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TSMC gets its green light

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), the world's largest contract chipmaker, gained government approval yesterday to manufacture chips using more advanced 0.18-micron process technology in China.

TSMC will be the first local chipmaker to use the 0.18-micron technology in China, after the government lifted the ban on the item at the end of last year. In 2002, the government gave TSMC the green light to manufacture chips using 0.25-micron and above process technology.

"We will start the preparatory work as soon as possible to better serve our customers there," TSMC spokesman Tzeng Jinnhaw (曾晉皓) said in a telephone interview yesterday, without giving a specific timeframe.

Using this technology in chip manufacturing in China will help TSMC increase its competitiveness by winning more business and increasing its market share in the massive market, Tzeng said.

But the effect will not be significant, given the small production capacity at TSMC's Chinese plant, he said.

"This is a good beginning and we hope the government will continue the opening," Tzeng said.

TSMC's factories in Taiwan churned out approximately 7 million wafers last year, while its plant in Shanghai only produced 200,000 during the same period, Tzeng said. The small production volume makes it hard for TSMC to reduce unit costs and the addition of 0.18-micron process technology can only marginally help reduce the cost, he added.

Market watchers received news of the approval with an obvious lack of enthusiasm, saying the 0.18-micron process technology was already used by Chinese chipmakers and would not give TSMC much of an advantage.

"The technology widely used in China, in general it is a bit outdated in the industry," said Chung Hung-teh (鍾宏德), an analyst at Capital Securities Corp (群益證券).

The market is now dominated by China's biggest chipmaker, Semiconductor Manufacturing International Corp (SMIC, 中芯), which commands more than 90 percent of the Chinese market, Chung said.

Although the Shanghai-based SMIC still lags behind TSMC, which provides up to 65-nanometer IC manufacturing services, it is already equipped with 90-nanometer chip manufacturing technology.

TSMC had applied for permission to manufacture chips using the technology in China back in January 2005 but did not obtain approval until yesterday.

This development, however, could prompt TSMC to expand its capacity in China and secure more customers, Chung said.

"The Shanghai plant is too small to generate profits, so future expansion is to be expected," he said.

Dan Heyler, a semiconductor industry analyst at Merrill Lynch, welcomed the government's move.

"It is very important to do matured technology in China and cultivate design companies there," Heyler said yesterday.

TSMC shares went up 0.29 percent and closed at NT$69.2 on the Taiwan Stock Exchange yesterday.

ProMOS Technologies Inc (茂德科技), another Taiwanese chipmaker, has submitted a similar application to the Ministry of Economic Affairs' Investment Commission, while Powerchip Semiconductor Corp (力晶半導體), the nation's largest maker of computer memory chips, is expected to apply for the permission to produce chips using 0.18-micron technology in a near future.

additional reporting by Jason Tan
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