Mitel Semiconducter Case Essay
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Mitel Semiconductors is a division of Mitel Corporation. The semiconductors division focuses on the business communications segment of the overall semiconductor market. The segment is relatively small when compared to the semiconductor market as a whole but the segment is experiencing high levels of growth over the next five years. Currently Mitel Semiconductors holds 7% of the business communications segment and management would like to see market share double in the next five to six years.
Mitel Semiconductors is quickly approaching full capacity at its Bromont Foundry that performs the entire FAB portion of the integrated circuit manufacturing process.
In order to meet management’s goal of doubling market share over the next five to six years, Mitel Semiconductors needs to figure out a way to dramatically increase production to keep pace with demand. Since traditionally, Mitel Semiconductors is risk adverse management needs a creative solution that can be implemented using only the current amounts of cash and cash equivalents on hand.
Mitel Semiconductors can increase capacity in three distinct ways. First, it can build or acquire a new foundry that can be brought online to produce more wafers for the integrated circuits. This would obviously cost the company a lot of money. It will also take considerable amount of time to get a new foundry up and running. There are however, a few alternatives that require less capital outlay and can be implemented in a matter of months. The next way Mitel Semiconductors can increase its capacity is to change their wafer size from 100mm to 150mm, 200mm, or 300mm.
The increased size of the wafer can increase capacity from the increase in surface area. Each wafer would still require the same amount of processing time but could now produce more integrated circuits per wafer due to the larger size. Another way to increase capacity would be to better utilize the same surface area on each wafer. Equipment could be upgraded so that the circuits that were cut into the surface of the wafer were thinner. This would allow a more efficient use of space and more integrated circuits out of each wafer.
The case presents each of these three options for Mitel Semiconductors to increase its capacity in six iterations. Convert Bromont to Larger Wafers Advantages · Allows the division to convert to smaller line width for low cost · Already making production equipment changes and installing advance clean rooms · Increased capacity significantly · Larger wafers would extend life of the plant · 150mm could be accomplished without plant shut down · Supply was plentiful and cheap
Disadvantages · $250 Million dollar cost · Immature technology · All costs hovering around the $150 million mark · Cannot use current equipment · Lack of supply because of glut of 200mm FAB’s · Four year to plan, build, and get foundry operational · 150mm wafers would cost $30-$40 Million and would take two years · 150mm could run into the same problem as 100mm wafers Given the circumstances, a conversion of the Bromont Foundry over to 150mm wafers is the most appropriate alternative for Mitel Semiconductors.
The larger sized wafers are too expensive for Mitel to consider given their risk adverse position. The company has available around $30 million in cash and cash equivalents that are net of its current liabilities. The conversion over to 150mm wafers can be accomplished in as little as two years but the most important thing is that it can be done without a plant shutdown so Mitel can continue to manufacture 100mm wafers until the project is complete.
The project was estimated to cost between $35 million and $40 million so it fits in line with what Mitel has available to spend. The conversion to 150mm wafers would increase the Bromont Foundry’s capacity from 112,000 100mm wafers to 252,000 100mm equivalents because of the greater surface area. This increase in capacity will cover Mitel’s projected demand into the foreseeable future.
The risk to this alternative is the fear that the industry will continue to move into larger sized wafers and it will become increasingly difficult to find suppliers for the 150mm wafer. If that should happen, Mitel would once again be in the same situation. Given the forecasted demand for Mitel’s semiconductors, there is not sufficient cause to upgrade the Bromont Foundry to sizes of wafers greater than 150mm. At anything larger than 150mm Mitel will find itself in an excess capacity situation and have to find ways to sell more integrated circuits.