The head of the world's largest contract chip manufacturer said yesterday it will cost an estimated US$1 billion for his company to develop the latest chip production technology.
Taiwan Semiconductor Manufacturing Co (TSMC,
Nanometer sizes, which are thousands of times smaller than a human hair, are used to describe the microscopic parts that make up a semiconductor.
Chang said rising research and development costs on the manufacturing side mirror increasing costs for chip developers as well.
"That obviously has increased the stakes, has increased the risk of failure," Chang said at a news conference in Taipei sponsored by the Fabless Semiconductor Association.
He added that if a medium-sized company develops a chip and it doesn't sell well, it may not survive.
The rising costs for semiconductor manufacturing and design work mean the industry is at a crossroads, Chang said.
He predicted chip design houses, which create blueprints for chips that control gadgets from digital cameras to MP3 players and computers, will have to form tighter relationships with contract chipmakers like TSMC.
He also said larger companies that have done a lot of their own chip design and production work in the past will also likely abandon manufacturing since a state-of-the-art chip factory alone can cost up to NT$100 billion (US$3 billion).
To survive, Chang said chip firms need to form strong partnerships. TSMC is pursuing a "customer-partnership" business model to deal with the challenges of rising costs, he added.
TSMC has faced new competition from entrants in the contract chip business in recent years, particularly from Semiconductor Manufacturing International Corp (中芯國際集成電路), which is based in Shanghai.
Many chip design houses, which made up around two-thirds of TSMC's customers in the third quarter, work with more than one contract chipmaker.
Chang said he expects high growth in the next five to 10 years among Chinese chipmakers that outsource their production.
There are at present 600 to 700 so-called fabless chipmakers in China, he said. Fabless chipmakers design semiconductors and outsource production to foundries, or made-to-order suppliers.
"Their [China's fabless companies] total revenue is still very low," Chang said. "But their growth rate in the next five to 10 years will be quite impressive."