Taiwan's foundries strong

The world's leading contract chip makers, Taiwan Semiconductor Manufacturing Corp (TMSC, 台積電) and United Microelectronics Corp (UMC, 聯電), will remain strong and competitive in spite of rising competition from such ambitious foreign competitors as Grace Semiconductor Manufacturing Corp (GSMC, 宏力半導體) and Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) of China, Chartered Semiconductor Corp (特許) of Singapore, Samsung Electronics Co of South Korea and the US' IBM Corp.

Analysts say the key to Taiwan's foundry strength is the two leading companies' technological leadership and financial strength that have helped them maintain their edge in the highly competitive market.

James Huang (黃俊勛), a research fellow at Industrial Technology Research Institute, said the biggest asset for TSMC and UMC is their accumulation of technological know-how and investor capital. Each of them has some NT$100 billion (US$3 billion) in cash, far surpassing that of their key competitors.

They managed to keep manufacturing processes at least one generation ahead of their rivals, meaning that the two foundries are basically in a secure position in the world market, Huang said.

TSMC and UMC faced threats from GSMC and SMIC which, with the help of the Chinese government and their foreign partners, have been rapidly expanding their production capabilities and chipping away at the market shares of the Taiwan makers. Still, TSMC and UMC's joint market share in 2005 is forecast to remain at about 70 percent, with TSMC keeping the top spot.

Taiwan's foundry giants are facing unusual pressure for their fourth quarter revenues because of the low-price strategy adopted by SMIC and Chartered Semiconductor as the recovery of the global semiconductor industry has been slower than expected and heavyweight IC designing houses have been unable to bring down their inventory levels, triggering market worries that IC designers will reduce their orders to manufacturers.

Both TSMC and UMC have worked aggressively to maintain their competitive edge by upgrading their technology. In this regard, TSMC announced in Dec. 2004 that it was using the industry-leading Nexsys 90-nanometer process in volume production for such leading companies as Altera Corp and Qualcomm Inc, the only foundry process to feature copper interconnect, low-k dielectrics, and 12-inch wafer production.

In April this year, TSMC unveiled another latest semiconductor manufacturing process -- the 65nm Nexsys Technology for SoC Design -- at a symposium attended by over 400 of the industry's leading companies, and said its first wafers to be produced by this process are expected in December.

The new technology allows designers to build logic devices with double the density of the company's industry leading 65nm technology, enabling market movers across the IC industry to save significant costs.

On Wednesday, TSMC said it has completed prototype runs for its customers drawing on 65nm technology.

Among the customers taking part in the first run were Altera, Broadcom Corp and Freescale Semiconductor Inc, all of the US, TSMC said in a statement.

UMC, for its part, also announced its leadership in the 90nm manufacturing process, an achievement that has won it big orders from such IC designing firms as Texas Instruments, ATi, nVidia, and Qualcomm.