Semiconductor industry and market
Fabs place particular emphasis on keeping tool utilization high. Which is an appropriate reason?
- ABecause stopping tools makes the cleanroom dirty
- BBecause high utilization makes tools last longer
- CBecause fixed costs such as depreciation on huge investments in tools and buildings are large, so lower output sharply raises the cost per chip
Show answer and explanation
Answer: C. Because fixed costs such as depreciation on huge investments in tools and buildings are large, so lower output sharply raises the cost per chip
A distinctive feature of fab costs is the large share of fixed costs incurred regardless of output, such as depreciation on expensive tools and buildings. When utilization drops, the same fixed costs are spread over fewer chips and the cost per chip rises. Fabs therefore work to keep running as much as possible even in downturns.
- A. Stopping tools does not in itself make the cleanroom dirty.
- B. Utilization and tool life are not the reason here.
- C. Correct. It is because fixed costs make up a large share.