High-end chip demand up

Officials from Taiwan's two leading semiconductor foundries yesterday said that they were selling more chips made with leading edge technology.

"I can confirm that TSMC's sales are better. New orders are for products of our most advanced processes," said Tzeng Jinnhaw (曾晉皓), public relations manager at Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the nation's leading chip foundry.

He would not provide further details.

Rumors in the industry purport that TSMC is selling as many chips as it can make using its highest technology manufacturing processes -- on a scale of 0.18, 0.15 and 0.13 microns. Such fine manufacturing -- etching transistors over 100-times thinner than a human hair onto a chip -- commands the highest prices.

TSMC is manufacturing chips at this level for Nvidia, a US-based graphics chip designer, for use in Microsoft's new Xbox game consoles.

An official at United Microelectronics Corp (UMC, 聯電), the second-biggest chip foundry in Taiwan, also said sales at top end processes had increased, but that the company has not sold out on the 0.18 and 0.15 micron processes.

According to a report published by the Netherlands-based Semiconductor International Capacity Statistics (SICS) group earlier this week, demand for processes below 0.20 microns rose 32.1 percent between the first and second business quarters of this year and another 7.5 percent quarter on quarter in the third.

The research group also pre-dicted companies would not likely make new investments in older 0.25 micron processes, as chip-design firms have moved aggressively to create new products at the highest technology levels available -- the 0.18, 0.15 and 0.13 micron processes.

Falling utilization rates

The group said the manufacturing utilization rates on older 0.30 to 0.20 micron processes has fallen from 87.1 percent in the first quarter of this year to just 56.3 percent in the third quarter.

Increased demand for these high-tech chipmaking processes also showed up on both companies' third quarter reports. TSMC said sales of chips made at 0.18 microns increased from 4 percent of total sales in the second quarter to 15 percent in the third quarter, as overall sales increased.

Demand dropped for 0.25 microns, which made up 39 percent of TSMC sales in the second quarter but only 31 percent in the third quarter.

TSMC reported third-quarter net profits suffered a 94 percent drop from the same period last year to NT$1.24 billion (US$35.9 million). UMC forecasts a loss of NT$3.2 billion (US$92.9 million) this year.

The overall utilization rates, which tracks the number of production lines actually churning out chips, also dropped in the second and third quarters.

But both companies predict a slight increase in the number of production lines churning out chips during this quarter.

"The fourth quarter will be better than the third quarter, but this is just a mild recovery," said TSMC Chairman Morris Chang (張忠謀) during the firm's third quarter investors meeting.

After falling to as low as 41 percent during the third quarter, TSMC said its overall utilization rate would rise a few percentage points in the third. UMC said the 40 percent utilization rate it registered in the third quarter would rise to around 45 percent.