Fri, Feb 01, 2002 page18

• ASE plans factory in China

  • BLOOMBERG
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  Advanced Semiconductor Enginee-ring Inc (日月光), the second-largest chip packager, plans to build a US$300 million plant in Shanghai once Taiwan ends a ban on technology investments in China, possibly within two months.

  "We'll use Shanghai as our entry into China," Chairman Jason Chang (張虔生) said in an interview. He said ASE plans to set up shop next-door to Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) and invest US$50 million in the company, a potential customer that started last year to rival Taiwan's biggest chipmakers.

  Taiwan's chip companies hope to invest in a US$10 billion semiconductor market estimated to grow by a third this year. While China offers cheaper labor costs and the largest consumer market for mobile phones and other electronics, most plants there aren't big enough to be profitable, some investors said.

  "Many chip investments there are living on subsidies from the Chinese government," said Albert King, who counts shares in ASE among the US$857 million he helps manage for HSBC Asset Management Taiwan Ltd. "You have that kind of risk."

  Taiwan's chip industries are the crown jewels of the nation, Chang said, and the government won't let them go to the mainland unless it's confident that relations with China will improve.

  Cross-Strait ties between the 50-year foes appeared to soften last week when Chinese Premier Qian Qichen (錢其琛) invited mem-bers of Taiwan's ruling Democratic Progressive Party to visit Beijing.

  For China, the entry of Taiwan companies will speed up development of the chip industry on the mainland.

  "In the next five years, China still won't have all of the infrastructure," said Chang, whose family moved from the mainland to Taiwan when he was three. "If China is able to build up, they will be very strong competition."

  Right now, though, Chang says Shanghai's SMIC is "like a toy" compared with larger rivals Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電).

  SMIC would need about 10 times its current capacity to become a threat to the Taiwan companies, he said.

  SMIC, which was started by Taiwan businessman Richard Chang (張汝京) and mainland investors, will this year be joined in the city by another rival, Grace Semiconductor Manufacturing Corp (宏力半導體). That plant is backed by Winston Wang (王文洋) of the Formosa Group (台塑集團) and Chinese President Jiang Zemin's (江澤民) son, Jiang Mianheng (江綿衡).

  China could do with help from Taiwan's chip companies, which have made the nation of about 22 million people the world's fourth-largest semiconductor supplier in less than 20 years.

  A decision by Taiwan to end the investment ban, promised by the government in December, was delayed after Chen's party seized control of the legislature in December and a new Cabinet was named this month. Taiwan officials have expressed fears that a swing to mainland investment will worsen the nation's unemployment, which is at record highs.

  Taiwan chipmakers focus on providing low-cost manufacturing for brand-name companies such as Intel Corp, Motorola Inc and smaller chip design companies that don't own chip plants. Taiwan companies hope to "replicate" their success in China, Chang said.

  His company cuts silicon wafers from TSMC and UMC into chips, attaches conductive wiring to the semiconductors and packages them in insulating plastic. A chip-packaging factory for ASE costs about a 10th of the US$3.6 billion that a silicon wafer plant costs TSMC or UMC.

  Chang said he expects the ban on chip-packagers such as ASE to be lifted before the ban on chipmakers, giving ASE the jump on TSMC and UMC.

  "We've been getting signals that a decision will be made in just one or two months," said Chang. "I've spoken to the [Taiwan] President [Chen Shui-bian, 陳水扁] about this." China is training skilled workers for foreign technology companies to tap when they invest. Still, engineers in China earn salaries that are as much as a 10th of what their counterparts in Taiwan earn, Chang said. That doesn't mean that the engineers in China are a bargain, he said.

  "The question is what the people there can do," Chang said. "After five years, when the people are trained, they'll have the same efficiency as we do in Taiwan."
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