AsiaFocus: Upbeat mood at Semicon Taiwan, but earthquake rattles island's chipmakers

11/01/1999

If there were lingering doubts that a recovery in the semiconductor industry was underway, the upbeat mood at Semicon Taiwan '99 would have dispelled them. But smiles turned to horror three days after the September show when a devastating earthquake rocked Taiwan (see World News, p. 14).

It was evident from this year's show that Taiwan had completed its ascendance to the semiconductor big leagues. Equipment sales to Taiwan will soon account for almost 20% of the world total, with $5.2 billion in such sales expected next year, up 24% from 1999, according to Semi forecasts. And in 3Q99, Applied Materials booked $379 million worth of new orders from Taiwan, representing 26% of its total for that period. Orders from North America were just two points higher, at $408 million.

With prices of 64-Mbit DRAMs over $18 as of early October and wafer foundries operating at full capacity again, chipmakers in Taiwan are enjoying strong profits and, subsequently, are increasing their capital expenditures. Taiwan Semiconductor Manufacturing Co. chairman Morris Chang said capital investment for TSMC in 2000 would be $2 billion, up from a previously estimated $1.55 billion. The UMC group budgeted $1.48 billion for capital spending this year, up from just over $1 billion in 1998.

"I am a firm believer now that the recovery is well underway. And it continues. Every day I get more surprises; the orders just keep flowing in," said John Heaton, president and CEO of Nanometrics Inc.

Others were even more expressive. "It's wild. We are seeing one heck of an upturn," said Mihir Parikh, chairman and CEO of Asyst Technologies Inc. During the show, there was a consensus that Taiwan's chip industry — driven by the foundries — has made the transition from lagging edge to leading edge. "If you look at the available 0.18µm capacity worldwide, a lot of it is concentrated in Taiwan and it is growing the fastest in Taiwan," said Peter Gillespie, director of marketing for the Fusion Systems Division of Eaton Corp's Semiconductor Equipment Operations. "You are seeing the foundry model really beginning to push technology which it hadn't in the past. It is great ground for trying new technologies for rapid adoption."

One US equipment maker, Boxer Cross Inc., even chose Semicon Taiwan for its worldwide introduction of a new metrology solution for in-line electrical monitoring of 0.18µm devices. "There appears to be a change occurring in terms of their receptiveness to new companies and new technologies," said Gale Lane, VP of marketing for the two-year-old start-up. "They can't just be followers any more and wait for the US or Japanese manufacturers to lead in terms of the technology."

While it was the equipment vendors that helped Taiwan foundries come up to speed with processing technology in the early days, to survive and gain a competitive edge, foundries now spend their own R&D dollars on process improvements. "Wafer fab companies rely heavily on equipment suppliers when they are young," said Archie Hwang, chairman and CEO of Hermes-Epitek Corp., a Taiwan representative company for equipment vendors. "After they are seasoned, they would like to do a lot of development work by themselves because that is the only way they can create some competitive edge."

Hong-Jen Wu, president of UMC, told delegates at a plenary session that future foundries would take an important role in the development of next-generation process equipment. UMC — which switched from being an IDM to a pure-play foundry — has re-allocated its technical resources accordingly. In 1992, the group's R&D headcount was 243 for IC-related activities and only 75 for process technology. By 1996, when its shift to foundry was underway, process R&D people numbered 108 versus 244 for IC-related. This year, UMC employs 239 R&D people for process technology and only 79 for circuit-related work.

That shift is a costly one for the company. "Process technology needs a lot of expensive equipment and materials," said Wu. "Circuit designers only need a workstation." Wu added that UMC and other foundries are forming partnerships with equipment and materials suppliers to help reduce the cost of developing new processes. "Many equipment makers cooperate with foundries to tune the process," he said.

During Semicon Taiwan, signs emerged that the DRAM recovery was well underway. Prices have been firming for the past few months and DRAM makers are reporting profits again after suffering heavy losses. Semiconductor equipment and materials suppliers are expecting a surge in orders from DRAM makers as the demand-capacity situation becomes more balanced. From a peak of 30% overcapacity in 1996, the market overcapacity will drop to an annual average of 8% in 1999 and is expected to reach a balance next year, according to data presented by David Wang, senior VP of Applied Materials.

In DRAMs, Taiwan is still a minor player. The island's largest DRAM maker, Vanguard International, will only account for 2% of total worldwide bit production in 2000; other Taiwan makers such as Winbond, Nan Ya, and Mosel-Vitelic will only have between 1% and 2% each. The leader, Samsung Electronics, will account for almost 20%, according to Wang.

Others point out that Taiwan has passed the learning stage for DRAMs and should be more able to compete with the market leaders in Korea and the US. "That has been a painful process. They've been using other people's technology; now they are developing their own," said Kenneth Leung, VP of Asia Pacific operations for Asyst.

The quality of the visitors to the show was cited as further evidence of a strong industry upturn. "Last year was mainly technical people visiting to keep themselves up to date," said Pascal Didier, a senior VP, worldwide customer operations at Cymer Inc. In contrast, last week's event saw a mix of purchasing people as well as the technical representatives. This turn-out means, said Didier, that "budgets are being put in place and commitments are made to expansion." —Craig Addison, Asia correspondent