After months of delay, Taiwan's government last week finally eased a ban on 8in.-wafer investments in China, giving chipmakers here the opportunity to exploit the fast-growing, low-cost region.
However, investments will be subject to several conditions. Semiconductor companies will only be allowed to build three 8in.-wafer fabs in China before 2005, using existing equipment, said Premier Yu Shyi-kun during a press conference last week. Facilities in China that operate with new manufacturing equipment won't be allowed for at least two years, he said.
Chipmakers that intend to apply must first upgrade their technology in Taiwan and reach volume production in their 12in.-wafer plants, Yu said.
"It's the future trend for foundries to compete in the Chinese market," Yu said. "But we want to make sure core technologies won't be transferred to China, while Taiwan companies can compete with global rivals on a fair basis. We want to develop Taiwan into a center of 12in.-wafer production as well as IC design."
The premier's remarks were aimed at allowing Taiwan Semiconductor Manufacturing Co. Ltd. and United Microelectronics Corp., the world's two largest pureplay foundries, to tap the Chinese market, which TSMC chairman Morris Chang predicted last week will grow 20% in the next 20 years. "It's time to start getting a foothold there," he said. "I believe the ban should have been removed two years ago."
TSMC and UMC had been urging the Taiwanese government to ease the restriction since mainland China is widely seen by industry leaders and analysts as the market that will grow faster than any other in the years to come.
The government postponed making any decision for months, in part because opponents cited national security as a major concern. For more than five decades, Beijing has seen Taiwan as a breakaway province and has threatened to use force if necessary.
The island's government will set up a committee to monitor the flow of technology to China, the premier said, adding that approval for removing the ban is subject to a legislature meeting scheduled in May.
It was unclear last week whether a portion of TSMC's beefed-up capital expenditure budget would be earmarked for investment in China.
Chang last week said that TSMC will sharply increase capital spending this year, a sign that demand for semiconductors is picking up.
The company is set to raise its capital expenditures this year to $2.57 billion, 56% more than the $1.65 billion it indicated months ago. In 2001, the foundry spent $2.2 billion.
"TSMC's capex increase was driven by tight capacity at the leading edge and is linked to its anticipated move into China to address large, relatively untapped markets," said Sue Billat, an analyst at Robertson Stephens Inc., San Francisco.
"This will be a catalyst for additional foundry capex spending as TSMC's competitors strive to avoid losing market share," Billat said.
Powerchip follows suit
TSMC's capex increase was echoed by Taiwan DRAM manufacturer Powerchip Semiconductor Corp., Hsinchu, which expects its spending this year to surge to $685.7 million, four times last year's, according to Michael Tsai, president of Powerchip.
For TSMC, the spending increase will be used in high-end process technologies for PCs, communications, and consumer products, analysts said.
"TSMC is running out of capacity to meet demand for chips made on 0.15- micron and 0.13-micron technologies," said Abraham Leu, an analyst at HSBC Securities, Hong Kong. "They have to expand production lines as much as possible" since demand for wireless communications and consumer products would start recovering in the second quarter.
Customers in greatest need of the processes include fabless design houses ATI Technologies, Broadcom, Marvell, and Nvidia, analysts said.
Hsinchu-based TSMC said recently that 90% of its high-end capacity was being run in the first quarter, with demand likely to be even stronger in the second quarter.
Different story at UMC
While TSMC is running its high-end capacity at full gear, it's a different story for its largest rival, UMC, also based in Hsinchu. UMC recently said that it will maintain its capital budget at $800 million for 2002.
Earlier this year, UMC sold some of its excess 8in.-wafer manufacturing equipment, partly because the foundry's main customers are integrated device manufacturers, like Advanced Micro Devices Inc. and STMicroelectronics Inc., that have suffered from the industry slowdown, analysts said.
Both of Taiwan's major foundries are feeling the pinch from two Chinese start-up competitors, which are linked both to Taiwan capital as well as the island's engineering talent. Shanghai-based Semiconductor Manufacturing International Corp. and Grace Semiconductor Manufacturing Co. are already producing or are poised to manufacture 8in. wafers.
Both TSMC and UMC already have 12in.-wafer fabs in Taiwan manufacturing thousands of wafers per month.
In an effort to influence the government to lift the ban, TSMC's Chang last week repeated a pledge to invest $20 billion at home.
The investments, which TSMC announced months ago, would be used to construct four of the most advanced 12in.-wafer plants in Tainan and Hsinchu, said Chang, who didn't offer a timetable.
Currently, TSMC has two 12in.-wafer fabs on the island, one in the Hsinchu Science-based Park and the other in the Tainan Science-based Park.