Foundry island

Foundry islandThe pure foundry business was invented in Taiwan by TSMC in the mid-80s and has beenthe place for foundry ever since. And that’s not the only reason foreigners come to Taiwan. David Manners took a tour of the island and checked out the Taiwanese recipe for success Debate rages in Taiwan’s semiconductor industry about whether its future lies in pure manufacturing or in designing and developing proprietary products. Whether, in the industry argot, to be a foundry or to be an integrated device manufacturer (IDM). In fact the debate is almost over because there’s only three significant Taiwan companies pursuing the IDM route, Winbond, Macronix and Vanguard. The pure foundry business was invented by the Taiwan Semiconductor Manufacturing Company (TSMC) back in the mid-80s. TSMC has been so successful that, in 1997, it was rated No.190 in the FT 500 list of the world’s largest companies – higher than Volkswagen, Toshiba, Guinesss and GEC – with a stock market worth of $20bn. Two years ago Taiwan’s oldest semiconductor company, United Microelectronics Corporation (UMC), dramatically switched from making proprietary products to becoming a pure-play foundry. UMC has built a four fab complex for foundry, one under its own name, and three to be run with partners: United Semiconductor Corporation (USC), United Integrated Circuits Corporation (UICC), United Silicon Inc (USIC). So great is the demand for Taiwanese foundry that a new foundry company got started last year with over a billion (US) dollars in equity and loans supported by 32 local banks. Worldwide Semiconductor Manufacturing Company (WSMC) is building not just one but two billion dollar wafer fabs and, according to the president Dr Richard Chang: “We have already sold all the capacity until June 1999 – in fact I think we’ve over-committed a little bit.” The success of TSMC, UMC and WSMC means that foundry companies have no difficulty raising money from local capital sources. “No semiconductor company has ever gone under in Taiwan,” says Dr Chung-Shih Hsu, vice-president at Vanguard, “electronics is still the brightest industry in Taiwan.” So investor confidence is high. Foundry is not the only reason foreigners come to Taiwan. Ever since Texas Instruments formed its joint venture with Acer in the ‘80s to make DRAMs (TI-Acer), overseas companies have come to the island to swap their process technology for Taiwanese manufacturing skills. For instance Siemens has a DRAM joint venture with Mosel-Vitelic called Pro-Mos technologies; Mitsubishi Electric has a DRAM joint venture with Powerchip Semiconductor Corporation; Nan-Ya Technology (a subsidiary of the island’s largest industrial group – Formosa Plastics) manufacturers Oki-designed DRAMs using Oki process technology. Even the two most stalwart exponents of the proprietary product, IDM-type of business model have gone in for manufacturing joint ventures. Macronix has a DRAM venture with Matsushita, and Winbond has a DRAM venture with Toshiba. Under both of them the Japanese company supplies process technology and design, and the Taiwanese company supplies low-cost manufacturing. Dr Ding-Yuan Yang, president of Winbond, explains why: “Once you’ve built a fab you have to fill it. How do you keep it full? There are three ways: you can share the capacity (i.e. foundry), or you can make DRAMs, or you are Intel.” So why do foreign companies rate Taiwan so highly for manufacturing? “The advantage of the Taiwan cost structure is that you can make a big chip and make a profit on it,” says Simon Wang, vice- president at Macronix, “we get 15 per cent better output than anywhere else because of our culture of having MScs and BScs working 24 hours a day even on the graveyard shift. The workforce is always pushing for output. Our equipment utilisation is much better than anywhere else.” Others point to the flexibility and intelligence of the Taiwan fab workers. The Japanese might have the most controlled processes leading to the best product quality, but Taiwan workers can use their intelligence to take short cuts. In a service industry, customers often prefer an adequate product in the right timeframe at the best cost, to a perfect product which is expensive and may take time to make. That being said, not every company wants to wed themselves 100 per cent to foundry. At Vanguard, the president Dr F.C. Tseng is building a proprietary product/proprietary process company. “We are the only Taiwanese DRAM maker using indigenous technology. This year we will introduce our first non-DRAM product,” says Tseng. He would like to see Vanguard making 10 per cent non-DRAM products by 2000. “There are a lot of arguments whether being an IDM or a foundry is the better business strategy,” says Winbond’s Dr Yang, “we think it’s better to be a product company because, in the long term, foundry is a low entry-cost business. Many new people are coming into the foundry business like Singapore and Malaysia. Mainland China is doing foundry . Korea wants to do foundry.” So competitive is the foundry business in Taiwan that rumours were floating around that UMC was cutting the price of a processed 0.35- micron eight inch wafer from $1200 to $800/900. But when EW asked John Hsuan, president of UMC about that, he responded: “$800 is below break-even.”

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