Taiwan's chip industry as a whole will rake in revenues of NT$1.07 trillion (US$31.4 billion at NT$34:US$1) in 2004, up 31% from the NT$824.3 billion (US$24 billion) predicted for this year, according to a forecast recently released by the Ministry of Economic Affairs' (MOEA) Ieconomic Ministry's Industrial Technology Information Service (IT IS).

IT IS pointed out that the projectsed revenue growth for Taiwan will beis much higher than the 20.3% forecast for the world as a whole. This will be a continuation of the current trend; the island's chip industry is expected to grow by 26% this year, compared with 16.6% for the world. These figures, stresses IT IS market- research fellow M.R. Peng, indicate that the long-awaitedexpected market rebound has taken hold.

The rebound became clearer than ever in the third quarter, when the domestic chip industry chalked up revenues of NT$223.2 billion (US$6.5 billion), a 21% gain from the second quarter, according to figures released by the Taiwan Semiconductor Industry Association (TSIA). In the present quarter, revenues are expected to rise 14.6% to NT$253.6 billion (US$7.4 billion).

The TSIA points out that the third quarter is normally an especially busy season for supply of PC and consumer-electronics chips. Third-quarter procurement this year was swollenelled by rollouts of new products such as single chips for DVD players, chips for digital cameras, and chips for digital TVs. At the same time, domestic liquid-crystal display (LCD) suppliers increased their shipments, boosting orders for driver chips and niche memory chips such as double data- rate dynamic random- access memory (DDR- DRAM) chips for use with graphic chips.

A breakdown of third-quarter revenues by segment shows that the chip- design sector took in NT$50 billion (US$1.4 billion), up 38.2% from the same period of 2002. Chip manufacturers recorded earnings of NT$130.9 billion (US$3.8 billion), an increase of 36.7%. The chip- packaging sector had a total turnover of NT$31.5 billion (US$926.4 million), an improvement of 27.8%; and the chip testing segment raked in NT$11.1 billion (US$326 million), up 36.1% from a year earlier.


Hot Foundry Business


Among domestic chip foundries, the Taiwan Semiconductor Manufacturing Co. (TSMC) enjoyed a surge in attracted more contracts for information-technology, telecommunications, and consumer-electronics chips during the third quarter, boosting both its equipment- utilization ratio and revenues for the quarter by 10%. The company expects its revenues to rise from NT$54.8 billion (US$1.61 billion) in the third quarter to as much as NT$58 billion (US$1.7 billion) in the fourth.

The United Microelectronics Corp. (UMC) recorded revenues of NT$21.5 billion (US$6343.5 million) in the third quarter and predicts NT$23.7 billion (US$697 million) in the fourth.



Both TSMC and UMC, which are the world's biggest contract foundriesy suppliers, reportedly expect orders to rise by 5% in the first quarter of 2004 and have decided to hike their service charges by 10% to 15% in that quartere first quarter of 2004. Both companies are currently enjoying equipment- utilization ratios above 90%.

In the global competition for the provision of foundry services, however, Taiwan's suppliers are expected to see their global market share drop to barely 70% or even lower next year, continuing a downward trend after a fall from 73% in 2002 to 71% this year. The decline is due to overseas competition from such major players as IBM and mainland China's Semiconductor Manufacturing International Corp. (SMIC). The global foundry industry is expected by expand at an annual rate of 25.7% overduring the 2002~-2005 period, compared with 16.4% for the chip industry as a whole.

The business recovery pushed Taiwan's makers of dynamic random- access memories (DRAMs) back into the black in the third quarter, providing welcome relief following a recession in the world market spanning eight consecutive quarters of recession in the world market.

Many of the island's chipmakers have shifted from eight-inch to 12-inch wafer equipment as a means of cutting production costs. To stay competitive, urgesd IT IS research fellow Peng, local manufacturers should move up to 12-inch wafers and 0.11-micron processes.

ProMos Technologies Inc. and PowerChip Semiconductor Corp. have both started making chips with 12-inch wafer equipment, and the Nanya Technology Corp. will inaugurate the production of memory chips at a 12-inch joint venture fab in cooperation with Infineon Technologies AG in the first quarter of 2004.


Trailing-Eedge Technology


Peng says that while Taiwan's 12-inch wafer fabs are playing a weighty role in global DRAM production, they are using trailing-edge processing technology because, lacking their own development capability, they have to depend on the licensing of technology from industry leaders.

In the third quarter of 2003 the output value of Taiwan's own-brand DRAMsS soared 47.3% from the second quarter to reach NT$34.1 billion (US$1 billion). This happy situation was the result of increased outsourcing by fabless companies and integrated- device manufacturers (IDMs) that are striving to keep up with the booming demand of the Thanksgiving and Christmas shopping seasons, as well as orders from retailers whose inventories have shrunk to historic lows.

Advanced Semiconductor Engineering (ASE), Taiwan's No. 1 dedicated supplier of chip- packaging and -testing services, reports an increased inflow of orders in the current quarter from chip designers ATI Technology and VIA Technologies, as well as from NetLogic Microsystems and Integrated Device Technology.

The Silioconware Precision Industries Co., another leading domestic chip assembler, reports landing add-on contracts from the Broadcom Corp. and Marvell Technology Group. It is also reported to have won a contract to test chips for LSI Logic starting next April.

The Kyec Yuan Electronics Co. was recently contracted last month by European chipmaker STMicroelectronics to carry out about the testing of 16Mb NOR flash- memory chips, and is expected to sign acquire similar contracts withfrom Renesas Tech and Toshiba next year.

Soaring demand has brought a 20% supply shortage to the industry, enabling Taiwan's chip assemblers to boost their service charges by 10% in botheach the second and third quarters. Another round of price hikes is expected to come early next year.

To keep up with the growing demand, Taiwan's chip companies will spend an estimated US$4.6 billion on new equipment next year, up 57% from 2003. This will end a spending slump that began in 2000. A; and, according to Semiconductor Equipment and Materials International (SEMI), I thist will be the largest amount of capital spending in the chip industry by any single economy in 2004.

Worldwide, SEMI estimates, spending on chip equipment will reach US$29.6 billion next year, a 39% gain from 2003.