Chip foundry pair boost capital spending on business recovery

Taipei, Dec. 3, 2003 (CENS)-- The board of Taiwan Semiconductor Manufacturing Co. (TSMC) yesterday approved a plan to spend US$1.4 billion on expansions while nearest rival United Microelectronics Corp. (UMC) announced its affiliate UMCi has spent NT$7.6 billion (US$223.5 million at US$1:NT$34) on expansions.

The two chip-foundry players' bold capital spending plans suggest business recovery has taken hold, industry watchers said. Early last quarter, the two suppliers said they would take a cautious attitude toward expansions.

Industry specialists pointed out that the two pure-foundry players have seen outsourcing contracts flooding since late last month with graphic chips, consumer-electronics chips and communications chips leading the way. Booming orders have strained the two companies' capacities, leading to their urgent expansion plans.

TSMC pointed out that the money in the latest expansion plan will be mostly allocated to beef up its 0.13-micron process and 90-nano process capabilities at its Fab 12 and Fab 14 12-inch wafer factories. Part of the money will be utilized to boost 0.15-micron and 0.18-micron process capabilities at its eight-inch wafer fabs.

TSMC spokesperson and chief finance officer, Lora Ho, emphasized that the US$1.4 billion is not capital spending for next year and her company will announce its 2004 capital spending early next year.

UMC announced that its affiliate UMCi, a 12-inch wafer factory located in Singapore, has spent NT$7.6 billion on leading-edge process equipment.

TSMC and UMC are estimated to spend US$1.2 billion and US$600 million on expansions, respectively, throughout this year. They are forecast to double the spending next year.

Recently, TSMC has acquired 193-nano lithography equipment and 300-mm wafer tools from Applied Materials, ASML and TEL. So far this quarter, the company has spent around US$500 million on equipment, an amount roughly equal to the total capital it spent in the first half of the year.

According to the government-backed IT industry think tank Institute for Information Industry (III), Taiwan's chip-foundry industry will likely rise 20% next year to NT$311.3 billion (US$9.1 billion). The force to push up this industry next year, the organization said, will mostly come from cell-phone, personal computer and camera phone sectors. More than 500 million cell-phones are projected to be shipped next year worldwide. Personal computers are estimated to see more new standard applications such as Bluetooth wireless chips, WLAN chips and USB2.0 chips. Industry watchers expect new functions such as personal digital assistant (PDA) and MP3 player to be added to camera phones next year.

However, Taiwan's chip-foundry industry is estimated to see its world market share slip to barely 70% next year from last year's 73% as a result of rising competition from new entrants. Formidable rivals include International Business Machines (IBM) and mainland Chinese Semiconductor Manufacturing International Corp. (SMIC).

Local industry watchers analyzed that although Taiwanese foundry players are losing world market share to rising rivals, their profits remain unmatched by the rivals. They pointed out that fabless companies have long been the major revenue contributors to foundry suppliers, and integrated device manufacturers (IDMs) are increasing contract chips from pure foundry players.

They estimated the world chip-foundry industry to post an annual growth rate of 25.7% during the 2002-2005 period, higher than the forecast 16.4% for the entire world chip industry.