As microchip titan Taiwan Semiconductor Manufacturing Co races to meet demand, its fastest-growing market comes from firms that traditionally would have spurned its services.
TSMC plans to boost capacity by nearly 50 percent next year as more integrated design manufacturers, or IDMs -- firms known for building products from top to bottom, such as IBM or Motorola -- turn to the world-leading Taiwan foundry for its made-to-order chips.
"Even if we do not attract IDMs they will come to us anyway," public relations manager J.H. Tzeng said during a tour of Taiwan Semicon's campus in the Hsinchu Science Park, Taiwan's answer to California's Silicon Valley. "I really think this is a mega trend."
As margins for high-tech gear shrink, major manufacturers can ill afford the massive investment required to keep their in-house chip manufacturing up-to-date, especially with rising pressure on the costly chip-design front from "fabless" design houses that have no wafer fabrication lines of their own, he said.
"You can check the balance sheet of all the IDMs," Tzeng said. "Only some of them can afford this kind of investment.
"That is why the IDM companies really understand that their competition comes from fabless companies. They can really focus on product development," he added.
Keen demand allowed TSMC to post record output in the third quarter despite a powerful September earthquake that kept its world-class wafer fabs -- which had been running full tilt -- out of action for 10 precious days.
TSMC can lay claim to a host of superlatives.
It is the world's first and largest dedicated foundry, making chips to the exacting specifications of fabless and other clients while marketing none under its own brand name.
It boasts the largest market capitalization on the Taiwan stock exchange at more than US$34 billion -- nearly double that of second-place United Microelectronics, its arch rival as the world's second-largest microchip foundry.
And it generated the fattest net profits among Taiwan-listed firms for the first nine months of 1999, reaping NT$16.2 billion (US$510 million) -- though that was a touch below analysts' expectations of NT$16.7 billion.
Chairman Morris Chang has said that by next year, output value should be second only to Intel Corp among chipmakers as TSMC churns out one in every 14 chips made worldwide.
Scrambling to match demand from a broad boom in electronics products -- particularly telecommunications -- Taiwan Semicon's capital expansion now stands at US$1.11 billion this year to date, nearly double a planned US$520 million.
Yet despite a surge in capacity, its wafer fabrication lines are still running at a red-hot 105 percent of rated output.
"We try to keep capacity ahead of demand by 10 percent but we can't meet this target," Tzeng said.
TSMC already is moving equipment into a plant touted as the world's largest semiconductor fab with capacity to make the equivalent of 60,000 8-inch silicon wafers each month.
"We expect the first wafer to be running out of the fab in the spring of 2000," Tzeng said.
TSMC expects to break ground on its first 12-inch wafer fab by spring; another plant being built in Singapore, a joint venture with major shareholder Philips Electronics, is set to begin production near the end of 2000.
Taiwan Semicon is also ramping up production in existing fabs and turning a memory-chip fab jointly owned with Taiwan computer maker Acer Inc into a dedicated foundry.
"Demand is quite strong, as we expect it," Tzeng said. "Capacity will be almost equal to production."
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