Taiwan, China leading huge chip-making growth

Taiwan, China leading huge chip-making growth

Contract chip manufacturers in Taiwan and China will lead growth in the foundry industry through almost 2010, industry researcher In-Stat said Wednesday.

Contract chip manufacturers in Taiwan and China are leading growth in the foundry industry and will continue to do so through almost the end of this decade, according to industry researcher In-Stat.

Investments in leading edge chip plants had given Taiwan the largest concentration of 12-inch (300-millimetre) chip factories anywhere in the world, In-Stat said.

The researcher credits strong spending for growth in Asia, where chip plant and production line purchases among contract chi makers rose more than 150 per cent in 2004, before declining 23 per cent last year.

The gush of new spending arose from pent up demand created by a global technology industry downturn in 2001 and 2002, it said.

Taiwan is already home to the world's two largest contract chip makers, or foundries, Taiwan Semiconductor Manufacturing (TSMC) and United Microelectronics (UMC) Both companies operate 12-inch factories in Taiwan and have pledged billions of dollars in new spending this year. TSMC plans to spend $US2.66 billion and $US2.8 billion on new production lines this year, while UMC has set plans for $US1 billion.

The two companies account for more than 50 per cent of all foundry capacity in Asia, a title they are expected to keep through 2009, according to In-Stat.

China has been seeding its fledgeling foundry industry with incentives in the hopes it will someday rival Taiwan's.

"Capacity in China will also grow rapidly over the next several years," In-Stat analyst, Prakash Vaswani, said. "Price advantages and emerging domestic fabless companies will allow China's local foundries to survive."

The world's most populous nation already boasts the third largest foundry chip maker in the world, Semiconductor Manufacturing International (SMIC), which overtook Singapore's Chartered Semiconductor Manufacturing in 2004.

"The gap between SMIC and Chartered will only continue widening," In-Stat said in a report.

Although very young, SMIC hads risen to prominence quickly, while Chartered, a veteran industry player, continueds to struggle for growth, Vaswani said.

But one factor working to Chartered's advantage is its technology and outsourcing relationship with IBM to jointly work on production technology and take excess orders off IBM's hands. Chartered may even start producing microprocessors for Advanced Micro Devices by the middle of the year due to the partnership, which would fill its factories with high profit chips from a high profile company.

Gaining ground in the high end could help offset losing orders to Chinese foundries for Chartered.

Still, Vaswani sees tough times ahead for the Singapore company.

"They need to do something beyond what they're doing right now," he said.

A major trend benefitting foundry chip makers is additional outsourcing by traditional chip developers that also manufacture chips, such as Texas Instruments and Intel. Fabless companies -- chip design houses that don't own production facilities -- are also growing, providing grist for TSMC and UMC.

Global revenue by fabless chip designers rose to $US40 billion last year, up 10 per cent from 2004, according to industry group, Fabless Semiconductor Association.

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