TAIPEI, Taiwan Though burned by a devastated DRAM market, Taiwan's small-scale memory manufacturers remain unwilling to merge for greater efficiency. Instead, most are slowly withdrawing from commodity chips in hopes of finding more lucrative business in flash or specialty memory devices.
The pullback will probably do little to mitigate the DRAM supply glut, since the Taiwanese claim only about 10 to 15 percent of the DRAM market. Nevertheless, the shift shows the staying power of the smaller companies as they struggle to keep afloat in a market dominated by a handful of heavyweights.
Five DRAM makers operate in Taiwan, which may be about four too many for such a ravaged business, critics said. In the past, each has run one or two fabs dedicated mostly to commodity DRAM. "To me, it makes sense to have only one big DRAM company in Taiwan," said Michael Tsai, president of Powerchip Semiconductor Corp, which is currently building a 12-inch wafer fab in the Hsinchu Science Park. "Korea will probably have just one, Europe has one, the U.S. has one. Why does Taiwan need to have four or five?"
But the likelihood of consolidation here is slim. Despite their small size, the island's memory manufacturers are making aggressive moves to keep up with or outperform the pace of technology advancement needed to survive in the commodity market.
ProMOS Technologies is considered an industry leader in the transition to 12-inch wafer fabs, with its new plant currently doing test runs and planning to put out 5,000 wafers per month by the end of the first quarter. All of the main players here are pushing process shrinks as well. Nanya Technologies Corp. hopes to reach 0.14 micron during the second half of 2002; Powerchip will reach 0.16 micron around the same time. ProMOS expects to achieve 0.14 micron next month and Winbond Electronics Corp. is looking at 0.13 micron in late 2002.
Lying in wait
When DRAM prices start to rebound as they showed signs of doing last week one of the strongest Taiwanese DRAM makers is likely to be ProMOS, which has a new 12-inch wafer plant with promising yields and strong technology support from Infineon Technologies AG, a major investor.
Powerchip, one of the island's second-tier DRAM manufacturers, is hoping to have its 12-inch wafer fab lying in wait for the upturn. In the meantime, Powerchip is joining a few other companies here in the drive to diversify and cushion the blow of the stagnant commodity DRAM market. Winbond and Nanya are doing the same.
Winbond, ranked 10th among suppliers worldwide in DRAM revenue last year, is one of the companies best positioned to wean itself from the DRAM market, since it already devotes roughly half of its capacity to logic chip production. "It is very difficult to convert a DRAM fab into logic ICs, so they will have to gradually change the model," said Ben Lee, a regional semiconductor analyst for Dataquest. "But they have a good opportunity to diversify because they have their own brand products for consumer and communication ICs."
Earlier this year, Winbond deferred plans to build a 12-inch wafer fab for DRAM production. More recently, the company's future for DRAM production became fuzzier when its technology partner, Toshiba Corp., said it would consider merging its DRAM operations with those of Infineon.
Now, industry analysts believe Winbond will seriously consider outfitting the fab to produce mainly logic chips. It remains unclear when the company will commence construction and Winbond executives declined an interview to elaborate on future plans.
Yet even with 12-inch wafer fabs running or on the way, Taiwan's small memory makers aren't even close to the economy of scale achieved by the industry heavyweights. Like the rest of the DRAM industry, the Taiwanese are leaking money. That has pushed Winbond to speed its exit from the DRAM business.
Earlier this month, the company said it would end development of its 0.11-micron DRAM technology with Toshiba. Soon after, it inked a deal with Sharp Corp. to develop next-generation flash memory technology, called Advanced Contactless Technology, that would be produced on 0.18- and 0.13-micron processes. Devices should hit the market in 2004, enough time for Winbond to wind down its commodity DRAM business.
Powerchip has also set an aggressive goal for rolling over capacity into non-commodity memory products such as flash, SRAM, low-power DRAM and high-speed DRAM for graphics. "We are introducing more memory foundry products into Fab 1," said Eric Tang, a senior executive at Powerchip. "I believe about 10 to 15 percent of our capacity is allocated to non-DRAM products and that will increase to 30 to 40 percent by Q2 of next year."
The target, said Tang, "is to increase non-DRAM capacity to 70 percent by the end of next year. Then, when the market recovers, we will move equipment into our 12-inch fab." Next, "our DRAM commodity production will recover with 12-inch wafers and 0.13-micron technology."
Nanya, too, will follow a similar route. Known as a big proponent of double-data-rate DRAM, the company has also done some limited logic chip production for the past year, mostly for LCD drivers. However, it is betting that a memory foundry model will be more successful, said Vincent Chang, a manager who oversees Nanya's foundry market strategy. "We can only offer 0.25 and 0.35 micron for logic, so there is not much advantage compared to our major foundry competitors," he said.
When Nanya started to offer up its 0.17-micron memory technology to designers, they had more interest in the memory foundry, which started three months ago, Chang said. So far, Japanese companies have asked Nanya to produce SRAM and low-power DRAM, and the company is in the process of offering more design support for customers. However, it is still too early to tell how much revenue the foundry operation will contribute to the bottom line, Chang said.
In the shift to diversify, ProMOS stands as the exception. The company plans to focus on PC main memory and to drive down die costs with its 12-inch wafer fab and process shrinks. "A large company can afford to be a conglomerate and a small company can concentrate on niche products, but we are a midsize company so we have to focus," said Albert Lin, director of business operations at ProMOS.
Lin said ProMOS will leverage its relationship with Infineon, a part owner, and bet on the continued bit growth rate if at a somewhat slower pace than in the past that has sustained the industry buildout.
"The bit growth rate in the past has been 70 percent, but this year it was drastically reduced, to about 35 to 40 percent," he said. "But the DRAM-per-PC growth remains relatively healthy and this is an indication of long-term growth that I think is likely. So we will probably not see a 70 percent growth rate again in the near future, but 50 percent is possible."