NEWS FROM TAIWAN: Mixed reactions for China backend investments

July 2, 2007 – Topping the past week’s headlines are cheers (and jeers) for the Taiwan government’s relaxation of assembly/packaging investment restrictions into China. Also in the news: reports on a possible multinational polysilicon JV, Inotera accelerating its 70nm ramp (and capex too), and rosy LCD driver IC demand and 200mm capacity utilization.

Taiwan eases China assembly rules, but not everyone’s happy

Confirming rumors in local and trade press, Taiwan’s Ministry of Economic Affairs says it has indeed decided against setting limits on total number of low-end assembly/packaging operation investments in China, notably benefiting four firms: Advanced Semiconductor Engineering Inc. (ASE), Greatek Electronics Inc., Siliconware Precision Industries Co. (SPIL), and Walton Advanced Engineering Inc. Siliconware and Walton already operate facilities on the mainland, while ASE had an application in the approval process for its proposed JV in Suzhou with NXP Semiconductor, notes the Taiwan Economic News. Together, the quartet’s investment plans total nearly $100 million.

Siliconware plans to invest $30 million for a low-end packaging line for flash memory cards, DRAM modules, and LCD modules as well as other electronics devices, and could start moving older equipment from Taiwan as early as this month, though it won’t target mainland markets until 2010, the paper notes. Company chairman W.P. Lin notes that moving operations to China will save up to 30%-40% in costs, but production efficiency is only projected to be half that of what is achieved in Taiwan, which still has a 3+year headstart in low-end packaging technology, the paper noted.

Not everyone sees these moves into China as a positive, however. A news release issued by the Taiwanese Association of University Professors argues the approvals will not only benefit only shareholders of a few Taiwanese high-tech companies, but also will accelerate development of China’s semiconductor manufacturing industry and aggravate Taiwan’s employment rate, notes the Taipei Times. They reiterate that medium- and high-end semiconductor testing and packaging investments should be restricted, and any companies looking to shift production to the mainland should be required to simultaneously increase investments in Taiwan.

Rumor mill: TSMC toeing test/packaging waters?

TSMC reportedly is recruiting staff to expand in-house testing and packaging services for customers, though to what extent and with what impact to partners and competitors is still unclear. Digitimes reports that TSMC is targeting 65nm flip-chip testing and packaging in 2007, followed by 45nm in 2008, and will provide pilot runs as well as wafer sorting services. Part of the ramp-up will come through an expanded partnership with Advanced Semiconductor Engineering (ASE), acting as a subcontractor, notes the report.

Rupert Hammond-Chambers, president US-Taiwan Business Council, told WaferNEWS that he’d heard TSMC is in fact doing some specialty work for certain customers, but knows of no plans to expand fully into the sector. He pointed out, though, that the move seems to “run somewhat contrary” to TSMC’s model of focusing on core competencies and contracting everything else out, particularly when there’s a clear outsourcing partner in ASE. Ultimately the move may be less strategic, he suggested, than an opportunity to streamline operations and increase profitability through the reduced times/costs of having the business in-house.

Inotera eyeing faster 70nm ramp, maybe more 2007 capex

Better-than-expected yields have caused Inotera Memory to accelerate its transition to 70nm process technologies, and the company now expects to start volume production in 3Q (one quarter ahead of schedule), with one-third of its capacity to be moved over by 4Q07, according to Digitimes. Partner Qimonda is also expected to follow the transition.

The company has revised its bit growth from 70% to 80%, citing faster ramp at its second 300mm fab (Fab 2), and could have 120,000 wafers/month capacity (90nm) from its two 300mm fabs by year’s end, according to the report, which added that the faster production ramp could mean a revised 2007 capex investment from Inotera’s originally budgeted US ~$1.2 billion.

Report: FPG, partners eyeing polysilicon JV

Formosa Plastics is reportedly in talks with several prospective partners to establish a polysilicon JV, notes Digitimes citing a Chinese media report.

According to the report, FPG is in talks with three potential suppliers: MEMC, Norway’s REC, and Japan’s Tokuyama. A 150 tons/month polysilicon fab would cost roughly $300 million, well within FPG’s capabilities, the paper noted. Plus FPG already has interests in both the semiconductor (Nanya Technology) and silicon wafer areas (Formosa Sumco Technology, formerly Formosa Komatsu Silicon).

Driver IC orders swamping chip packagers

A recovering flat-panel display market has renewed demand for driver ICs, and created strained capacity at International Semiconductor Technology Ltd. and Chipbond Technology Corp., which are both poised to enjoy record monthly revenues in June, notes the Taiwan Economic News. Both companies are increasing their chip-on-film (COF) packaging capacity to address demand for the driver ICs, which have migrated from 0.25-micron to 0.18-0.20-micron processes — Chipbond is “completely booked” and will raise capacity to 33-35 million chips/month in 3Q, while International Semi’s current COF capacity of 35 million chips is 5%-10% short of demand.

Chipbond expects a 20% surge in orders in 2Q with revenue likely rising 17% to $42 million, followed by a sales spike in 3Q, the Taiwan paper noted. International Semi expects 20%-30% better sales in 2Q, with 13% margins vs. a -1.4% loss in 1Q. The firm is rumored to have landed business from NEC requiring half its capacity, and pushing utilization rates >80% in May and a 36% jump in sales.

Overall demand for LCD panels has pushed up overall average capacity utilization at driver-IC packagers and testers to 90%, from just 70% in May, the paper noted.

LCD, consumer demand straining 200mm capacity

A pickup in demand for LCDs and consumer electronics have soaked up much of Taiwan’s 200mm wafer fab capacity, to the point that some IC design houses are having trouble finding partners to take on even 2000-wafer runs, notes Digitimes, citing the Chinese Commercial Times.

High-voltage process capacity for LCD driver ICs is “fully booked,” while capacity is also tight for memory cards, CMOS image sensors, and communications and Bluetooth devices, the paper noted, citing IC design houses claiming they’re being forced to split wafer starts among multiple foundries, because no 200mm fabs will take on an extra 2000-wafer run. — J.M.

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