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Chipmakers buoyed by demand, prices

Taiwan's chipmakers can expect healthier bottom lines for the rest of the year as demand begins to outstrip supply, analysts said yesterday.

"Demand is increasing, average selling prices are going up and production is getting tight," said Rick Hsu (徐禕成), a chip-industry analyst at Nomura International in Taipei. "The long-term trend is upward."

Production facilities at Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) -- the world's largest manufacturer of made-to-order computer chips -- are humming. The company used 86 percent of its total manufacturing capacity up to the end of last month. The figure is expected to rise, which may prompt TSMC to buy new equipment.

"I expect TSMC will increase its capital expenditure to NT$1.8 billion from its original forecast of NT$1.5 billion at its quarterly investors' meeting next week," said George Wu (吳裕良), a chip-industry analyst with Primasia Securities Co in Taipei. Nomura's Hsu was more conservative, saying that TSMC would spend close to the NT$1.5 billion upper limit of its forecast.

TSMC is expected to spend more money on its high-tech 12-inch chip-making plant, or foundry, located in the Tainan Science-based Industrial Park (台南科學園區). The chip industry currently cuts chips from large disks of silicon, or wafers, 8 inches in diameter. By moving to 12-inch wafers, companies will be able to more than double production at much lower costs. TSMC is a 12-inch wafer pioneer in Taiwan.

Rival United Microelectronics Corp (UMC, 聯電) has a 12-inch wafer joint venture in Singapore with Germany's Infineon Technologies AG. Yesterday, UMC said it planned to spend more on new equipment.

The Germans have also partnered with Nanya Technology Corp (南亞科技), the nation's largest maker of computer memory chips, to build a 12-inch wafer foundry in northern Taiwan that will start producing chips early next year.

Infineon's partnership with Taiwan's No. 2 memory chip-maker ProMOS Technologies Inc (茂德科技) broke up acrimoniously earlier this year, but not before Infineon helped ProMOS set up its 12-inch wafer production.

With all the new foundries coming on-line, some industry watchers are concerned about a glut of new products pushing down prices. However, chips cut using 12-inch wafer technology are more advanced products that fetch premium prices.

"Intel Corp is pushing for the expansion of faster computer chips and more multimedia functions," Wu said. "The manufacturers can charge for additional functions and speed."

Chips that improve video quality for computer games and flat-screen televisions, and chips that allow computers to get on-line wirelessly are seeing the fastest increase in demand, analysts said.

A traditionally difficult sector of the industry is also seeing a recovery. Until the second quarter of this year, too many producers pumping out too much product sent the price of memory chips -- which are used in products as diverse as personal computers and answering machines -- into the doldrums.

Only two producers turned a profit last year, South Korea's Samsung Electronics Co and Nanya. But even Nanya was struggling to make a profit in the first half of this year, reporting an unaudited second-quarter loss of NT$978 million (US$28 million) yesterday.

Figures from Taiwanese on-line memory chip trader DRAMexchange.com show that memory chip prices are now at their highest since February -- pleasing news for manufacturers of the most popular dynamic random access memory (DRAM) chips.

"DRAM prices are slowly and steadily up which is healthy for the DRAM market," DRAMexch-ange.com said yesterday in an e-mailed report. "It's good for both DRAM makers and traders."

The picture for the industry as a whole remains rosy into next year.

"There will be limited possibilities for output to grow and demand is picking up," Wu said yesterday. "The fundamentals are improving for an undersupply of chips into next year."
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