How Taiwan’s presidential elections will impact the semiconductor industry

by James Montgomery, News Editor, Solid State Technology

Mar. 21, 2008 – This weekend Taiwan will elect a new president, and based on each candidate’s platform — and what each has promised to industry interests — significant changes could be on the horizon for the semiconductor industry in Asia.

A key platform issue for both Taiwan presidential candidates — Frank Hsieh of the incumbent Democratic Progressive Party (DPP), and Ma Ying-jeou (former mayor of Taipei) of the Kuomintang party (KMT) — is liberalizing relations with China, particularly in terms of trade and business. (It’s worth noting that KMT won 75% of seats in the January primary elections, perhaps indicating fatigue with the incumbent DPP party.) Included in this discussion is what to do about the semiconductor industries in China and Taiwan — whether and how to loosen and accelerate Taiwan firms’ ability to open up shop in China. The difference is in how fast/extensive those changes will be. With Hsieh, changes would be slower and steadier; if KMT’s Ma wins, look for more dramatic decisions in a shorter period of time.

“For other sectors in the technology space, it’s just generally about better integration of cross-strait operations,” explained Rupert Hammond-Chambers, president of the US-Taiwan Business Council, in a recent interview with WaferNEWS. He noted that both Hsieh and Ma want to remove the 40% ceiling on equity to investment (though to varying degrees), which has been particularly frustrating for other domestic sectors tangential to the chip sector (e.g. contract manufacturing of motherboards and hardware components). But for semiconductor firms, it’s a more complicated discussion, involving a sense of national pride in a keystone industry, one that is seen as having significantly better IP protection than China, and one in which companies want to have more say over how they do business both on-island and cross-strait.

Local restrictions on Taiwan’s technology transfers to the mainland have been hindering and slow to gain approval. The Ministry of Economic Affairs (MOEA) currently allows 0.18μm semiconductor processes to be moved cross-strait, despite calls for relaxing that to 0.13-μm or lower, and any chipmaker applying for such transfer has to first establish a 300mm site in Taiwan. TSMC has a 200mm operation in Shanghai, but Powerchip and ProMos, who were finally approved after months of delays, have yet to move anything over. (PArt of the problem beyond establishing domestic 300mm operations is that 200mm demand continues to be hot; so even when transfer is approved, these firms prefer to stand pat with local lines, and wait until a market downturn to move them to the mainland.)

“Companies just want to dictate on their own terms,” most importantly getting much faster feedback about requests to send operations to the mainland, Hammond-Chambers. Under current restrictions the MOEA can take as much as two years to review and approve/decline, whereas business conditions dictating such a move might change in just a few weeks — e.g., if the industry climate suggests a downturn, it might be a good opportunity to quickly shut down a line and move it to Shanghai, he explained.

In what could be a key policy shift in terms of Taiwan-China chip industry relations, Hammond-Chambers told WaferNEWS that both party candidates have given verbal commitments to Taiwan semiconductor industry leaders that they will allow 300mm technology investments into China. One supporting argument is that general 300mm manufacturing is no longer cutting-edge to firms like TSMC, UMC, and several memory firms. Another is that China already is welcoming foreign 300mm investments (e.g., Intel’s forthcoming site in Dalian), so why shouldn’t Taiwan be primed to take advantage of that eagerness? “The Intel investment is very important” in that it opened the door for Taiwan industry leaders to go to politicians and say, “‘the US takes IP control more seriously, and China is letting Intel [start up a 300mm fab],'” Hammond-Chambers said. “That issue resonated with leadership.” Furthermore, the willingness of local Chinese governments to heavily support new semiconductor facilities (see SMIC and Intel) would also apply to Taiwan investments as well. TSMC, UMC, et al. “are the most logical investors to help China’s domestic industry expand,” and help develop expertise among all players in China’s chip industry: manufacturing, design, even VCs, he pointed out.

So how to handicap Taiwan’s presidential election, as it applies to Taiwan’s chip industry? If DPP’s Hsieh wins, expect a gradual (over 2-3 years) quickening of the review process for cross-straight technology transfers, with some changes to the level that can be invested in the chip space, Hammond-Chambers said. If KMT’s Ma wins, expect the 40% investment cap lifted across the board (not just in some sectors), and a faster process for reviewing mainland Chinese investments, with “a more liberal attitude of technology levels,” Hammond-Chambers said.

In a broader sense, Taiwan’s presidential election isn’t the only factor in gauging the future of cross-strait relations. Given similarities in the candidates’ positions, “we know a great deal about what Taiwan is likely to do over the next four years to improve its standing with China and with the United States,” according to a new statement by the US-Taiwan business council, which supports a US-Taiwan Free Trade Agreement to improve market access and include Taiwan in global trade liberalization. “However, neither Washington nor Beijing has given any indication of how they might respond to these expected Taiwan initiatives, or what they intend to do to address the unique challenges that Taiwan represents to their global interests. It is essential that Washington drop the counterproductive barriers to high-level communication with Taiwan and begin actively encouraging dialogue between each party.” — J.M.


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