TSMC may get Motorola chip orders

Motorola Inc plans to farm out up to 50 percent of its microchip production to Taiwan, the company said yesterday. The nation's top chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), stands to benefit most from the move.

The US-based company also said it would not build any 300mm chip-making plants without a partner. TSMC said earlier this year it would spend NT$700 billion on six new manufacturing facilities of this type.

Motorola -- which said earlier this week that the severe economic downturn would force it to layoff 9,400 workers over the next 12 months and mothball production lines -- clarified the direction of its chip division yesterday. It will continue to produce specialty chips on its own while farming out production of standard products to foundry chipmakers like TSMC. Chip sales at the seventh largest semiconductor maker plunged this year by nearly 35 percent in a year labeled the worst ever for the chip industry by the Semiconductor Industry Association.

"We expect to continue to conduct a significant amount of our outsourced manufacturing with Taiwanese companies. The amount will reflect future market demands," said Lynn Chan, communications manager at Motorola's Singapore office. She said Motorola's chip division would also tap manufacturers outside Taiwan. This could include Singapore-based Chartered Semiconductor Manufacturing Co (特許), the world's third largest contract chipmaker, analysts said.

"It's very good news for TSMC ... a big chunk of [Motorola's] outsourcing orders are going to TSMC at this stage ... and I think they also work with Chartered," said Linda Liu (劉迎晨), chip analyst at Primasia Securities Co in Taipei.

Liu said the quality of any new chip orders from Motorola would be as important as the quantity. TSMC would gain technology transfer and higher profits if Motorola orders specialty chips, while lower grade chips bring reduced profits. Motorola officials indicated that most of their outsourcing would not be for cutting edge chips. TSMC officials refused to comment specifically on Motorola's new plan.

Two years ago, Motorola and TSMC jointly announced the US giant's plan to manufacture about 50 percent of its semiconductor products through joint-venture projects and contract-chip manufacturing by next year. Motorola put this plan on hold last year as the chip industry gauged its best year ever and revenues soared.

The sharp economic downturn has put the outsourcing plans back on track. Sales at Motorola's semiconductor division will nose dive from US$7.7 billion last year to around US$5 billion this year, according to Dataquest, the market research firm.

Motorola has been working on a plan to turn around its chip division since the middle of the summer. The company is not the first to announce plans to farm out more of its chip manufacturing.

Earlier this year, Conexant Systems Inc, the US maker of chips for communications and networking gear, said it would give up manufacturing altogether in order to cut costs and focus on research and development. The company forged an alliance with United Microelectronics Corp (UMC, 聯電), Taiwan's second largest foundry maker of semiconductors.

"We certainly believe that there is a big trend for [integrated device manufacturing] companies to use the foundries as their outsource partner," said Tzeng Jinnhaw (曾晉皓), a TSMC spokesman.