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TSMC says gadgets driving sales

Participants at Semicon Taiwan 2005 in Taipei inspect new semiconductor production equipment on display at the expo. PHOTO: TAIPEI TIMES, FANG BIN-CHAO

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's biggest contract chipmaker, yesterday said that consumer gadgets such as digital music players are becoming a major force driving forward the increasingly volatile semiconductor industry.

In 1990s and early 2000s, computers were the only engine fueling demand for chips, but now digital consumer products are taking over to drive the semiconductor industry, TSMC's new chief executive and president Rick Tsai (蔡力行) said in a speech yesterday.

Most people may have one or two computers, but "they may have 10 digital consumer gadgets," Tsai said. In July he took over from Morris Chang (張忠謀), who will keep his chairmanship at TSMC.

Rising demand for mobile phones and other consumer electronic products will boost the company's wafer shipments by up to 16 percent in the current third quarter from the second quarter, Tsai told TSMC investors in July.

But the shift to consumer electronics as a new engine driving growth also brings challenges to the semiconductor industry, which has traditionally gone through a more predictable business cycle.

"Volatility is getting more pronounced. Peak is falling in different quarters," Tsai said.

The chip industry is becoming more diverse and even more cost-sensitive since the life cycle for consumer devices is much shorter than computers, he said.

As a result, inventory management is becoming critical for semiconductor companies' profits as it will be increasingly difficult for them to prepare the appropriate capacity, he added. The industry is just now recovering from the latest downturn due to high inventory.

Tsai yesterday reiterated that the semiconductor industry will no longer enjoy the high growth rates of the past.

"Growth is moderating," Tsai said.

The chip industry will expand by only 10 percent annually in terms of sales in the next five years through 2010, compared to 15 percent growth in the years before 1995, Tsai said.

Though the industry is becoming more closely aligned to consumers' buying activities especially in the US, Tsai declined to comment on whether rising energy costs and Hurricane Katrina would slow US consumption.

The US is the biggest computer market, consuming 30 percent of computers shipped around the world. It consumes about 18 percent of the mobile phones made by the world's handset vendors.

Powerchip Semiconductor Corp (力晶半導體), Taiwan's biggest maker of memory chips for computers, yesterday said the impact of the hurricane was a concern, but he was still not pessimistic about the Christmas buying season.

"At this point, we are not seeing the hurricane significantly hurt consumers' purchases [of electronics]. The US is still enjoying good economic growth," said Powerchip Semiconductor Chairman Frank Huang (黃崇仁).

He made the remarks on the sideline of a forum arranged by Semiconductor Equipment and Materials International, an industry group.

"Demand for the annual Christmas shopping season looks quite good," Huang said.

In addition, strong demand from fast-growing emerging markets such as China and India will offset the possible reduction in orders caused by the hurricane, Huang said.
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