Chip growth to slow: TSMC's Chang

Rising production costs will continue to eat into semiconductor industry growth, and local firms must embrace originality, collaboration and strategic thinking to survive, the chairman of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) said yesterday.

"Things have changed," Morris Chang (張忠謀), chairman of the world's largest contract chipmaker, told the audience in a keynote speech at the SemiTech Taipei 2006 exposition.

The semiconductor industry reported 16 percent annual growth between 1952, when the first semiconductor was introduced, through 2000.

"The strong growth created millions of jobs in the market. These are not ordinary jobs, but good jobs," Chang said.

However, the heyday came to an end after 2000, with the industry seeing only single-digit expansion from then until last year, he said.

He expected the weak momentum to continue for another 10 to 15 years.

According to Chang, establishing a fabrication facility now easily costs US$3 billion, while research costs run as high as US$1 billion.

"It is unwise to think that the 16 percent growth rate will return. Production costs have gone up and there are fewer applications currently that can justify the rising costs, economically," the 75-year-old chairman said.

TSMC's chief executive officer Rick Tsai (蔡力行) told investors last Wednesday that overall semiconductor industry sales would grow 8 percent to 11 percent this year from last year, with the figure to remain in the high single-digits next year.

However, the weak momentum does not mean that local firms should not pursue growth that exceeds the industry's average, Chang said.

With Chinese rivals making gains, Taiwanese semiconductor companies may need to make an extra effort, he said.

"Taiwan is considerably ahead of China now and in the future Chinese firms will run into the same growth limits that we are facing now," Chang said.

Chang founded TSMC in 1987. The company currently has a 50 percent share of the global market, dwarfing the 6.6 percent market share held by Semiconductor Manufacturing International Corp (中芯國際), China's largest chip foundry.

Chang called on local enterprises to be more creative in their product designs to close the gap with top-notch rivals.

He also urged better strategic thinking, and called on businesses to take a longer-term view and look at the global picture instead of just competing locally.

"Taiwanese companies are not good at strategic thinking, as they are playing a `zero-sum' game, where only one party will survive," he said.

They should instead create an "all-win" situation for the industry to move forward, he said.

SemiTech Taipei opened yesterday and will run through Saturday at the Taipei World Trade Center Exhibition Hall I.