Trouble in East Fishkill? IBM chip group struggles

IBM Corp.'s server business is coming off one of its better quarters, but its new sibling in the Systems and Technology Group, IBM's microelectronics division, continues to struggle as yield problems plague its new manufacturing facility in East Fishkill, New York.

IBM's chip business has lured some high-profile customers away from foundries in Taiwan such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC) However, the business remains unprofitable, in part due to yield issues cited by John Joyce, senior vice president and chief financial officer at IBM, in a conference call last week.

A chip maker's yield is the number of working processors that can be cut from a silicon wafer.

In the first quarter of 2004, IBM Microelectronics lost about $150 million, Joyce said. Joyce also brought up an issue chip makers are usually very reluctant to address by flatly stating that yields would have to improve in the second quarter for the Microelectronics group to make a profitable contribution to the Systems and Technology Group.

Yield is seen by customers and financial analysts as an indicator of the health of a company's manufacturing technology because it costs the chip maker a fixed amount of money to produce a wafer regardless of whether that wafer generates one working chip or thousands. Most chip companies decline to discuss poor yields in public.

IBM is attempting to engineer two changes to its chip business in the same period. It is rolling out its 90-nanometer process technology at the East Fishkill plant for building chips with smaller features than the previous 0.13-micron process generation, and sifting through the merger of the microelectronics business unit and the server business unit that was announced in January.

The Armonk, New York, company's manufacturing facilities are responsible for churning out IBM's own Power products, such as the Power 4+ processor used in IBM's servers and the PowerPC 970FX used in Apple Computer Inc.'s XServe. The Power4+ processors are built in Burlington, Vermont, on an older process technology generation, an IBM spokesman said.

The foundry business also produces chips based on different architectures with different requirements for customers such as Nvidia Corp. and Intersil Corp. Nvidia's new GeForce 6800 graphics chip is made alongside the PowerPC 970FX in East Fishkill on the new process technology, the spokesman said.

Yield problems are not uncommon when a chip maker shifts to a new process technology, said Peter Glaskowsky, formerly editor-in-chief of the Microprocessor Report and now an independent industry analyst.

Integrating a new process technology is a difficult undertaking, especially when that technology needs to adapt to a wide variety of chip architectures. Companies such as Intel Corp. that ship a relatively small number of products in huge volumes can fine-tune their yields from a new process technology generation over a testing period, said Nathan Brookwood, principal analyst with Insight 64 in Saratoga, California.

Even so, Intel's 90-nanometer Prescott Pentium 4 chip was delayed past the original ship date after the specifications for the chip were changed. And at the processor's launch in February, the company announced the fastest 90-nanometer Pentium 4 processor would be available in limited volumes to start. Chips that will work at higher clock rates are more difficult to extract from new silicon wafers.