Taiwanese fabs entering the land of the sleeping dragon

By Rachel Robinson
WaferNews Associate Editor

Taiwan’s government has been walking a political tightrope, as it is attempting to balance letting its chipmakers stay competitive by moving to mainland China, and losing its stronghold on the world’s semiconductor manufacturing capabilities.

After months of debate with his administration, Taiwan Prime Minister Yu Shyi-kun has ended the country’s ban on Taiwanese companies building fabs in China. But tight controls over development have been established.

Companies can only use 200mm equipment in its fabs on the mainland, and no more than three plants will be approved before 2005 for China. Additionally, and perhaps the key point, is that companies applying to build fabs in China must already be producing 300mm wafers in Taiwan, and will only be able to ship equipment to China once six months’ worth of orders for its 300mm product have been placed.

“What they came up with I don’t consider perfect, but it is surprisingly good,” commented Fred Ramberg, director of research at Fechtor, Detwiler & Co. “It’s better than I thought it would be.”

Ramberg told WaferNews that there are a number of positive outcomes from this policy shift. “It encourages significant investment in 300mm process tools,” he said. “There are a lot of companies there and if they want to cross the channel, they need to build a 300mm fab in Taiwan.”

Currently, there are only two companies that can take advantage of the new rules – TSMC and UMC. That, according to Ramberg, is an invitation for the rest of Taiwan’s semiconductor companies to invest in 300mm. “It’ll push companies into working on 300mm. It’ll be good for equipment folks.”

Powerchip Semiconductor Corp., as if responding to Ramberg’s sentiment, has just announced plans to invest $1.6 billion in setting up a 300mm plant in Taiwan.

The new rules are designed to protect Taiwan’s control over its technology with a focus on preventing the loss of its human resources, its capital, and its core technologies, according to Taiwanese officials.

“They’re letting them do a little bit to get started, but not letting them send their crown jewels,” said Bob Johnson, principal analyst at Gartner Dataquest.

Theodore O’Neill, managing director at C.E. Unterberg Towbin, pointed out that while Taiwan’s companies want to cross the channel, the government can see that the move can be “significantly damaging” to the country.

“The Taiwanese government sees that it’s inevitable, and is trying to manage it as tightly as it can,” he explained. “They are stuck between a rock and a hard place.”

Johnson agreed, adding that for the Taiwanese government, this is a huge step. “This represents a huge change in policy for the Taiwanese government.”

According to Ed White of Lehman Brothers, the true test of the effectiveness of the rules will be seen down the line. “They sound pretty fair,” he commented. “There is nothing in them that is going to restrict investment. But we’ll have to see, once it gets going.”

White believes that initial production in China will be to satisfy only local requirements. “I don’t expect it to be a huge capacity for worldwide access. I don’t think you’ll get a large amount of exports until you see China’s own usage (met).” He forecasts that China will begin to meet its own demand three to four years down the road.

O’Neill put China’s push into historical context.

“It has been my observation,” he noted, “that every major peak in semiconductor capital equipment spending has had a component of some nation trying to get into the business – China is the next one.” He predicted that Russia and India are next, but could not pinpoint a time frame.

So, with Taiwan’s semiconductor industry on the verge of a new era, can there be a down side? O’Neill sees one, if only on a personal note.

“The business of selling semiconductor capital equipment is going to move to Asia in such a large way that analysts following it in America won’t be able to do it successfully.” He said that as an analyst, he’s “going to be spending a lot of time of planes.”

WaferNews

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