1. Maintain the status quo, and having the Bromont plant continue to use 100mm wafers. 2. Convert Bromont to larger wafers, 150mm, 200mm, or 300mm. 3. Contract out fabrication to other facilities.
4. Increase capacity through the acquisition of other semiconductor facilities.
There are several factors which need to be taken into consideration, outside of the alternatives themselves. One such factor is that, due to Mitel past financial failures, the corporation has a policy that over the long term, business must be able to finance their own growth. Therefore the company is in opposition to further debt and only available cash and cash equivalents can be used for investments. A 15 percent cost of capital is utilized in comparing alternatives.
Another factor is its current supplier of 100mm wafers has stated that it is increasing to larger sizes and will no longer be able to meet the demands at Mitel for 100mm wafers. This is coupled with an issue of ageing equipment at the Bromont facility, which is becoming increasingly more expensive to maintain and difficult to procure replacement parts. One of Mitel’s sub-contracted facilities has also recently stated that it will be no longer able to provide capacity to Mitel past June of 1996.
Another factor when considering alternatives is that the business communications segment of the semiconductor market is expected to have a 18 percent compounded growth over the next five years. Additionally, Mitel managers wish to double their current market share of seven percent to 14 percent in the same time frame.
A third factor is that the production process consisted of Research and Development at a facility in Kanata Ontario, which could be easily expanded at low cost, and the fabrication portion was carried out at the Bromont facility, which had a current capacity of 112,000 wafers per year and would require an extensive investment to increase. The masking process was contracted out to a firm which had virtually unlimited capacity.
Alternitive#1: Maintaining the Status Quo
Mitel could continue to use the 100mm wafers at the Bromont facility. This option would require an upgrade to the facility that could utilize 0.8-micron line width technology, allowing for an increase in the number of DIEs per wafer. This would increase capacity to 156, 800 wafers per year at the 100mm size, costing 10 million dollars. However, this would also require Mitel to source additional wafers in an already low supply market. In-house wafer production would cost 40-50 million dollars for expansion. Mitel may be able to acquire 100mm equipment from facilities that are converting to larger wafer sizes at a low cost and there may be an option to train current employees to maintain and fix these machines.
Alternative# 2: Converting Bromont to Larger Wafer Sizes
Mitel has the option to increase the wafer sizes utilized at the Bromont facility to 150mm, 200mm, or 300mm. Expansion of the facility to 200mm or 300mm would cost Mitel 150 million and 250 million dollars respectively. The capacity created by these options, through the use of the larger wafer and the ability to utilize lower line width...