figure is 24% higher

than the comparable period of 2005. In particular, NAND Flash shipments have been running 55% above the levels of 2005.

Chip capacity has not grown as fast as production. On a quarterly basis, capacity grew 1.7% in 1Q06 and 2.8% in 2Q06. VLSI expects quarterly growth to clock in at roughly 2.5% for the rest of the year. On an annual basis, chip capacity is expected to increase to 6377 msi of silicon, 6%

above 2005

With capacity growth lagging that of production, utilization rates have hovered above 90% for most of the year. We expect to see rates climb up to 95% for the remainder of 2006.

The following table summarizes VLSI’s latest findings:

Worldwide Chip Production and Capacity

(in millions of square inches of Silicon)

Worldwide

Production

Worldwide

Capacity

Front-End

Capacity

Utilization Rate

1Q06 1416 1533 92.4%

2Q06 1471 1576 93.3%