Feeds

Taiwan semi firms left with no easy options

And SiS says merger with UMC impossible

  • alert
  • submit to reddit

Bridging the IT gap between rising business demands and ageing tools

After a recent flurry of expansion, Taiwan's chip makers have no easy options left as they try to increase capacity, analysts say. Taiwan Semiconductor Manufacturing Company (TSMC), and United Microelectronics Corporation (UMC) are the world's largest contract chip manufacturers.

Despite a steady expansion programme, a booming market has left them unable to meet demand. Both companies are building new facilities as rapidly as possible, but are facing long-term production shortfalls. "There really aren't a lot of options left [for UMC and TSMC]," said Dan Heyler of Merrill Lynch.

TSMC has expanded capacity during the past year by buying chip fabrication facilities, or fabs, such as Acer Semiconductor Manufacturing Inc., and World Semiconductor Manufacturing Co.

There are still a number of independent fabs in Taiwan which, on the surface, appear to be acquisition targets for TSMC or UMC. However, most of Taiwan's unaffiliated fabs make memory chips, while UMC and TSMC need to increase their capacity in logic chips. Logic chips perform control functions in products such as computers, mobile phones and toys, whereas memory chips merely store data.

Analysts say that roughly US$200 million and six to nine months are required to convert a memory chip fab to make logic chips. This is still considerably faster and cheaper than building a new chip plant from scratch - an exercise that can cost billions. But healthy DRAM prices mean memory chip makers are unlikely to sell up cheaply.

"The best time for DRAM is now," says Don Floyd of Credit Lyonnais Securities Asia, "If they just hang in there, they're going to make a lot of money after two or three difficult years."

"We're very confident in making a good profit this year, and probably next. At least in the short term, a deal with another company is not possible," says Cecilia Yang, spokeswoman for DRAM maker, Powerchip Semiconductor. And as time passes, buyouts become even more unlikely.

"The longer you wait, the more expensive it gets, because the more you move into the cycle, the higher the [DRAM company's] stock prices go," says Floyd. Market rumors suggest UMC might buy a new fab recently constructed by Silicon Integrated Systems (SiS), a designer of computer chips. SiS spokeswoman, Sylvia Lin, categorically denies this. "Impossible," she says, "the purpose of the fab is to fulfill our own needs. We have a goal to become a US$1bn company by 2002. To reach that goal we need to have a certain degree of control of our own capacity. We would never, never sell."

In fact, with the new fab in Hsinchu ready to start operations, SiS is now moving to purchase land for another fab at the Tainan science park in southern Taiwan. In addition, UMC Chairman Robert Tsao told employees earlier this week that his company will not buy any Taiwanese chip makers, according to local media reports. However, some analysts said this statement may be an attempt to dampen speculation and should not be seen as a statement of long term policy. Even if TSMC and UMC can locate and purchase new capacity in Taiwan or overseas, analysts question their ability to smoothly integrate new fabs, given that the two companies are already expanding rapidly. ®

The Power of One Brief: Top reasons to choose HP BladeSystem

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple ran off to IBM
But never fear fanbois, you're still lapping up iPhones, Macs
Nadella: Apps must run on ALL WINDOWS – PCs, slabs and mobes
Phone egg, meet desktop chicken - your mother
HP, Microsoft prove it again: Big Business doesn't create jobs
SMEs get lip service - what they need is dinner at the Club
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Samsung threatens to cut ties with supplier over child labour allegations
Vows to uphold 'zero tolerance' policy on underage workers
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Reducing security risks from open source software
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.