Sun, Dec 23, 2012 - Page 8 News List

Government hampers DRAM sector

By Lin Cho-shui 林濁水

It is a different matter in Taiwan. Although the KMT and DPP governments have both shown great admiration for state capitalism and poured vast sums of state funds into industrial development, neither of them has had the guts to handle matters resolutely according to the logic of capitalism.

There are many reasons why Taiwan’s memory industry has got into such a pitiful state. Memory manufacturing is an extremely capital intensive industry, so the threshold for entry into the sector is very high, and so is the threshold for leaving it.

A 20 percent share of the world market is needed for any memory maker to attain independent technical innovation ability, but the seven memory manufacturers fostered by Taiwan’s government only have a little over 20 percent of the world market between them and they have shown no inclination to merge. Consequently they have no choice but to pay huge royalty fees to support other companies’ research and development costs, while waiting to be eliminated.

These and other problematic factors have been known for a long time. In 2000, the two godfathers of Taiwan’s high-tech sector, TSMC chairman Morris Chang (張忠謀) and Stan Shih (施振榮), who was then chairman of Acer, understood these disadvantages and quit making DRAM.

When South Korea was hit by a financial crisis in 1997, threatening the chaebol conglomerates with bankruptcy, the state intervened decisively to support them, but it strictly adhered to the discipline of capitalism by forcing makers of memory, display panels and related products to consolidate into two big firms for each product category. This created the conditions for South Korea to quickly overtake Taiwan in these industries.

It was a different story with Taiwan’s 2002 “Two Trillion” plan, which envisaged the nation’s semiconductor and display sectors each expanding to NT$1 trillion (US$34 billion). While the original 40 DRAM makers around the world were starting to merge, Taiwan went against this trend by strongly supporting seven or eight “SME-scale” DRAM plants. In other words, the government of the time insisted on taking the state capitalist approach, despite not knowing how to do it properly.

With such a huge input of capital, Taiwan’s memory and display manufacturing capacity surged ahead to begin with. The output of Taiwan’s semiconductor sector surpassed NT$1 trillion in 2004, and by 2008 Taiwan had at least 15 factories making 12-inch — 300mm — wafers. Taiwan had the highest density of 12-inch wafer plants in the world and accounted for one-third of global wafer-making capacity. However, the excitement was short lived and a pitiful outcome was to follow.

South Korea’s 1997 economic crisis ironically gave it an opportunity for “statist” intervention that led to consolidation in accordance with the logic of capitalism. In contrast, two economic crises in 2008 and last year did not generate opportunities for Taiwan.

Although these crises caused Taiwan’s government to finally see where the problem lay, the solutions it adopted once more ran counter to capitalist logic as it showered relief on all companies in the sector equally, as if doling out social welfare.

As can be seen, the KMT and DPP alike offer a mishmash of statism and capitalism. They both adhere to an equivocal and blurry conception, wavering indecisively as they come under various pressures.

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