The semiconductor industry has known for decades that 'only the paranoid survive' thanks to the great Andy Grove, and the object of paranoia in the semiconductor industry is the foundry industry.
Are they going to raise prices and put the squeeze on IDMs? Are they going to move into design to put the squeeze on the fabless industry? Are they creating IP to put the squeeze on the IP guys?
Well, yes to all three. They may not be actively putting up prices but, according to TSMC's European boss Maria Marced, TSMC is decreasing the rate of wafer price decline over the lifetime of a process node - which is much the same thing.
As to IP creation, it is no secret that the foundries are devoting significant assets (significant in the IP industry's terms, if not in the foundry industry's terms) to creating IP for use by their customers.
As for design, while not actively engaged, TSMC has a close relationship and a 36 per cent stake in of Global Unichip Corporation (GUC), a design company on the eSilicon business model.
GUC as founded in 1998 and was one of a group of about 15 Taiwanese design houses which worked with TSMC.
In 2003, TSMC decided that the differing aims and agenda of the various houses made it difficult to work with them all, and decided to work just with GUC. So, that year, TSMC took a 49 per cent share in GUC which was subsequently reduced to 36 per cent.
Dr F.C. Tseng, former CEO of TSMC, and currently TSMC vice chairman, is the chairman of GUC, and Lora Ho, TSMC's CFO, sits on the GUC board.
GUC is doing about ten tape-outs a month and, last year, had revenues of $250 million. In the first half of 2007, GUC had revenues of $147 million. ROE is 32.4 per cent. Gross margin is "about 20 per cent" says GUC's marketing director, Dr Keh-Ching Huang, and net income "about ten per cent".
When I asked Huang if GUC got a special price for wafers from TSMC, he replied: "No."
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