Factory flaws yield headaches for chipmakers

Some of the world's biggest chipmakers have lost both money and time straightening out the extraordinarily complex process of turning microchip designs and discs of silicon into working electronics.

The difficulties have only worsened as the industry adopts new design features smaller than the wavelength of light, while moving to larger silicon wafers that can produce more than twice as many chips as previous wafers.

While those new technologies greatly increase the potential for churning out stacks of more powerful chips at lower costs, they have also thrown up hurdles that even the largest chipmakers have occasionally stumbled over.

The most recent slip-up comes from IBM's $3 billion fabrication plant, or fab, in East Fishkill, N.Y. IBM executives have acknowledged that manufacturing problems at the plant contributed to a $150 million loss that the company's chip business had last quarter.

The fab, which produces chips with features as small as 90 nanometers, or billionths of a meter, is one of the world's most advanced.

"It does seem that there has definitely been a bit of a bigger hurdle in the transition to 90-nanometer for the industry at large," said IBM spokesman Chris Andrews.

IBM's troubles have also drawn complaints from customers who pay Big Blue to build their chips. Apple Computer earlier this month said IBM failed to provide it enough chips for its Xserve G5 computer.

"Obviously, we were not happy with the delivery that we got," Timothy Cook, Apple's executive vice president of worldwide sales and operations, said on a conference call.

Manufacturing problems are also believed to have affected memory chipmakers. Analysts say memory companies have had troubles shrinking the design features on their chips to the 110-nanometer level, leading to shortages and price jumps that are rippling through the computing supply chain.

An analyst in Taiwan, Shawn Wang of KGI Securities, has noted that one memory chipmaker there, Nanya Technology, has been delayed in moving to high-volume production for its most advanced memory chips.

Intel, the world's largest chipmaker, has not been done in by problems in the factory. But even the world's biggest spender on chipmaking gear faced trouble around the beginning of the year when a design problem popped up in an unreleased notebook computer chip named Dothan.

The design flaw, which affected the chip's ability to be manufactured, pushed back by three months the launch date for the chip, and found its way into comments made by Intel's president during its fourth-quarter earnings conference call.

"We were disappointed that we did not begin shipping Dothan as planned," Intel President Paul Otellini told investors and analysts in January.

Adopting both smaller feature sizes and larger silicon wafers presents an especially large challenge to chipmakers, and occurs only about once a decade, said Intel spokesman Chuck Mulloy. Fabricating chips from larger wafers can yield significant cost benefits for manufacturers.

Intel, he said, managed that risk by mastering one advance at a time. "Any process generation shift is fraught with risk, unless you really focus on it," Mulloy said.

Attention to "yield"--the industry term for how successful a fab is in making defect-free microchips--has become a growing concern, if not an obsession, for chipmakers around the world.

"Yields get to be a bigger and bigger issue every time we go to a new technology node," said Mark FitzGerald, a semiconductor manufacturing equipment analyst at Banc of America Securities. "It gets to be more rocket science."

As much as manufacturing problems hurt the chipmakers, FitzGerald pointed to one company that stands to benefit from such problems. KLA-Tencor, the largest maker of equipment for inspecting silicon wafers for defects, remains one of the analyst's top stock picks.

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