Silicon Island: A new landscape emerges
08/01/1998
Silicon Island: A new landscape emerges
Robert Haavind, Editor in Chief
Taiwan is taking a very different path to a successful, fast-growing semiconductor industry than other Asian nations such as Japan, Korea, or potentially China. While officials and semiconductor executives in Taiwan are cautious about the near-term outlook for both the semiconductor and electronics markets, their strong resolve to move forward in spite of slowing markets is apparent. Semiconductor production value reached almost US$10 billion in 1997, up more than 20% over US$8.5 billion in 1996. Their plans are extremely ambitious, aimed at making this small island nation a global force not only in foundries, where Taiwan chipmakers shine today, but also in systems on a chip (SOCs) or system LSIs, and possibly even DRAMs.
Already Taiwan`s GNP is 19th largest in the world, with average annual economic growth of about 9% since 1951, when it was predominantly an agricultural nation. Today, high tech represents 37% of manufacturing on the island, which is only 280 miles long and 60 miles wide. In 1997, the Taiwan economy grew 6.8% and foreign investment rose about 50%. Even with the current troubles in Asia, Taiwan officials are forecasting some growth in 1998, although they are uncertain whether it will reach the 5.5-6% projected earlier in the year.
Unlike Japan and Korea, with their giant conglomerates (keiretsu and chaebols, respectively), Taiwan`s growth has been propelled by an assortment of smaller companies, several of them start-ups founded by Taiwanese ex-patriots lured back from jobs in US high-tech companies. About 96% of business is done by small to medium-sized enterprises, which tend to be more agile than giant firms. While the Taiwan government has been instrumental in fostering semiconductor manufacturing there, by subsidizing foundries such as Taiwan Semiconductor Manufacturing Corp. (TSMC) (Figs. 1 and 2) and United Microelectronics Corp. (UMC), for instance, and by developing the Hsinchu Science-based Industrial Park and supporting a national electronics laboratory, the Industrial Technology Research Institute (ITRI) , the objective has been to develop a fast-growing industry based on multiple, diversified, successful private companies rather than a few monster conglomerates following the dictates of the government, as in Japan and Korea, or government-run enterprises, as in China.
There are other factors that have contributed to Taiwan`s success, including the following:
Employee ownership. Stock ownership is widespread among employees, including supervisors and many workers, as well as executives. This engenders a dedicated work force with great incentives to help their companies grow.
Education. High school students take exams that determine which universities they are qualified to attend. The highest-scoring students get into the best technical universities, while low-scoring students go to trade schools. This has provided a steadily growing pool of well-educated engineers and scientists along with technicians trained to meet industry needs.
Numerous electronics companies and assembly operations. Taiwan has gained world leadership in many areas of electronics manufacturing, such as PCs, monitors, motherboards, desk-top and hand-held scanners, and modems. These companies provide a ready OEM market for Taiwan`s growing semiconductor output.
Semiconductor foundry services. Taiwan is the world leader foundry services, providing chips for fabless semiconductor companies as well as providing extra capacity to chipmakers. This business has mushroomed with the growth of ASIC (application-specific IC) products, as more functionality is put onto single chips. Already, Taiwan is being called "Silicon Island," and it is ranked fourth in the world in semiconductor production, behind the US, Japan, and South Korea. Spending on semiconductor process equipment is expected to match or exceed Japan`s this year.
Huge foreign reserves. Banks have accumulated more than $100 billion in foreign reserves, which has helped Taiwan to continue its growth even when most Asian economies are in decline because of the financial setbacks that swept across the region in 1997.
Export emphasis. Taiwan has become the world`s 15th largest trading nation, even doing large volumes of trade with European countries with which it has no diplomatic links because of the continuing dispute with the People`s Republic of China on the mainland. Bilateral trade in 1997 was about US$9 billion with Germany, US$6 billion with France, and US$5 billion with the United Kingdom, for example.
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Figure 1. TSMC`s headquarters and six fabs, making it the world`s largest semiconductor foundry, are a centerpiece of the Hsinchu Science-based Industrial Park.
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Figure 2. A highly skilled work force makes TSMC (shown here) and other Taiwan chipmakers formidible competitors in world markets.
Entrepreneurial spirit, global alliances
Taiwan`s industries are structured for flexibility and quick reaction to market opportunities, according to Stan Shih, CEO and founder of Acer Inc., the third largest maker of PCs in the world -behind IBM and Compaq -with sales of US$5.9 billion a year. Entrepreneurialism is fostered by widespread stock ownership by employees of many Taiwan companies, including factory workers. This also helps the firms keep highly skilled workers after training them. In the case of Acer, decentralization is an objective. Shih has set up a training program for entrepreneurs, who are given large amounts of stock in related start-up enterprises and then given support to help the fledgling firms grow rapidly. Since Taiwan is a small market, Acer has always been a global company, Shih says, and it only has a minority interest in many affiliates around the world that are managed by local executives. These links have grown to 80 companies in 44 countries, according to Shih. He says he owned 50% of Acer originally, but now he only holds 7-8% of the stock. "I had to share ownership," he explains, "Because I didn`t have any money when I started!"
Shih feels that rapid change is transforming high-tech business, and he wants to reshape his own enterprise to operate more effectively. Intellectual property (functional circuit cores that can be combined to make systems on a single chip) will become much more important in the future, he believes, and embedded software will make hardware much easier to use. He feels that multimedia will eventually expand so greatly that the current Wintel dominance of Microsoft`s Windows OS and Intel`s processors in personal computers will be relegated to only a small sub-sector of the total market. This will happen because so many strong companies are opposed to the quasi-monopoly Microsoft and Intel have achieved in the personal computer industry.
Franchising and licensing of intellectual property and software will become much more important, Shih says, and Acer is making investments to develop that part of the business. Aspire, an Acer software spin-off, grew in just two years from US$4 million to its current US$50 million a year. He says Acer plans to invest some US$8 billion in the software area over the next 10 years, and he himself plans to retire from the hardware side in six years to concentrate solely on building the software business and education.
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Figure 3. Electronic assembly and test still represents a major portion of Taiwan`s electronics business. But more lower-level work is being moved to lower-wage areas, especially mainland China.
Shortage of technically skilled workers
Getting technically qualified executives and workers is a constant problem in Taiwan, which boasts only 2.6% unemployment. The work force shrank by 300,000 over the last 10 years, from 2.6 to 2.3 million workers -according to Dr. P. K. Chaing, chairman of the Council of Economic Planning and Development -due to emigration, mostly to China. This flow has ebbed because of concern about some killings and kidnappings on mainland China, as well as the political climate. Meanwhile, workers from elsewhere are being attracted to the island, which expects to attain an average family income of US$20,000 by the year 2000. Because of the higher wages, many lower-level electronic operations, such as assembly and test, are being moved offshore, particularly to mainland China (Fig. 3). But government rules prevent investments on the mainland that would involve the transfer of high-level advanced technology.
More than 2500 expatriots have been lured back by the success of the Hsinchu Science-based Industrial Park near Taipei. Many of them have started their own businesses. They came primarily from Silicon Valley and from New Jersey (Bell Laboratories), according to K. Wang, director general of the Park administration. The Park was set up to emulate Silicon Valley, and more than 200 firms operate there now, employing more than 68,000 workers, compared to only 17 when the Park opened in 1981. There are some 20 semiconductor fabs in the 1186-acre park, including multiple fabs operated by TSMC and UMC. TSMC`s Fab 6 may be the largest in the world, Wang speculates, with 60,000 wafer starts/month. Sprinkled around the Park are signs for such roads as Prosperity, Creation, and Pioneer, reflecting the goals of the many companies springing up there. Working in the Park are 800 PhDs and 8000 people with masters degrees, not counting the government and industrial research labs located there, he says. The work force is 58% college graduate-level or above, and only 10% are below high school level. The Park is about 40 km from Taipei`s international airport, and is near Keelung, the world`s fifth largest container port.
The limited space in the Hsinchu Park is now almost completely full, and at rush hours, cars, trucks and buses are choked in heavy traffic, most of it heading to or from a nearby superhighway link. Meanwhile, hundreds of motorbikes zip along on secondary paths outside the main roads, allowing many workers to beat the traffic.
The Science Park formula has proven so successful that Taiwan planners hope to build a number of them, located near international airports and interlinked by high-speed trains and superhighways. Construction has already begun at the second Park in Tainan, 300 km south of Hsinchu in an agricultural region. The new Park is located in what had been sugar cane fields near Kaohshung, the world`s third largest container port. Although semiconductor fabs are already under construction there, the emphasis in this Park will be somewhat different than in Hsinchu. The stress will be on biotechnology, particularly for agriculture, pharmaceuticals, food processing, and micromachining. The national laboratory, ITRI, will set up a branch there to provide R&D support, and a research institute in life sciences is planned, according to Wang. Several universities are already located in this region, because some 300 years ago it was a political center of Formosa (the former name of Taiwan).
The huge success of the Science Park concept has not gone unnoticed by the private sector, either. Formosa Plastics, which also manufactures semiconductors, is developing a private science park closer to Taipei.
Education critical to technology success
Technology industries cannot grow without an expanding pool of scientists, engineers, technicians, and technically trained workers. Because of its limited labor pool, Taiwan has concentrated educational efforts on providing as much of this technical expertise as it can through its educational system. Nine years of schooling is compulsory, but after junior high about 70% of students go to vocational schools and about 30% take college preparatory courses. Tests are given to these college prep students, about 70,000 of them a year, and those with the highest scores can go to the best technical universities. About half of those who qualify do go to technical universities because of the high salaries in high-tech industries. In the past two years, vocational school students have also been permitted to take the tests as the need for skills has increased.
One of the top technical schools, National Chiao Tung University, is located right inside the Hsinchu Science Park. Its 8000 students include more than 400 PhD candidates, and in 1997 more than 150 PhDs graduated from the university. There are five colleges, the largest being the electronics and information engineering school. Seven faculty members are IEEE Fellows, and there are seven other Fellows in other international professional organizations in such areas as optics and ceramics.
There is an extensive R&D program associated with the university, and many patents have been received for work done there, according to the president, Chi Fu Den, a PhD from the University of Michigan in Ann Arbor. He boasts that 70% of the founders of the Hsinchu Park came from Chiao Tung University. One major research project currently in progress is to design and fabricate a system on a chip with more than 10 million devices. This project, directed by Chung-Yu Wu, a PhD and IEEE Fellow, involves 29 professors and 130 PhD candidates. Funding will be US$2 million/year for three years.
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Figure 4. Acer`s Star set-top box digital satellite receiver.
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Figure 5. Microtek`s ScanMaker T4000 high-resolution scanner.
Program fosters design excellence
Because Taiwan`s own market is small, industry growth depends on a thriving export business. In the early days of the electronics business, much of the work was board assembly and test. This OEM manufacturing model was followed when the government fostered the rise of the semiconductor foundry business, working with outside companies such as Texas Instruments, which partnered with TSMC. While OEM business still plays a major role in total manufacturing, the makers of end-products are gaining a steadily larger share of the export business.
Programs to encourage exports and to upgrade the products offered by Taiwanese companies are directed by the China External Trade Development Council (CETRA). Under CETRA`s direction, Symbol of Excellence awards have been given since 1991 to products selected by a group of expert judges, including some from Europe and the US. While OEM products won a number of earlier awards, recent winners are increasingly finished products, many of them electronics.
The 1998 National Award of Excellence winners not only emphasize cool design, but also show innovation and even unique aspects, like Thunder Tiger`s first turbojet engine for model airplanes, developed after five years of intensive research. It runs on kerosene rather than propane, which has been barred for safety reasons in many areas because of the need for a pressurized tank. Other winners include: an SLR-sized video digital camera by Mustek Systems; the MPEGWizard Encoder compact video editing system for home use from AverMedia Technologies; an Acer TV set-top box digital satellite receiver (Fig. 4); a sleek large-format scanner from Microtek International (Fig. 5); and a flat-panel PC by Advantech for kiosks and point-of-information displays (Fig. 6).
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Figure 6. Advantech`s PPC-102 Panel PC for kiosks and POI displays.
Push for broader IC product base
While TSMC and UMC plan 12-inch wafer fabs and expand foundry capacity (see Solid State Technology, AsiaFocus, July 1998, p. 86), other chip companies are moving into system-on-a-chip (SOC) designs and innovative ASICs, particularly for multimedia systems.
Winbond, for example, is shifting away from motherboards and the PC business into chips for multimedia applications, such as set-top boxes, internet appliances, and electronic cameras. Its collaboration with Toshiba will allow high integration of relatively low-performance devices at low cost, according to its president, Ding Yuan Yang. Multimedia devices will need some on-board DRAM, he believes, and he sees Toshiba`s trench-type process as ideal for these types of chips. Chemical mechanical polishing will allow several metal layers on top of the trench structures, probably three layers for SOCs and five layers for microprocessors. A fab being built jointly with Toshiba will also have DRAM capacity, first for 128-Mbit between-generation devices, and then 256-Mbit memory chips. Winbond makes a wide variety of other chips for audio and speech processing, video, telephony, networking, temperature control, clocks, and so on, which can be converted to circuit cores and combined with SRAM, flash, and DRAM memory on system chips.
Microtek International, a scanner manufacturer with more than 10% of the world market, is another company in the Hsinchu Park that is moving into the multimedia chip business. One unique chip that will cost about $100 will send audio, video, and text together over a network, doing the necessary compression, according to Benny Hsu, chairman. An audio unit has been designed that -when plugged into a modern TV set -can produce top-quality sound. The company also has expanded into wireless, spread spectrum devices, and electronic PC cameras.
Hsu claims that Microtek was the first manufacturing company to move into the Park in 1981. His hand-written, five-page application was rejected because it wasn`t typed, he says. He hired a Chinese-character typist who copied the form for him, and returned with it that afternoon. This time it was approved. At the time, Hsu said, he didn`t even have a product. Starting with microprocessor development kits, the company began to design a scanner in 1983 and offered the first commercial scanner product to the world in 1984, says Hsu.
Things have come a long way in Taiwan since then!