Utilization rate is the percentage of installed fab capacity actually being used for production. It directly impacts profitability because semiconductor fabs have massive fixed costs that must be absorbed regardless of output.

Formula

Utilization Rate = (Actual Wafer Starts / Installed Capacity) × 100%

Typical Utilization Levels

• > 90%: Running hot. Maximum profitability. Risk of not meeting customer demand spikes • 80-90%: Healthy. Good profitability with some buffer for demand changes • 70-80%: Below optimal. Margins under pressure as fixed costs spread over fewer wafers • < 70%: Concerning. May be operating at or below breakeven depending on cost structure

Why Utilization Matters So Much

A modern 300mm fab has $3-5 billion in annual fixed costs (depreciation, facility, base staffing) regardless of how many wafers are processed. At 95% utilization, these costs are divided by ~95% of maximum wafer output. At 70% utilization, the same costs are spread over only 70% of output—cost per wafer increases by ~35% while revenue drops proportionally.

What Drives Utilization

Demand: Customer orders ultimately determine how many wafers to start. Product transitions: Gaps between old product ramp-down and new product ramp-up reduce utilization. Semiconductor cycle: During downturns, demand falls and utilization drops. Qualification wafers: New process qualifications consume capacity with non-revenue wafers.

Foundry vs. IDM

Foundries (TSMC) maintain high utilization by serving many customers—if one customer's demand drops, others fill the gap. IDMs (Intel, Samsung) are tied to their own product demand, making utilization more volatile.