Feeds

Taiwan semi firms left with no easy options

And SiS says merger with UMC impossible

  • alert
  • submit to reddit

High performance access to file storage

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. ®

High performance access to file storage

More from The Register

next story
Dropbox defends fantastically badly timed Condoleezza Rice appointment
'Nothing is going to change with Dr. Rice's appointment,' file sharer promises
Audio fans, prepare yourself for the Second Coming ... of Blu-ray
High Fidelity Pure Audio – is this what your ears have been waiting for?
Did a date calculation bug just cost hard-up Co-op Bank £110m?
And just when Brit banking org needs £400m to stay afloat
Sorry London, Europe's top tech city is Munich
New 'Atlas of ICT Activity' finds innovation isn't happening at Silicon Roundabout
MtGox chief Karpelès refuses to come to US for g-men's grilling
Bitcoin baron says he needs another lawyer for FinCEN chat
Zucker punched: Google gobbles Facebook-wooed Titan Aerospace
Up, up and away in my beautiful balloon flying broadband-bot
Apple DOMINATES the Valley, rakes in more profit than Google, HP, Intel, Cisco COMBINED
Cook & Co. also pay more taxes than those four worthies PLUS eBay and Oracle
prev story

Whitepapers

Top three mobile application threats
Learn about three of the top mobile application security threats facing businesses today and recommendations on how to mitigate the risk.
Combat fraud and increase customer satisfaction
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Five 3D headsets to be won!
We were so impressed by the Durovis Dive headset we’ve asked the company to give some away to Reg readers.
SANS - Survey on application security programs
In this whitepaper learn about the state of application security programs and practices of 488 surveyed respondents, and discover how mature and effective these programs are.