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TSMC Applies for Approval to Build 12-inch Wafer Fab in Mainland China

US$3 Bn. project aims to further tap very robust mainland Chinese market

Dec 10, 2015 | By Ken Liu

TSMC applies for approval to open 12-inch wafer fab in mainland China.TSMC applies for approval to open 12-inch wafer fab in mainland China.
Taiwan Semiconductor Manufacturing Co. (TSMC), recognized as the world's No.1 maker of built-to-order chips, on Dec. 7 submitted an application to the Ministry of Economic Affairs (MOEA) for approval on its plan to open a 12-inch wafer fab and an IC design service center in Nanjing, mainland China for the cost of around US$3 billion.

According to the company, the investment project aims to further boost its sales in the mainland Chinese market, where the company's revenue has grown at a staggering 50 percent compound annual growth rate (CAGR) over the past five years to reflect the mainland's obviously increasing demand for IC chips in recent years.

TSMC Chairman Morris Chang has said the mainland market has grown to account for an estimated eight percent of the company's 2015 revenue from 2014's six percent and nearly zero only ten years ago, surpassing the six percent contributed by its Japanese customers and the proportion by its European customers. The United States and Taiwan remain the company's major revenue sources.

Additionally, TSMC, some industry executives think, also feels pressure from the mainland's policy to foster its own homegrown semiconductor industry with the aim to replace 40 percent of imported devices with locally-made products by 2020 and 70 percent by 2025. "Localization" or raising the content of locally-made products is typically an inevitable trend in nations as China and other emerging economies with ambitions and wherewithal to catch up to the West. 

After surveying several cities in the mainland, the company has finally decided to build the factory and design center in Nanjing on the grounds that this city holds a geographical and transportation advantage given its location on the Yangtze River Delta. In addition, a relatively complete semiconductor supply chain has developed in the city in the past few years not to mention a large pool of well-trained engineers in the city.

Although Chang has said operating a 12-inch wafer fab in the mainland still requires higher cost than in Taiwan, industry executives believe the company has acquired the Chinese authorities' promise to offer benefits on this investment project, which is said to be the biggest one by a Taiwanese company in terms of spending. TSMC has admitted to receiving such offers but declines to disclose the details.

Although the company puts the investment expenditure at US$3 billion, the company says the net outlay will be lower than this sum thanks to the mainland's favorable policies towards the IC industry and that the planned factory will partly use existing equipment from the company's Taiwan factories.

The planned factory will use 16-nanometer process to make IC chips, with output capacity set at 20,000 wafers a month in the initial stage, accounting for around 2.5 percent of TSMC's total output capacity in 2015. Volume production is scheduled to begin in the second half of 2018.

Since the 16nm process remains the most advanced chip processing technology commercialized at TSMC but so far unavailable from any mainland China's homegrown chipmaker, TSMC insists on total ownership of the factory in case that its trade secrets could be compromised.

When the factory starts volume production as scheduled based on the advanced processing technology, TSMC, in the meantime, must introduce the 10nm process as commercialized technology at its factories in Taiwan, as required by Taiwan's government that stipulates local chipmakers are only allowed to transplant their last-generation technologies to the mainland in investment projects destined for China. Also, chipmakers with such investment plans in the mainland must not cut staff and investments in Taiwan.

TSMC plans to staff the Nanjing factory and design service center with 1,200 workers and 500 workers, respectively. Its staff from Taiwan and its 8-inch wafer factory in Songjiang, Shanghai will help construct the factory and build its production capacity in addition to helping recruit locals as the construction moves on. TSMC opened the Songjiang factory in 2003 for a cost of around US$1.89 billion.

Before the factory starts volume production, Taiwanese employees will make up half of the factory's staff.

Setting up the new factory makes TSMC another Taiwanese chipmaker to open a 12-inch wafer fab in the mainland after United Microelectronics Corp. (UMC) and PowerChip Semiconductor Corp. (PSC).

PSC Chairman Frank Huang, whose company mainly makes dynamic random access memory (DRAM) chips, points out that the development of the global semiconductor industry has begun to pivot towards mainland China from the United States and Japan after the mainland announced the “Made in China 2015” plan, which aims to move the mainland's manufacturing up the value chain, or to shift its manufacturing away from low-end production to making products of relatively higher value.

Although TSMC states that the issue regarding potential water and electrical power shortages has not decelerated the company's Nanjing investment plan, Chang expressed his concern about the impact of power shortage and environmental issues on Taiwan's investment environment, especially with the decommissioning of Taiwan's nuclear power plants, when President Ma Yinjeou recently visited his company in Hsinchu, northern Taiwan.

Chang estimates power shortage will begin to hit Taiwan's industry by 2017 as a result of phasing out nuclear plants on the island, a move advocated by the opposition Democratic Progressive Party (DPP), which looks very likely to win Taiwan's 2016 presidential election.

Although TSMC has been known for its tight environmental-protection measures, its plan to open a leading-edge factory, dubbed Fab 15, at the Central Taiwan Science Park (CTSP) to make 10-nanometer integrated-circuits had already undergone four assessments including the final one on Feb. 6, 2015 due to fierce protest from local environmentalists, to have recorded the longest such assessment in TSMC's history.

Industry executives think that the company has submitted the application at this time point for fear that the project might be stonewalled after Taiwan's 2016 presidential election, in which the pro-Taiwan independent DPP is very likely to replace the China-friendly Kuomintang.

Investment Commission Executive Secretary M.B. Chang of the ministry says regardless of the outcome of the election, the caretaker Cabinet still has the authority to decide whether the TSMC application should be approved due to the validity of existing regulations. 

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