TSMC plans China plant

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電) said its plans to expand into China were triggered after rivals on the mainland began poaching top talent from the biggest made-to-order chipmaker.

Earlier this year, Shanghai-based Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) snatched 50 TSMC engineers. The raid prompted a decision by Chairman Morris Chang (張忠謀) to open the company's first plant on the mainland within two years, TSMC spokesman Tzeng Jinnhaw (曾晉皓) said.

"Those engineers included some mid-level managers," said Lloyd Tsai, who counts TSMC shares among the US$2 billion in equities he helps manage for Invesco Taiwan Ltd. ``They have the experience and technical knowledge to help build the semiconductor industry in Shanghai."

China, one of the world's few expanding chip markets, is expected to emerge as the world's biggest this decade. At the same time, the world semiconductor industry is shrinking more than a third to about US$117 billion this year, predicts IC Insights Inc, a market researcher.

A key factor behind TSMC's success in the chip industry has been its ability to attract Chinese engineers to Taiwan after they study and work in the US, Tsai said. Now, some prefer China to Taiwan, he said.

While TSMC considered its options, competitors were setting up shop on the mainland, some of them financed by Taiwan entrepreneurs.

Semiconductor Manufacturing International, which produced its first chips last month, was founded by Richard Chang (張汝京), formerly the chief executive of Taiwan's Worldwide Semiconductor Manufacturing Corp (世大半導體). TSMC acquired Worldwide Semiconductor last year.

``Some have known Richard for years,'' said Christopher Chang, a former Texas Instruments Inc engineer who is now a senior executive with the Shanghai company. "Some people want to work for Richard."

TSMC, which plans to open its first sales office in China soon, may start building its first chip plant there within the next two years, according to Deputy Chief Executive Tseng Fan-cheng (曾繁城).

Taiwan companies have accelerated expansion on the mainland since last year, hoping to benefit from cheaper land and lower-cost labor. Companies such a as Acer Inc (宏電) and Quanta Computer Corp (廣達電腦) have started production of notebook computers for the first time in China.

TSMC's entry into China has been slowed by government regulations limiting investment by critical industries and by the lack of suppliers providing specialty raw materials required to make chips.

United Microelectronics Corp (UMC, 聯電), TSMC's chief rival, hasn't announced any plans to open its first plant in China.

The Taiwan company warned last month that the rapid build-up of chip manufacturing in China could hurt the industry and cause many companies to lose money.

"Each major city in China has very aggressive plans to build up fabs," Robert Tsao (曹興誠), UMC chairman, said of new chip factories in the next five years.

TSMC shares rose NT$0.20 yesterday, or 0.5 percent, to NT$44.3.