Wed, May 19, 2004 - Page 10 News List

Chipmakers warned of China threat

HOT COMPETITION Taiwan's chipmakers will have to pay attention to their Chinese rivals, who are investing heavily and selling their chips cheaply


Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's biggest contract chipmaker, and its Taiwanese peers should adopt more aggressive strategies to fend off Chinese startups in the world's fastest-growing market, an industry watcher warned yesterday.

"TSMC announced it was migrating old eight-inch facilities to China, but now they have to re-evaluate that, as Chinese foundry suppliers -- say, Semiconductor Manufacturing International Co (中芯國際集成電路) -- have been growing fast in the past two years," said Mario Morales, a vice president at market researcher International Data Corp (IDC) in Taipei.

Semiconductor Manufacturing plans to spend as much as TSMC -- US$2 billion -- on new equipment this year, which will help China's biggest foundry supplier to become the world's No.3 contracted chipmaker next year, outranking struggling Chartered Semiconductor Manufacturing Ltd of Singapore, Morales said.

"You have to be aware the competitors are already thinking about 12-inch [fabs] ... They might be still behind, but they are catching up, and they are more aggressive in price," Morales said.

Hsinchu-based TSMC last month received government approval to relocate its idled 8-inch equipment to Shanghai.

The Chinese plant, which will cost TSMC US$898 million, is scheduled to start production by the end of this year. The Taiwanese government still restricts the migration of advanced processing technologies to China.

Apart from expanding capacity, Taiwanese companies should pool their intellectual property investments to safeguard their foundry dominance, Morales said.

China will become the world's second-largest semiconductor market by the end of the decade. Over the next five years to 2008, China's semiconductor market will grow at about 40 percent a year to US$43 billion, from US$17 billion last year, according to IDC's forecast.

The global semiconductor market is expected to increase at half that rate, to US$250 billion by 2008, driven mostly by demand for consumer electronics in Asian markets, the international research powerhouse said.

The global semiconductor industry will expand 21 percent to about US$200 billion this year, IDC said, adding that the industry is likely to suffer a downturn next year and in 2006 due to overcapacity.

However, not everyone agrees with the IDC's assessment.

Chris Hsieh (謝偉民), a senior technology analyst with ING Securities Inc in Taipei, said: "There's no pressing need for local foundry suppliers to move advanced technologies to China, as the demand for high-end chips is limited there."

What concerns foreign chipmakers is the value-added tax Beijing has imposed on foreign chipmakers, who seek cost savings by setting up plants in China, Hsieh added.

"It's takes time to migrate more advanced technologies to China. But it deserves more patience," Hsieh said.

TSMC chairman Morris Chang (張忠謀) told investors last month that his company had no plans to migrate advanced 0.18-micron processing technologies to China.

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