Quite a bit of feedback came over the transom after the last edition of this column (see Feb. 18, page 37), which raised the question of how much of the semiconductor manufacturing industry will move to Taiwan, Singapore and, eventually, China. One reader suggested that while China might fare well in trailing technologies, the United States will move on to MEMS, molecular electronics and post-CMOS devices. A much different view held that China will "shuffle and deal the technology deck" in electronics overall, partly by creating its own standards for mass-market consumer systems.

Another source who worked in China for several years suggested that China's electronics industry is bogged down by the military. Some fairly big semiconductor companies are 50:50 ventures, with the military meddling in what should be straightforward private enterprise.

Another source noted that "politics, the rule of law and a reliable banking system are still issues that weigh heavily on investors" in China.

A veteran said that when his company dumped its fabs and turned to a Taiwan foundry, it was unable to keep a decent cost structure for high-volume devices. The foundries have very respectable gross margins, he noted, making it difficult to compete with companies, like Texas Instruments and Motorola, that make volume parts in-house.

Another source grumped that TSMC and UMC have "never paid taxes, to my knowledge." The U.S. government and the Semiconductor Industry Association have put the taxation issue on the back burner while they negotiated down the tariffs imposed on U.S. chips. At some point, equal taxation, and the issue of how stock options are treated in Taiwan's tax law, will become important, he predicted.

Another industry vet said the established foundries will gain as the cost of building a 300-mm fab exceeds $2 billion. That means only large companies will be able to afford their own manufacturing.

China's future may be bright, but progress has been slower than many predicted. Motorola has a wholly owned fab there, and NEC-Huahong got its 8-inch fab on its feet back in 1997 only after NEC brought 400 Chinese to Japan for five months of training, at enormous expense.

The two fledgling China fabs are just getting started. Semiconductor Manufacturing International Corp. is headed by Richard Chang, a Taiwan entrepreneur who understands the foundry business, and rival foundry Grace Semiconductor remains an unanswered question.

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