Technical Insight
The Supply Chain 1: Wafer Shortages
A sure sign of growing pains within the compound semiconductor industry is the fact that there are not enough III-V substrates to go around. The problem begins with the supply of gallium. While there is still plenty of it in the earth s crust, there is simply not enough capacity for extracting gallium from ore. At least two, possibly more, major new plants are said to be in the works, but the industry has been waiting for months now for confirmation. In the meantime, prices continue to rise. The spot market price for 99.9999% ("6N") pure gallium, which is most commonly used in bulk crystal growth, is now more than $1,500 per kilogram, an increase of 125% in one year. In turn, the substrate manufacturers are being squeezed between the gallium shortage and skyrocketing demand for GaAs wafers. It seems that no one correctly predicted how quickly 60 GaAs would catch on. The supply problem is most acute at the smaller companies and the newer entrants to the market. Buyers at some facilities made no attempt to conceal the fact that they feel as if they are at the mercy of their suppliers. "Suppliers are able to ask whatever price is required as well as ask for down payments to guarantee capacity," one source complained. The picture is different for the more established players. Representatives of the largest fabs that we spoke to indicated that because of the length of their relationships with their GaAs suppliers, as well as their formidable clout, they were able to guarantee themselves a supply of wafers at a price that they thought was fair to both parties. Apparently, the fabs are making some concessions on price in light of the escalating cost of gallium. In return, the wafer manufacturers appear to be working furiously to assure customers that the long-term problem is being addressed. A manager at one of the biggest US GaAs fabs told us "We are working closely with vendors on quality and delivery issues and there does seem to be hope toward the latter part of 2001, but from now to then, the supply will be thin." See . We also spoke with a major manufacturer of LEDs, who had this to say: "Like most companies, we ve made arrangements with our key suppliers to support our requirements, but it does limit our flexibility to respond to changes in market demand. We have confidence in our suppliers that they will continue to be able to support us. They are also responding to the worldwide shortage by bring new capacity on line, but it is not expected to be available till 2002. 2001 will be a tough year." There may also be issues looming in the InP area. A manager at a major epiwafer producer had this to say: "Despite the recent boom in the sales of reactors for long wavelength [InP-based] laser applications, the substrate suppliers" response has been nil. When I contact them, I m told that GaAs expansion is the number one issue and by October 2001 the situation should change as far as capacity is concerned. In terms of InP I m told that they are only just now beginning to consider an expansion of capacity." The supply of semi-insulating InP also needs to be improved, as TRW, RFMD and Vitesse have all announced plans for commercial production of InP ICs. In fact, Vitesse has already begun running a few sample InP wafers through one of their 40 lines at their Camarillo, CA fab. A Vitesse representative said that quality of the wafers seen so far could be described as "reasonable", but as was the case with GaAs several years, the wafers were also noticeably inconsistent. These supply problems undoubtedly result from the fact that the huge upsurge in demand for compound semiconductors caught everyonesuppliers and fabs alikeby surprise. Therefore, it is difficult to envision any remedy other than patience. Perhaps some sort of compound semiconductor industry association should be formed in hopes of averting future crises. But for now, we will all have to rely upon the gallium suppliers and wafer manufacturers to fix the situation on their own. While we don t want to be overly dramatic, it should be noted that this is a very big responsibility.