Taiwan adapts to grow
02/01/1999
Taiwan adapts to grow
Craig Addison, Asia correspondent
Taiwan`s semiconductor capital equipment market will represent a larger share of the world market in 1998. At the same time, the foundries, which are primary buyers of the equipment, are undergoing a transformation, in tune with global trends made evident at the recent SEMICON Taiwan show in Taipei.
Taiwan is the only market in Asia that is expected to see growth in equipment and materials purchases for 1998, reaching US$4.8 billion, or 15.7% of the worldwide market, according to SEMI (see table).
Even with cutbacks in its capital spending, Taiwan Semiconductor Manufacturing Corp. will have led Taiwanese semiconductor equipment spending in 1998. The foundry will make an estimated US$950 million in capital expenditures for 1998, followed by Winbond Electronics with US$910 million.
During a SEMICON Taiwan briefing, David Wang, senior VP for Applied Materials, described three key changes that are forcing the global IC industry into a transition phase. "The first is the emergence of competition in the microprocessor field, transforming what was once a monopoly for Intel into a market with a number of players," said Wang. "Second, it is becoming prohibitively expensive to develop the next generation of DRAMs, something in the order of US$1 billion. Combined with the US$1.5 billion cost for a new fab, we believe only a few players are going to continue to the gigabit [DRAM] and make large volume production."
The third major development will be the growing importance of foundry operations. More and more IC companies will move toward the fabless model, predicts Wang. "They will design the product. They will understand the system and architecture by working with their upstream customers. However, they will more and more [use] contract manufacturing by foundries, even for DRAMs to some extent. So the foundry business will really boom in the next few years." Taiwan`s own bold entry into DRAMs a few years ago has come undone with the dramatic price plunges of memory chips, causing a number of the country`s DRAM fabs to convert to foundry operations. Powerchip Semiconductor, originally a DRAM house, has started a foundry service, while Mosel-Vitelic is converting a 150-mm memory line into a foundry, according to industry sources. And Acer Semiconductor Manufacturing Inc. (formerly the DRAM house TI-Acer Inc.) , is expanding into logic and foundry production.
But, with integrated device manufacturers (IDMs) looking to outsource 20-30% of their production, the region`s foundries will have to stay at the leading edge to benefit from the outsourcing trend. "The IDMs want to maintain their own capacity at full loading and put this buffer outside the company," notes S.I. Wei, regional director for Teradyne Taiwan Ltd. "If the subcontractors keep in the low end, they cannot capture the business."
Taiwan`s companies seem to be adopting advanced technologies far more quickly than in the past, when they took two to three years to launch new products based on leading-edge technology. The gap has closed to a matter of months, some industry observers note. Suppliers of cleanroom and yield improvement products have also noticed a change in attitude among Taiwan device makers.
Taiwan`s industry is also moving to get into more advanced products to differentiate itself from competitors, including Korean chipmakers with plenty of capacity to spare, and relative newcomer Singapore`s. After a slow start, Singapore fabs, especially the foundries, are approaching Taiwan`s level of expertise and competitiveness. Although Singapore has lacked wafer fab engineers, its government has been addressing the problem by offering training in semiconductor process technology.
Singapore`s government is also supporting the fab industry with an attractive investment environment, as well as providing land and resources. "There is a lot of impetus for a manufacturer to look at Singapore," notes Joshua Lau, regional sales manager for Ion Systems Asia. However, Taiwan does have a domestic market for finished devices, thanks to the strong PC industry. "In Singapore, they`re all dependent on the export market," Lau said. "Both Taiwan and Singapore will grow and both will compete."
One new advanced technology area for Taiwan is Rambus memory, which is catching on in the PC industry. "Taiwan will have to keep up with the speed increases that will be hitting the PC industry," says Tom Newsom, VP of sales, marketing, and support for HP`s Automated Test Group. "We expect that the Rambus revolution will be spreading to Taiwan in the near future." Vanguard Semiconductor is the only Taiwan licensee of Rambus so far.
Taiwan companies have also been trying to break into the TFT-LCD market for years. Recently, Unipac Optoelectronics Corp, a subsidiary of UMC, and Japan`s Matsushita Electric Industrial Co. agreed to jointly develop new generation TFT-LCDs.
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Materials suppliers in Taiwan
More and more semiconductor materials companies are localizing product supply in Taiwan, and steadily filling gaps in the region`s growing market.
Johnson Matthey Electronics (JME), for example, has just opened a sputtering target manufacturing facility in the Hsinchu Science Based Park. The facility will produce targets and thermocouple devices, meeting requirements for 200- and 300-mm processes, as well as copper. Since setting up the factory, JME`s 1998 sales in Taiwan have grown 20-25% over last year, despite the industry downturn. By locating a factory in the midst of Taiwan`s version of Silicon Valley, JME not only expects to win business from local IC makers, but also wants to position itself to serve the needs of those chipmakers, such as Taiwan Semiconductor Manufacturing Co. (TSMC), that are setting up facilities outside their own country. United Microelectronics Corp. notes that JME`s local factory will lower UMC`s inventory requirements and enhance technological communications and development.
While gaps still remain in the gamut of localized materials, Hsinchu fabs do enjoy local sources for most of the key materials required for making semiconductors, including wafers, certain gases and chemicals, photoresists, and now sputtering targets.
The toughest competition is in gases, with several key players present. Air Products formed a joint venture with Taiwan`s San Fu Chemical Co. about three years ago in order to have a local production facility. In addition to having localized production in Hsinchu, Air Products is establishing itself in the Tainan Science Park, with a cleanroom, a technical center, a specialty gas supply center, and facilities to produce nitrogen and oxygen. TSMC has the only established fab in Tainan so far. Nevertheless, Air Products is upbeat. "It is an early investment, but we believe in the future this will be a good opportunity for us," says Andy Tuan, commercial manager, Air Products Asia Inc.
Many of Taiwan`s materials suppliers have come in via joint ventures with local partners. Under a typical model, a foreign partner provides the technology, while a local partner gives capital, customer connections, and existing infrastructure. Air Products chose San Fu because of its existing production facilities and "human relationships," said Tuan. In photomasks, DuPont recently set up a joint venture with UMC. And at SEMICON Taiwan, Praxair said it established a new joint venture with China Petrochemical Development Corp. to provide semiconductor gases, equipment, and services. The new company will be called Praxair Chemax Semiconductor Materials, with Praxair holding 51% equity.
Some may argue that the local materials supply has been slow in coming given the concentration of fabs in Hsinchu, but SEMI VP Alan Jung notes that there haven`t been many complaints about deliveries and service. That`s especially significant given Taiwan`s concentration of foundries, which have tougher JIT and materials supply requirements than do integrated device manufacturers.