SEMICONDUCTOR

UPDATE

February 2007

McIlvaine Company

Photon Control Expands Production Capacity

Photon Control Inc., Burnaby, BC, announced that it has relocated its manufacturing operations to a new, expanded facility in Burnaby. The modern production facility includes triple-capacity, state of the art Class 1000 (ISO Class 6) clean rooms to meet the increased demand for Photon's semiconductor products. "Our production staff is very pleased with the efficiency provided by the new facility," comments Stefan Farkas, Production Division Manager. "Our company is growing, and the additional capacity supports that market growth." The total area of the new space is approximately 35,000 square feet, which now brings all of Photon's operations under one roof.

"We will be adding two more products to our semiconductor business in Q1 2007 and have needed to increase our production capacity," says Ivan Melnyk, COO.

Chipbond to Set Up Facilities for 12-inch Wafers

Taiwan's gold bumping service provider, Chipbond Technology Corp. announced plans of setting up solder bumping facilities to reach a monthly capacity of 10,000 to 12,000 units of 12inch wafers. Banking on its five-year specialization in 8inch solder bumping, Chipbond plans to build up its 12inch solder bumping service, which currently accounts for 5 percent of its revenue.

To augment these plans, Chipbond will issue $60.5 million worth of convertible bonds over five years to repay loans and acquire equipment. The company will invest about $21.2 million this year to develop 12inch solder bumping.

At present, the company's monthly gold bumping capacity remains at 180,000 wafers, more of which are for LCD driver ICs. Chipbond however plans to alter production. With an average selling price of more than $200 per 12inch wafer — higher than the 8inch version, solder bumping service at 12inch wafer is foreseen to boost the company's profits.

Chipbond's gold bumping utilization and International Semiconductor Technology rates were about 70 percent, each in Q4 06.

Next-generation Nanochip Standard Agreed

The nation's four major semiconductor manufacturers have reached a basic agreement on specification standards for their most advanced product, so-called 32-nano chips, which are key to reducing the size of digital products, industry sources.

Toshiba Corp., Renesas Technology Corp., NEC Electronics Corp. and Fujitsu Ltd. agreed to standardize circuit design and other specifications of chips with a circuit line width of 32 nanometers. One nanometer is one-billionth of a meter. The circuit lines of the 32-nano chip are 1,500 times narrower than a human hair.

Renesas Technology is jointly capitalized by Hitachi Ltd. and Mitsubishi Electric Corp.

The agreement aims to forge a business alliance of major Japanese makers so they are better able to compete with Western and South Korean rivals. It also aims to make it easier for Japanese makers to jointly develop the advanced chip and share production facilities.

Economists said the standard could trigger a major realignment of the semiconductor industry. The standardization will mainly affect large-scale integration circuits, which are widely used in core parts of digital home appliances.

Board directors from the four companies entered the final stage of negotiations aiming to put the standard into effect in 2009. The final agreement will be signed in March, the sources said.

As current chips have circuit lines 65 to 90 nanometers wide, the new 32 nanometer chips will allow semiconductor chips to be further downsized. If the size of a chip remains the same, a 32-nano chip will be able to accommodate several times more transistors.

It is expected that 32-nano chips will enhance performance of electronic products, such as the graphics-data-processing capability of personal computers, high-end video-game consoles and next-generation DVD players.

But the investment needed to realize mass production of the latest chips is estimated at hundreds of billions of yen, as highly sophisticated technologies are necessary to produce 32-nano chips. This year, U.S. makers, such as Intel Corp. and IBM Corp., announced they have developed technologies to produce 32-nano chips.

The four Japanese makers, backed by the Economy, Trade and Industry Ministry, completed late last year basic work to standardize 45-nano chips, a key next-generation product, and held talks on 32-nano chips.

If the standardization can be made for the most advanced chips, set to become a mainstream product, Japanese makers can save development costs. Though the performance of Japanese semiconductor makers had been strong until last year, mainly due to brisk sales of products for cell phones, recently there have been signs of a slowdown, partly because oversupply has caused a price collapse.

Toshiba postponed construction of a new chip plant that had been scheduled to start this year, and Sony Corp. plans to scale down investment in semiconductors. Therefore, some economists predict standardization by the four makers will not necessarily be enough to ensure all of them survive and might trigger a major realignment of the industry.

NEC Electronics America Hires 60 New Employees

Delivering on its manufacturing strategy unveiled in February 2006, NEC Electronics America, Inc. has hired 60 new employees for its recently expanded semiconductor manufacturing operations in Roseville, CA, bringing the total employee population there to approximately 850. As part of NEC Electronics Corporation's global manufacturing

strategy, the company recently added a line capable of fabricating eight-inch wafers using a 0.15-micron process to complement its existing line, which is used to fabricate six-inch wafers with 0.35- and 0.25-micron processes. The eight-inch pilot line is ready to begin operation now and is expected to reach mass production levels this summer.

The expansion in Roseville is a key component of NEC Electronics Corporation's Multifab^™ manufacturing strategy (announced 11/30/06), which will enable customers to qualify multiple manufacturing and assembly and test facilities through one simple process. The company expects to see increased demand for 0.15-micron-based products from customers in the automotive industry, as well as from designers using general-purpose semiconductors in consumer devices such as digital cameras, memory sticks, and mobile and handheld products. The expanded capability in Roseville and the Multifab strategy overall is designed to give those customers a secure supply of product, along with increased manufacturing flexibility as their product volumes increase.

Gigophoton Adds Class 6 (1,000) Cleanroom

Gigaphoton Inc., a major lithography light source manufacturer for the global semiconductor industry has completed construction of a new building at its headquarters campus. Slated to open February 1, this new facility will house a state-of-the-art, Class-1,000 cleanroom that features expanded research and development capabilities and laser light source maintenance training for field service engineers. With training and R&D transitioned to the new facility, the existing building will now be fully dedicated to production of Gigaphoton's advanced laser systems. This will enable Gigaphoton to nearly double its manufacturing capability as early as April.

In addition to the expanded cleanroom area for research and development activities, the training facilities have increased significantly. This expansion investment will allow Gigaphoton to further augment its already high-quality customer support capabilities to address its growing installed base. The new facility will also house Gigaphoton's customer support administrative functions, as well as a spare parts warehouse.

Known for their extremely high reliability and lower cost of ownership, Gigaphoton's laser light sources are widely used by most of the world's major chipmakers. Over the past four years, Gigaphoton has dramatically increased its market share — capturing 30 percent of the global market for laser light sources (based on number of units sold) in 2006, according to company data. This is due to its popular "G41K" series krypton fluoride (KrF) laser units, which are installed in the mass-production factories of the world's leading semiconductor manufacturers, as well as its GigaTwin series, a twin-chamber argon fluoride (ArF) laser. Gigaphoton reports that the number of GigaTwin units shipped has doubled every 6 months since the product's introduction in 2005.

Taiwan May Lead in DRAM Production in 2007

According to a report by the US-Taiwan Business Council, Taiwan may become the world's largest producer of DRAM in 2007, as the region is projected to account for the largest percentage of global chip equipment spending for the year.

The report contends that 2006 was an exceptionally strong growth year for Taiwan's leading foundry and DRAM chipmakers, and with expanded production capabilities in 12-inch wafer fabs and the establishment of new partnerships, Taiwan has set itself up for a record year in 2007 and may become the world's largest producer of DRAM.

DRAM makers Powerchip Semiconductor Corporation (PSC), ProMOS Technologies, Nanya Technology, and Inotera Memories achieved revenue growth rates of 78.5 percent, 103.5 percent, 50.9 percent, and 77.1 percent, respectively, over the past year through expanded production and investments in 12-inch wafer production.

The council estimates that Taiwan DRAM makers will purchase US$6.9 billion in chip equipment in 2007. The addition of 12-inch fab spending plans by foundry chipmakers Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) could lead Taiwan to total US$11.25 billion in chip equipment expenditures in 2007, compared to an estimated US$6.96 billion in 2006.

The global chip industry will spend US$60 billion on new chip equipment in 2007, and start production in around 29 new chip fabs, and as many as nine more DRAM fabs. In light of company spending projections, Taiwan would account for at least 18.8 percent of global chip equipment purchases in 2007, surpassing all other countries - including 2006 leader Japan, and China, which is expected to only spend US$2.42 billion in 2007, according to industry group SEMI's year-end forecast.

The announcement in January of a US$13.9 billion joint venture between PSC and Elpida Memory of Japan for the construction of four 12-inch DRAM fabs over the next five years in Taiwan further cements Taiwan's lead in 2007 chip equipment spending, and will help ensure that Taiwan maintains the largest concentration of 12-inch DRAM fabrication facilities in the world.

By choosing Taiwan as the location of the most significant investment it has made outside of Japan, Elpida showed that Taiwan remains a potent player in the global chip business years after the world started looking to China as a possible successor. In fact, the success of Taiwan attracting Elpida's investment means billions of dollars of future investment in the island, according to the council's report.

Hynix Expands Facilities in Cheongju Plant

Amid controversy over an attempt to expand its Icheon production lines, Hynix Semiconductor said it would boost its production facilities in the basement of its Cheongju plant. Equipped with two semiconductor production lines, the Cheongju plant produces flash memory used mainly in digital cameras and MP3 players.

In Feb.2007, the firm will start to build a 1653 sq. meter-wide cleanroom on the basement floor of the plant and install facilities to produce wafers.  The facility will operate the same process as the two existing lines.

Hynix said it came up with the expansion plan a long time ago to meet rising chip demand, refuting claims that it sought to expand the Cheongju plant only after its plans for the Icheon plant were rejected. Originally, the company planned to invest W13.5 billion (US$1=W943) in its Icheon plant to build three new production lines, yet failed to obtain government approval due to environmental concerns. Looking for another candidate site as an alternative to Icheon, the firm plans to select a location between February and March this year and begin designs soon after.

Cypress to Sell R&D Center for $53 Million

Cypress Semiconductor Corp. will sell its Silicon Valley Technology Center to private equity firms Oak Hill Capital Partners and Tallwood Venture Capital for about $53 million in cash. Oak Hill has an office in Menlo Park and Tallwood is based in Palo Alto, CA. The transaction is expected to close by early March.

As part of the transaction, Cypress will transfer substantially all equipment, process technologies, and personnel associated with its SVTC business to the firms. Cypress will remain a SVTC customer.

 SVTC, which is located on the Cypress campus, offers facilities to develop and characterize silicon-based technologies using a shared R&D environment. SVTC provides customers access to manufacturing-like fab environment and semiconductor toolset.

Cypress began selling access to its San Jose R&D foundry in 2000 and formalized the approach to semiconductor services by creating SVTC in 2004.

Cypress has lately been resisting pressure from a large shareholder to split off its solar power subsidiary, Sun Power.

SunPower's (NASDAQ:SPWR) net income was $11.3 million, or 15 cents a share, compared to a year-ago loss of $600,000.

Cypress stock rose 21 cents last week to close at $18.47, up 1.15 percent.

McIlvaine Company,

Northfield, IL 60093-2743

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