There is growing concern among semiconductor makers that the future of the industry will be limited by escalating capital costs. If a wafer fabrication plant, or fab, is too large, chip makers are stuck with expensive overcapacity. If a chip factory is too small to meet a sudden, burgeoning demand, there are significant losses in opportunity costs. Securing the huge loans needed for new fabs soon may be too onerous even for companies with a good track record. Additional buildings and machinery are added only when new production capacity is required, thereby reducing initial investment outlays as well as financial risk.
Wood identifies a special category of fixed costs that are relatively independent of capacity.
These include the costs incurred to build a fab of any size, such as architectural planning, an uninterruptible power supply, and the fab manager's salary. He has also evaluated critical decisions in planning a modular fab. These revolve around which resources fit into the shell and which are reserved for the modules, as well as the size of the shell and the size and timing of the modules. Although capacity is a small part of the total fixed costs associated with a fab, it has a strong impact on its efficiency and expected profit, which makes modular capacity attractive. Indeed, the 1997 National Technology Roadmap for Semiconductors, an industry consensus published by the Semiconductor Industry Association, supported many of Wood's ideas on the transition to modular capacity.