Israel-based foundry Tower Semiconductor is expanding its manufacturing capacity in the next year as demand for its silicon-germanium (SiGe) and gallium nitride (GaN) products is projected to exceed its output.
Demand for semiconductors has rebounded sooner than the industry had expected from a coronavirus-induced slump, prompting producers to scramble to increase capacity.
Tower, which produces power devices and sensors, is investing $150mn in 2021 and the first quarter of 2022 to expand manufacturing at its facilities in Israel, the US and Japan. The bulk of the investment will go to its production of 200mm wafers, after it invested $100mn last year in expanding its capacity to produce 300mm wafers. The investment will enable the company to use some of its current capacity to serve higher-margin markets.
A rebound in demand for 200mm wafers is being driven by the increasing use of semiconductors in the automotive industry and Internet of Things (IoT) devices, while advanced 300mm wafers are used for memory devices and computer processors. Given an ongoing shortage in supply of semiconductors in the automotive supply chain, Tower's customers are making decisions on whether to allocate their inventory to meet automotive demand. Only one of Tower's customers sells all of its products to the automotive industry, said chief executive Russell Ellwanger in the company's fourth-quarter earnings call.
Tower has further plans to grow beyond this investment in line with a ramp-up in demand from customers in the 5G, automotive, industrial and defence industries. It has the potential to expand production at its site in San Antonio, Texas, and is eyeing the progress of proposed US legislation to support infrastructure development and semiconductor manufacturing to gauge the possibility of receiving investment from the government.
"It's simply a question of striking the right agreements to grow," Ellwanger said. Tower has some capability to expand its facilities in Japan, after which it will need to consider whether to invest in facilities work or make an acquisition.
Tower's customers have increasingly been requesting long-term contracts to secure supply, which it offers on a take-or-pay basis, indicating that the market is expected to tighten.
The company reported 15pc growth in its silicon-germanium business in 2020, 25pc growth in its power integrated circuits (ICs) business and 22pc growth in mobile. Customers are requesting higher volumes of SiGe-based advanced optical transceivers and forecasts indicate growth will be sustained in 2021, driven by the continued rollout of 5G networks and data centre capacity.
Tower reported increasing demand for power ICs from hybrid and electric vehicles, and in the long term it is anticipating a jump in demand for imaging sensors. During the fourth quarter it announced that it was entering the micro-electromechanical system (MEMs) microphone market, targeting demand for speech recognition sensors for artificial intelligence. The MEMs market is forecast to grow to $1.7bn by 2024 from $1.2bn in 2019, with the silicon business to be valued at around $500mn, Ellwanger said. Demand for sensors from the dental x-ray market was hit hardest by the coronavirus pandemic and is expected to return to its pre-pandemic run rates in the second half of this year.
