Winbond's shares rally on fab plan

Winbond Electronics Corp (華邦電子) shares rose the maximum permitted 7 percent on plans to spend NT$120 billion (US$3.5 billion) building a chipmaking plant in Taiwan that may cut production costs per chip by almost a third.

Taiwan's biggest maker of computer memory chips by market value plans to make 12-inch wafers, which yield more chips after cutting than current 8-inch standard, said spokesman Mike Liu (劉重光). Winbond will offer stakes in the project to Toshiba Corp, Fujitsu Ltd and other Japanese chipmakers.

The management bureau of the Hsinchu Science-based Industrial Park (新竹科學園區), Taiwan's premier high-tech zone, has in principle decided to appropriate over 17 hectares of land for a total of three 12-inch wafer factories planned by Winbond Electronics and Macronix International (旺宏電子), a Chinese-language newspaper reported yesterday. The move will pave the way for NT$300 billion of investment by the two companies, the paper said.

The land, which is among the final parcels available in the high-tech park, is presently occupied by the military.

Rivals ProMOS Technologies Inc (茂德科技), Nanya Technology Corp (南亞科技), and Powerchip Semiconductor Corp (力晶半導體), have started building or raising money to construct 12-inch chipmaking plants. While prices for the 128-megabit dynamic random access memory chips the plant will focus on have slumped 90 percent in the past year, Winbond can't afford not to invest in new production techniques.

"It has to do this," said James Chen, who manages NT$1.8 billion in stocks at National Investment Trust Co (建弘投信). "When competitors are making progress on 12-inch plants, you'll be left behind if you don't move," Shares in Winbond rose as much as NT$1.4 to NT$21.70 in earlier trading. The shares have fallen 65 percent in the past year, compared with a 44 percent drop in the benchmark TAIEX.

The chipmakers are betting higher output and lower production costs from the larger wafers will boost profit at a time when falling demand for chips used in computers, cellphones and other consumer electronics has driven memory chip prices below the cost of production.

The current industry standard 128-megabit 8x16 PC 100 dynamic random access memory chip fell to US$1.65 yesterday, its lowest this year. That compares with US$17.90 in July 2000.

Winbond plans to start building the new plant at the end of this year and start production in the first quarter of 2004. It will use the plant to make memory chips using 0.11 micron manufacturing technology that fits more integrated circuits on a chip, increasing speeds and lowering costs.

"If we don't build the plant, we won't be able to migrate to below 0.13 micron and will lose competitiveness," Liu said.

Still, adding capacity to a market already saturated with chips could delay a recovery and force closures or consolidation in the sector.

On Tuesday, NEC Corp, the third-largest chipmaker, said it would cut 4,000 jobs in its semiconductor division worldwide and withdraw from memory-chip production within three years to reduce costs and boost profit.

"The new plants will add to the oversupply, but everyone wants to step in to 12-inch wafer chip production and wait for the competition to fall down," said Chiang Chih-hau, who manages NT$1.5 billion in bonds and stocks at Barits Securities Corp (倍立證券).