Taiwan Semiconductor Manufacturing Co. Ltd. has signed a memorandum of understanding (MOU) to build wafer fabs in China, paving the way for Taiwan's foundries to enter the thriving Chinese market from which they had been barred until a few months ago.
TSMC, the world's largest foundry service provider, said last week in a statement that it has reached an MOU with authorities of the Songjiang Industrial Park, near Shanghai. Jesse Chou, a spokesman for the Hsinchu-based company, declined to provide details or comment on media reports.
TSMC issued the statement after published reports out of Taipei said the company is planning to spend $1.1 billion in the first stage to set up monthly capacity of 40,000 8in. wafers, using 0.25-micron process technology, and will invest $10 billion in the park over the next eight years.
"Lots of business opportunities will be spurred for the food chain in China while TSMC is building the facility in Shanghai," said Rick Hsu, an analyst at Nomura Securities Co. Ltd., Taipei.
The latest announcement underscores how TSMC and United Microelectronics Corp. are stepping up efforts to compete in the Chinese market, after the Taiwan government earlier this year reversed course and decided to allow the island's foundries to invest on the mainland.
Hojien Technology, which industry sources in China said has links to UMC's holding companies, is constructing a 200mm-wafer facility in Suzhou, which is near Shanghai, and expects a pilot run to be ready by the end of this year.
Pressure is increasing for TSMC and UMC to begin operations in China as start-up rivals such as Semiconductor Manufacturing International Corp. are now producing 200mm wafers in Shanghai and planning to develop more advanced technologies. SMIC, whose top management is from Taiwan, has joined Amkor, ChipPAC, Intel, Motor-ola, and others to take advantage of China's huge market and low-cost labor by setting up facilities in Shanghai.
While TSMC kicks off plans for its China investment, the current supply chain in Taiwan will remain strong, an analyst said.
"Taiwan will still be the manufacturing center of foundry services," said William Dung of UBS Warburg Dillon Read in Taipei. Combined, TSMC and UMC now own more than a dozen fabs on the island.
Besides, it's going to take a few years for China's fabless design houses to become big enough to influence the industry. "There are many fabless designers in China, but most of them are pretty small at this point," Dung said.
Authorities at the Songjiang Industrial Park are clearing property for TSMC's fab and offering the company incentives such as free land and tax exemptions for five years, according to published reports.
TSMC and UMC said they don't have timetables regarding when to formally apply for permission from the government to build wafer plants in China. Since TSMC's preliminary agreement with the park involves no transfer of money to China, the company isn't violating rules, according to officials at Taiwan's Investment Commission.
Earlier this year, the government lifted the ban on foundry investments in China, but with conditions: Taiwanese companies can only produce 200mm wafers on 0.25-, 0.35-, or 0.5-micron processes, and they must engage in volume production for six consecutive months on the most advanced 300mm wafers in their Taiwan fabs.