Taiwan Semiconductor Manufacturing Co. Ltd. last week disclosed plans to apply to the Taiwanese government for permission to build its first wafer fab in China, blazing a trail that the rest of the island's IC industry may soon follow.
TSMC, the world's No.1 pure-play silicon foundry, said it intends to file its application in July to construct a 200mm-wafer facility in Jiangsu province in southeastern China. TSMC deputy chief executive F.C. Tseng declined to reveal the exact location of the plant.
Industry sources in Taiwan, however, said TSMC will probably choose from four sites near Shanghai, the most likely of which is in Sungjiang. Many companies from Taiwan, the world's largest supplier of desktop and laptop PCs and PC components, have established plants in the Shanghai area.
The foundry service provider's move comes shortly after the Taiwanese government eased restrictions on 200mm-wafer investments in mainland China. United Microelectronics Corp., TSMC's closest rival, will likely file a similar application soon, analysts here said.
TSMC's fab construction is expected to accelerate the growth of an already substantial crowd of plants sprouting up near Shanghai, enticing back-end chip packaging and test houses like Advanced Semiconductor Engineering Inc. and Siliconware Precision Industries Ltd. (SPIL) to build plants on the mainland. ASE is the second-largest independent packaging house after Amkor Technology Inc., Chandler, Ariz., while Taichung-based SPIL ranks third.
"In the long run, the cluster being led by TSMC in China will surpass the current clustering in Taiwan, as the Chinese market is comparatively huge," said Rick Hsu, an analyst at Nomura Securities Ltd., Taipei.
China represents less than 10% of the $20 billion global IC market, but the Chinese market should grow 30% per year over the next five years or so, according to estimates from Nomura, while the worldwide market will probably grow about 15% annually.
Although the Taiwanese government still bans domestic packaging and test providers from investing in China, the companies are preparing for the prospect that the removal of the ban on wafer fab investments will be expanded to their industry. ASE chairman Jason Chang has said the company plans to spend $300 million to build plants in Shanghai.
Such contingency planning underscores the prevailing view within Taiwan's industry that expansion into China is essential for future growth.
"We certainly hope we can build plants in China as soon as possible because the future market potential is extremely vast," said Freddie Liu, an assistant vice president at ASE, Kaohsiung, Taiwan.
The opportunities in China are so compelling that
international powerhouses such as Amkor and even
Intel Corp. already have plants in Shanghai. ASE and Siliconware have set up offices there through indirect investments in preparation for a removal of the Taiwan government's ban. A smaller packaging and test rival established by Via Technologies Inc.'s chairwoman, Cher Wang, and her partners for $300 million is also serving customers in China.
As the industry grows in China, it will tend to converge on a few locations such as Shanghai, according to analysts. "Everyone wants to be near the Chinese market and save on logistics costs," said Alfred Yin, an analyst at BNP Paribas Peregrine Securities Co., Hong Kong.
TSMC will probably begin volume production at the Chinese fab in late 2003 on a 0.25-micron process, analysts said. The plant is expected to have a capacity of 40,000 wafers a month.