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Key Taiwan sector conducts mainland
business
By Matthew Smith
TAIPEI - The decision was something of a
no-brainer. But say the words "semiconductor
manufacturing" in Taiwan, and one is likely to evoke a
strongly emotional response because of the industry's
vital role in the local economy.
Taiwanese
makers are expected to produce US$18 billion worth of
semiconductors in 2002, reinforcing the industry's key
importance to Taiwan's overall economy. Nevertheless,
businesses have to follow their markets, and Taiwan
Semiconductor Manufacturing Corp (TSMC) has announced
that it intends to set up a semiconductor plant in
mainland China.
The move will demonstrate TSMC's
strong commitment to China, the world's fastest-growing
semiconductor market, and also emphasizes China's
growing importance as a global integrated-circuit (IC)
manufacturing hub. At the same time, TSMC chief
executive Morris Chang, known in Taiwan as "The
Godfather" of IC makers, is not likely to make any
unnecessarily risky moves. Given the current slump in
global semiconductor demand, the company, which is the
world's largest foundry IC manufacturer, is clearly in
no rush to ramp up manufacturing operations on the
mainland, but rather is considering its long-term
presence there.
"It's a natural move for them,"
says Michael McGregor, vice president of Primasia
Securities Co in Taipei. "TSMC will be better able to
service its existing clients in China and expand its
customer base there."
The decision also has
important implications for TSMC's smaller Chinese
competitors, who will soon lose the edge they hold in
terms of geographic proximity to TSMC's many downstream
customers in mainland China. "It also indicates that
Taiwanese semiconductor manufacturers have the ability
to establish operations in China," says McGregor.
According to Converge Global Trading Exchange, China's
semiconductor market grew by 18 percent to reach $13
billion in 2001, and is expected to reach $34 billion by
2005.
In a statement to the Taiwan Stock
Exchange last Thursday, TSMC revealed that it had signed
a memorandum of understanding with the administration of
Songjing Industrial Park in Shanghai to make the
investment there. The nature of the investment was
unspecified, but the statement emphasized that any
cross-Strait deal would depend upon whether or not TSMC
saw a business need for it. Also, it stressed that any
project would be contingent on the approval of the
Taiwanese government, for which TSMC has not yet
applied.
TSMC officials were reluctant at first
to talk further about their investment plans. "Upon
agreement by both parties, the contents of the
memorandum are confidential," the company said in a
short statement. The firm's shyness is perhaps
understandable. Earlier this year, the decision by a
cabinet investment panel to recommend that Taiwanese
semiconductor manufacturers be allowed to go to the
mainland sparked one of the most heated political
debates in years.
Supporters of allowing
Taiwanese semiconductor companies to engage in
manufacturing in mainland China argued that it was the
only way of handling competition from the nascent
Chinese semiconductor industry. With the costs of
setting up semiconductor fabrication plants in Shanghai
estimated at 65 percent of those of Taiwan, the draw for
investors - Taiwanese, Chinese and others - is obvious.
Last year, Richard Chang, who had been president
of Taiwan-based Worldwide Semiconductor Manufacturing
Corp until TSMC acquired it, took his IC know-how across
the Strait to help establish Semiconductor Manufacturing
International Corp (SMIC) in Shanghai. And there are
several other existing or planned chip-fabrication
plants in China, including a $1.6 billion joint venture
between the son of Taiwanese tycoon Wang Yung-ching and
private Chinese citizen Jiang Mianheng, whose father
happens to be Chinese President Jiang Zemin.
Yet
detractors argue that allowing Taiwanese companies to
invest in China would only assist in the development of
the mainland industry and allow it to compete with
Taiwan, further hollowing out the island's high-tech
manufacturing sector. Of course, that argument ignores
the fact that there is no practical way to stop
individual Taiwanese businessmen from going there - not
to mention non-Taiwanese semiconductor makers eyeing the
mainland's burgeoning market.
The argument had
much more to do with local politics than with the
realities of the semiconductor industry. Inevitably,
Premier Yu Shyi-kun in April gave the go-ahead for
semiconductor manufacturers to invest in mainland China.
But the government imposed restrictions to ensure that
the island's own industry does not become hollowed out,
a fear that most industry experts say is overblown
because China's industry is still years behind Taiwan's
in terms of its technical capabilities.
Taiwanese makers will be required first to set
up and operate for six months 300-millimeter (12-inch)
silicon wafer manufacturing plants in Taiwan before
permission is granted for them to invest in China. That
means that currently, only TSMC and rival United
Microelectonics Co qualify to build fabs in China. They
will also be required to transfer their capital
equipment from Taiwan, ensuring that they only invest in
less-advanced 200mm (eight-inch) plants in China.
The 300mm silicon wafers allow for more
cost-effective manufacturing, as well as enabling
0.13-micron process technology - the method by which
semiconductors are etched on to the chip. In other
words, the larger wafer fabs do what all technology
companies must continuously do: make products that are
smaller, cheaper and more advanced. Experts say the new
technology will allow for technological developments
such as "system on a chip" integration, as well as
innovations that have yet to be envisaged.
But
don't hold your breath waiting for these innovations to
come out of mainland China. Analysts say it will take
years for the industry there to develop the ability to
build and operate 300mm fabs, and in any case the high
level of automation of more advanced facilities would
reduce China's cost advantage in terms of labor. Indeed,
most current Chinese fabs produce 150mm (six-inch)
wafers. While more eight-inch fabs are planned or under
construction there, only a handful have already ramped
up production. China's inability to match the
technological level of Taiwan and other major
semiconductor producers should ease fears that it will
become a dominant manufacturing player any time soon.
Speaking to reporters at an impromptu news
conference on Saturday, TSMC chairman Morris Chang
admitted that TSMC wants to build a 200mm wafer fab
using 0.25-micron technology in Shanghai, where the
government has offered to grant tax incentives. However,
Chang is in no rush to ramp up production: "We'll do it
when the timing is right," he was quoted as saying. TSMC
shareholders harbor few doubts about that.
(©2002 Asia Times Online Co, Ltd. All rights
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