TSMC is Ranked 5 in Global Semiconductor Sales

IC Insights just released their May update to the Maclean Report. According to them:

"[The May update]...describes the big shakeup in the 1Q08 top 20 semiconductor supplier ranking (Figure 1). There are eight U.S. companies in the top 20 (including three fabless semiconductor suppliers), six Japanese, three European, two South Korean, and one Taiwanese company (IC foundry supplier TSMC) in the ranking. As shown, it required at least $1.0 billion in first quarter sales to make the top 20 ranking. Although the top four ranked companies remained the same, there were a number of "movers and shakers" up and down the remainder of the 1Q08 ranking as compared to their full-year 2007 positions."

TSMC was ranked fifth and listed as the fastest growing of all 20 companies in the list. The top four companies remained unchanged and were listed as Intel, Samasun, Texas Instruments and Toshiba. TSMC was the only pure-play foundry on the list.

According to the China Economic News (CENS),

The market-research organization ascribed the significant growth of TSMC mostly to outstanding sales at Nvidia and Qualcomm, the world`s top two fabless houses depending on TSMC for foundry manufacturing service.

Burgeoning shipments of third-generation (3G) handsets worldwide in the first quarter led Qualcomm to deliver 85 million sets of handset chipsets, pushing up the firm`s revenue for the period by 29% ( from a year earlier) to US$1.6 billion. The company was ranked the No.10 chipmaker for the first time last quarter.

Nvidia increased contracts to TSMC in the first quarter to keep up with thriving demands for its G92 graphics chips, which helped bulk up the company`s sales for the quarter to US$1.1 billion, up 37% year on year. The increase pace made the company the second best performer of the top 20 chipmakers in terms of revenue growth. Nvidia was placed on the 18th position on the top-20 list.

Yesterday CENS also mentioned Texas Instruments would be contracting both TSMC and UMC to manufacture their 45 nm chips. According to CENS:

When Texas Instruments (TI) recently announced its plan to have its 45nm base-band chips and digital signal chips made at two silicon foundries next quarter, industry watchers believed Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC) would be the choice partners.

The main reason for this increase is that Texas Instruments will not independently develop process technologies below 45 nm.

Article 1: Shakeups Rock 1Q08 Top 20 Semiconductor Supplier Ranking
Article 2: Texas Instruments to Have 45nm Chips Made at Foundries

10% of Mainland Investments Remitted to Taiwan

Forbes reports 10% of all money invested in China by Taiwanese companies is remitted back to Taiwan. Forbes reports:

Companies listed on the Taiwan Stock Exchange and GreTai Securities Market had remitted home earnings equivalent to 10.30 pct of their cumulative investments in China as of the end of the first quarter to March, the Financial Supervisory Commission said.

The FSC could not pinpoint a starting point for the tallies as they take into account investments made by companies before and after their listings.

As of the end of March, listed companies had brought home from the mainland a cumulative, combined 73.9 bln twd, up by 10.3 bln from the end of 2007, it said.

The companies had cumulative, combined investments on the mainland of 717.6 bln twd as of the end of March - down by 14.5 bln from end-2007.

Of course there has been ongoing debate in Taiwan about the benefits accrued in Taiwan by investing in the Mainland. Many people here feel that this negatively impacts Taiwan's economy as it takes jobs away from Taiwanese people. As an example, many taxi drivers I speak to are ex-employees of companies that moved to the mailand and are bitter that there were no jobs for them. However, the structure of Taiwan's economy is changing and has been changing over the past few years. A 2006 Taiwan Review article noted:

According to the Directorate General of Budget, Accounting and Statistics of the Executive Yuan, in 1981 the service sector accounted for 47.23 percent of Taiwan’s GDP, while the industrial sector did so for 45.47 percent, 90 percent of which was manufacturing. In 2005, services had beefed up to 73.5 percent of GDP, nearly the same as those of developed countries like Germany and Japan, and it is expected to reach 76 percent by 2015.

It is true that many people in the manufacturing sector have lost their jobs. But the younger generation are finding more employment opportunities in the service sector or non-manufacturing based industries (e.g. IC design). Financial Services are another area where people are finding more opportunites. The China Post reported that Taiwan is aiming to become Asia's financial center. The China Post said:

The Economic Daily News quoted Chen Shu, director-general of the Financial Supervisory Commission, as saying that after incoming President Ma Ying-jeou's government is inaugurated Tuesday, he will give priority to building Taiwan into the Asia-Pacific financial center.

"During my four-year term, I will draft short-term, mid-term and long-term plans for building Taiwan into the Asia-Pacific financial center," the paper quoted Chen as saying.

Even if Taiwan doesn't manage to become Asia's financial center, the service sector opportunities are growing and, any money remitted to Taiwan from their investments on the mainland should be beneficial to the economy.

Article 1: Taiwan listed cos remit home 10.30 pct of cumulative China investments as of Q1
Article 2: Serve It Up!
Article 3: Taiwan sets sights to be a financial center

Chipmaker Shares Jump

Disruptions caused at the Hynix Semiconductor plant in China has pushed up the sport prices from DRAM modules and helped the share prices for some of Taiwan semiconductor companies increase. Taipei Times reports:

Stock prices of the nation's major computer memory chipmakers outperformed the main bourse yesterday amid speculation on further price rebounds.

This came after disruption at a Chinese plant belonging to the world’s second-largest memory chipmaker Hynix Semiconductor Inc, which could lead to an ease in a supply glut.Shares of the nation’s biggest dynamic random access memory (DRAM) chipmaker, Powerchip Semiconductor Corp (力晶半導體), jumped 0.78 percent to NT$13 yesterday, better than the turbulent TAIEX index, which fell 2.43 percent.

South Korean Hynix yesterday said the 15-hour outage at a Chinese plant operated jointly with Numonyx, a joint venture with STmicroelectronics, Intel and Francisco Partners, would not have a major adverse effect as emergency power generation activated immediately.

The affected plant, located in Wuxi, southern China, makes 100,000 12-inch wafers of DRAM chips a month, accounting for about half of the Korean firm’s total DRAM chip output. Hynix also operates an 8-inch plant in Wuxi, making memory chips used in consumer electronics.

“Hynix’s power outage may affect one week’s worth of production,” Taipei-based market researcher DRAMeXchange Technology Inc (集邦科技) said in a statement yesterday.

DRAMeXchange said the output disruption greatly boosted the spot price of benchmark DDR2 1Gb 128Mx8, which jumped 1.21 percent to US$2 per unit yesterday following an almost five percent decline during the slow season last week.

Hynix said the outage on Monday was likely to result in a US$16million to US$18 million loss in sales. It would take about two days for the plant to resume normal operations, the chipmaker said.

Article: Taiwan chipmakers' stock jumps

Motech Forms Partnership with Solar Semiconductor

Last week we noted the increased investment in the solar cell industry with many companies ramping up production. Additional news is that Motech has apparently a significant deal to collaborate with Solar Semiconductor. China Economic News (CENS) reports:

Motech Industrial and Solar Semiconductor recently agreed to collaborate on development of thin-film solar cell technology and silicon-wafer supplies shortly after Motech received Solar`s lucrative orders for 120 megawatts of solar cells.

Industry watchers estimated the orders at over NT$10 billion (US$333 million at US$1:NT$30), given that one megawatt of solar cell now sells for around NT$100 million (US$3.3 million).

Solar Semiconductor is among the top three Indian suppliers of solar modules, specializing in polycrystalline and mono-crystalline solar modules.

Article:Motech Forms Partnership With Solar Semiconductor

Taiwanese Chip Assemblers Investing in China

Powertech Technology Inc. and Advanced Semiconductor Engineering Inc. (ASE) have both been granted permission by the Ministry of Economic Affairs (MOEA) to fund investment projects in mainland China. China Economic News (CENS) says:

With the permission, Powertech will invest US$100 million to open a brand-new test and packaging factory in southern or central China to keep up with rising demands from memory-module maker Kingston Technology and other customers in the mainland.

ASE is ratified to put US$90 million into expanding an operating factory in Shanghai to keep it advantageous in the intensifying competition in the mainland`s test and packaging market.

However, in return for receiving permission to invest in the mainland, both Powertech and ASE have pledged to invest significant sums back into Taiwan. CENS says:

Powertech pledges to invest NT$8 billion (US$266 million at US$1:NT$30) over next few years to boost capacity at a factory in northern Taiwan, which was completed early this year, and increase 1,000 jobs. Also, MOEA officials said Powertech planned to inject NT$20 billion (US$666 million) into Taiwan`s operations and create 2,000 jobs in next stage of its investment plan.

For ASE, the commitment as return for government permission is to put a total of US$550 million into Taiwan`s operation and increase high-ranking jobs for Taiwanese talents over next three years.

Both companies seem to be convinced they need to invest in China. Powertech argues many of their companies are located there and to be able to service their needs they need to be closer. Whatever the reason, this investment, in the short term at least, seems to be a win-win for both the Mainland and Taiwan.

I am sure over the next few months we will see more and more Taiwanese chipset makers and assemblers investing in China. Previous legislation prevented them from doing so as there was a fear that the high-tech knowledge of these companies would be used in Chinese military applications against Taiwan. The new president Ma Ying Jeo has said he will provide more flexibility to chipmakers and follow the US government guidelines on what technologies can be manufactured in China.

Article: Two Taiwanese Chip Assemblers Approved to Invest in China

TSMC and UMC Receive Big Orders from NVIDIA

China Economic News (CENS) says:

To keep up with strong demand for its graphics chips, Nvidia Corp. will increase outsourcing to silicon foundries Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Crop. (UMC).

Chip-making equipment suppliers pointed out that throughout last quarter Nvidia had contracted TSMC to make a record 50,000 wafers of 65nm chips and UMC to make 7,000-9,000 wafers of similar chips. Although Nvidia has scaled down contract volume of G80 chips by 3-5% as part of its effort to work off overstock, the company has increased foundry contracts of its G92B, G94 and G96 chips. Accordingly, industry watchers forecast contract volume to TSMC would surge to 60,000 wafers and the volume to UMC to rise to 10,000-12,000 wafers next quarter.

NVIDIA's strong growth is good for Taiwan's foundries. I am sure these orders are well received by both TSMC and UMC. NVIDIA however is also backing VIA Isaiah processors and therefore supporting a third significant Taiwanese company. CENS says:

In competition against Intel in Mobile Internet Device (MID) market, Nvidia has decided to side with VIA by supporting its Isaiah microprocessors.

Article: Nvidia to Increase Foundry Outsourcing to TSMC and UMC

Increasing Focus on Solar Cells

Shortly after Mosel Vitelic announced they will be raising capital to expand into the photo-voltaic field, China Economic News (CENS) also reports Unitech PCB, Big Sun Energy and Sintek will also focus on solar cell production. According to CENS:

Director board of chipmaker Mosel-Vitelic Inc. recently passed a motion to issue 228 million units of Global Depository Receipt (GDP) to raise capital for expansion in photovoltaic field.

The amount of the capital to be raised is estimated at NT$6.3 billion (US$210 million at US$1:NT$30) given an average NT$27 of the company`s share price in recent weeks.

Digitimes reports Mosel Vitelic is already producing solar cells and has broken ground for a new solar cell plant that will be at full capacity during 2009.

Mosel Vitelic has broken ground for a new solar cell plant, which is scheduled for completion in the first half of 2009 with a total capacity of 200 MWp.

According to the company, solar cell capacity at its existing fab will be expanded to 60MWp in July this year. Of the 200 MWp capacity at the new plant, half will be operational in the third quarter this year, with the other half to come online in the first half of next year.

Mosel Vitelic president has said they are rapidly expanding their production capactiy to reach economies of scale and increase their profit margins. CENS says:

The company (Mosel Vitelic) is running a 30-megawatt production line, which is funneling around NT$200 million (US$6.6 million) into its revenue every month.

And Digtimes notes:

The solar cell business currently accounts for 50% of the company's revenues, but the proportion is expected to increase to more than 60% by the end of this year, the company said.

CENS says this rapid expansion is currently inline with other solar cell manufacturers. According to CENS:

Industry watchers pointed out that burgeoning solar-energy market has inspired the insiders to launch bold expansions. Since early this year many Taiwanese photovoltaic manufacturers have announced aggressive capital-raising plans, with Gintech Energy Corp. scheming to raise around NT$10 billion (US$333 million) through syndicated loans and capital increasing, as well as Moteck Industries Inc. and Neo Solar Power Corp. mulling to raise capital through syndicated loans and capital increasing.

Yesterday CENS reported the Letzer Industrial Park is set to become the major supply base for Taiwan`s solar cells:

Actively engaged in production of solar cells, the Taiwan-based Unitech Printed Circuit Board Cop., Big Sun Energy Technology Inc. and Sintek Photronic Corp. all plan to continue focusing on solar cell production and development in Letzer Industrial Park of Yilan County, northeaster Taiwan, according to company sources.

Letzer Industrial Park management said that the park has successfully signed on investment valued at NT$104.5 billion by the end of the first quarter of this year, with more than NT$800 billion from solar cell makers. Optimistically, the park is expected to become Taiwan`s major supply base for solar cells soon.

Taiwan is set to become a major player in the solar cell industry worldwide. I remember reading an article in 2004 saying how Taiwan's expertise in IC chip manufacturing is transferrable to solar cell manufacturing. Since Taiwan is the clear global leader in IC chip manufacturing there is no reason why they cannot become significant competitors in this field too.

One of the biggest problems for this industry however is the shortage of polysilicon, the material used to manufacture solar cells. Digitimes noted Simon Tsuo's (Motech chairman) comments on the current supply situation:

Despite there being more than 30 new polysilicon makers in China, very few of them have actual output, Tsuo noted. Since many of these suppliers have secured contracts with solar cell makers and are scheduled to start shipments in 2009, any unexpected schedule delay will severely affect global polysilicon production value, he said. As solar cell makers have to pay a deposit for material supply, the delay will also affect their funding operations, he noted.

The solar cell industry is set for growth. The need to find alternative energy sources and to start leveraging non-intrusive energy production methods are providing an impetus to the industry and big business opportunities to many people. There is no doubt a lot of money to be made in this game. However, as Mr. Tsuo observed, there are also many risks. The strategic management of resources and raw material supply chains is increasingly important in this industry and if companies are unable to secure the polysilicon needed for production then they will face big problems.

Hopefully this industry can grow and better ways of powering our homes and day-to-day electronic applications will become increasingly evident.

Article 1: Mosel-Vitelic to Raise Capital for Photovoltaic Deployment
Article 2: Mosel breaks ground for 200MWp solar cell plant
Article 3: Unitech PCB, Big Sun Energy and Sintek Focus on Solar Cell Production
Article 4: Solar industry full of uncertainties in 2009, says Motech chairman
Article 5: Global warming sparks polysilicon crunch

Effect of Sichuan Earthquake

The huge earthquake to hit Sichuan province will not, many believe, have a significant impact on the chipset supply chain.Both Intel and Semiconductor Manufacturing International Corporation (SMIC)have operations in Chegndu but no one is expecting these to effect the supply chain. Digitimes says:

Despite concerns the 7.8-magnitude earthquake in Sichuan, China may have a possible impact over ongoing IC supply as Intel and Semiconductor Manufacturing International Corporation (SMIC) both run IC backend facilities in the region, industry players from Taiwan caution against overreacting.

Most industry players from Taiwan believe that impact from the quake should be short-lived. Recalling experience from the 921 earthquake that shook central Taiwan nine years ago, sources at Advanced Semiconductor Engineering (ASE) indicated that company operations were only affected for one day. They added in saying that industry players should not overreact and noted that other packaging and testing houses would not "benefit" from a sudden influx of orders.

Sources at SMIC's Chengdu Cension Semiconductor Manufacturing fab said the fab activated anti-quake measures and production resumed during the evening of May 12. Monthly capacity of 7,000 8-inch wafers was not affected, they added. This Chengdu fab mainly focuses on power management IC (PWM IC), high-voltage IC and niche memory production.

The Chinese-language Economic Daily News (EDN) quoted SEMI senior director of industry research and statistics Dan Tracy as saying that Intel is flexible enough to adjust its capacity mix, meaning the quake impact should be limited. Tracy also commented that impact should be limited for other semiconductor companies such as SMIC.

Some sources from the packaging and testing industry were also quoted by another EDN report as saying that the majority of backend production at the Intel fab in Chengdu is dies instead of wafers, meaning that any damaged chips could be replaced relatively quickly. They also added in saying that Intel outsources up to one-tenth of its IC backend production orders to other partners.

Currently ASE is partnered with Intel for the packaging and testing of southbridge chips and some NAND flash memory, while Siliconware Precision Industries (SPIL) is also partnered for southbridge and some networking chips, according to industry players.

However, since some of the production capacity has been affected, Intel are considering moving some of their production to other plants. According to China Economic News (CENS):

Intel Corp. is reportedly mulling delegating part of its production at its test and assembly factory in the earthquake-stricken Sichuan Province of mainland China to its other factories and pure assemblers including Advanced Semiconductor Engineering (ASE) and Amkor.

CENS also speculates that Intel will have to outsource some of its testing to other companies. CENS says:

Taiwanese industry watchers estimated Intel might contract ASE and Siliconware to test and assemble south-bridge chips for the chipsets and some logic chips waiting at the Chengdu factory. ASE is running a factory outfitted with 1,500 wire-bonding machines in the mainland. The factory will double output capacity by the end of this year.

Although the the factories may not have been damaged, the damage on the overall infrastructure in Chengdu may have an effect. Shortly after the September 21 earthquake in Taiwan in 1999 (921)there were rolling power cuts for a month. The same may happen in Chengdu. CENS reports water and electricity have already been cut. I should also imagine many of the transportation routes have also been cut off and the remaining routes saturated with humanitarian aid. It will take some time for the infrastructure to be ready for full production capacity and for the supply chain to run smoothly.

Of course the priority now for the authorities there must be to deal with the human tragedy.

Article 1: Taiwan packaging and testing companies caution against quake-impact overreaction
Article 2: Intel May Switch Production From Quake-stricken Sichuan Plant to Shanghai

Should the IC Industry Provide Services?

According to the China Post (CP) Professor Joseph Shyu of National Chiao Tung University (NCTU) said that Taiwan's IC manufacturers should look to providing services in the future and reduce their focus on manufacturing.

Taiwan's integrated circuit (IC) industry should switch from major manufacturing to providing IC knowledge and management services, a scholar proposed at an international forum yesterday in Taipei.

Speaking to 22 visiting engineering majors from Ecole Poly technique of Montreal, Canada, Professor Joseph Shyu of National Chiao Tung University (NCTU) said that it is not wise for Taiwanese companies to focus only on manufacturing.

Taiwan is such a small island with a limited population -- we have no reason to believe that we can compete against economies like the United States or China," he said. "We have to be flexible and dynamic."

The fact is Taiwan's pure-play foundries (TSMC and UMC) have already competed against their US counterparts successfully. In fact, TSMC and UMC created a whole new type of business and in many ways were responsible for nurturing and developing the fabless design industry. Prior to the pure-play foundries chipset companies had to invest heavily in their own manufacturing facilities. Enabling companies to outsource chipset manufacturing provided an ideal environment for smaller fabless companies to exist, one of the most famous being Nvidia.

These companies have also spun-off their own fabless chipset design companies. For example UMC have spun-off ITE Tech, Novatek and Mediatek to name a few. Taiwan's IC manufacturing companies are strong and will continue to remain strong over the short term at least. Of course market conditions change and the competitve environement will change too so these companies will have to adapt in the future. However, competing against TSMC or UMC will be very difficult for any startup, even in China.

Professor Shyu is correct when he says "We (Taiwan) have more international experience and primary management systems (than China)."

Article: IC industry should provide services: scholar

AMD to Oustource CPU Manufacturing to TSMC

Yesterday Digitimes reported:

In addition to its GPU production, AMD is planning to also outsource CPU production to Taiwan Semiconductor Manufacturing Company (TSMC) in the second half of this year, according to industry sources.

Although Hector Ruiz, CEO of AMD did not mention any plans to outsource production during the company's recent investors conference, the industry sources revealed that TSMC has already started testing procedures for a SOI manufacturing process in order to land manufacturing orders for AMD's Fusion CPUs.

This is speculation however many believe AMD are trying to reduce their operating costs to become more competitive. If the outsourcing goes well they will be able to sell some of their manufacturing equipment and recoup some money too. This comes as no surprise. IC Insights predicted AMD would possibly look to become fabless in their recent ranking of the top IC foundries. In a press release, IC Insights said:

Considering its 1Q08 financial results, AMD could be a company that is forced to go fab-lite or possibly completely fabless in the near future.

AMD have recently been hammered by Intel and are trying to return to profitability. Divesting from their manfuacturing is one way to reduce costs, especially fixed overhead. To be honest, AMD products are not bad at all and have sufficient power and functionality for most day-to-day computing tasks. However, when you set yourself up as a competitor to a cash rich company like Intel, there will be problems since Intel have been known to initiate price wars and scale up their technology whenever they are threatened.

I hope AMD can return to profitability and continue to innovate. A few years ago Intel made a few mistakes and gave AMD an edge in the market. AMD even came to dominate the desktop chipset market in Q1 2006. Having an alternative in the market put pressure on Intel to innovate and be creative. I am sure that some of Intel's innovation has been driven by AMD's competitive pressures.

Article 1: AMD planning to outsource CPU production to TSMC in 2H08, say sources
Article 2: IC Insights Ranks Top Foundry Suppliers
Article 3: AMD vs Intel -- the stakes get higher (2006 article)

Quanta's Revenue Grows

China Economic News (CENS) reports Quanta saw a huge increase in revenue in Q1. According to CENS:

Quanta Computer Inc., the world`s largest contract supplier of notebook PCs, posted sales revenue of NT$73.175 billion for April and aggregate revenue of NT$269.116 billion for the first four months of this year, up 62.26% and 43.74%, respectively, from a year earlier, according to company sources.

In April, Quanta recorded notebook PC shipment of 3 million units, the same as the corresponding figure posted in March. With newly added orders from Apple Inc., the firm is expected to ship 40 million units for this year, accounting for nearly 30% of the total in the global market. Thus, institutional investors project Quanta`s second-quarter revenue and shipment of notebook PCs to stay brisk, based on such shining sales performance.

The year is looking up for Quanta. However, they are probably exposed to the same pressures as other notebook manufacturers such as Compal and Pegatron and are probably experiencing decreasing profit margins due to increasing costs in China. However to date I have not seen any announcements suggesting Quanta will be negotiating higher prices with their clients.

Article 1: Quanta Computer Posts NT$73.175 B. in Sales Revenue for April

Industrial PC Companies Continue to Shine

China Economic News (CENS) reported industrial PC (IPC) companies posted impressive sales in April. CENS says:

Taiwan's industrial computer makers, including IBASE Technology Inc., Winmate Communication Inc., ICP Electronics Inc. and ADLINK Technology Inc., all enjoyed shining sales records for April, according to company sources.

IBASE has benefited from an influx in orders for the card dealing machines from Casinos around the world. Winmate has managed to generate significant orders for their digital signage solutions and ICP Electronics has secured strong orders for lottery machines. Investors predict ICP Electronics will have April sales of around NT$359 million and that these sales will further increase when the new plants in Shanghai come on line in the next few months. Adlink has also had a revenue growth mostly due to a growth in orders in Taiwan and Europe.

Since I work in this industry, I really hope it continues to prosper.

Article: Taiwan`s Industrial Computer Makers Post Shinning Sales Records for April

Why Taiwan Matters!

I just found a great 2005 article on the Business Week website called "Why Taiwan Matters." It is great stuff and really sheds tremendous light on the tech industry in Taiwan and its global impact. I have quoted it at length below. Be sure to read the remainder. The link is below:

Want to find the hidden center of the global economy? Take a drive along Taiwan's Sun Yat-sen Freeway. This stretch of road is how you reach the companies that connect the vast marketplaces and digital powerhouses of the U.S. with the enormous manufacturing centers of China.

The Sun Yat-sen is as bland as any U.S. interstate, but it's the highway of globalization. Though it snakes along the whole west coast of Taiwan, the key 70-km stretch starts in Taipei's booming new Neihu district of high-tech office buildings and ends in Hsinchu, home to two of Taiwan's best universities, its top research center, and a world-renowned science park. Along the way, the Sun Yat-sen leads to some of the most important but anonymous tech outfits in the world: Asustek Computer, whose China factories spit out iPods and Mini Macs for Apple; and Quanta Computer, the No. 1 global maker of notebook PCs and a key supplier to Dell and Hewlett-Packard.

You'll also find Taiwan Semiconductor Manufacturing Co., the biggest chip foundry on the planet, an essential partner to U.S. companies such as Qualcomm and Nvidia. Dozens more companies dot the Neihu-Hsinchu corridor. There's AU Optronics, a big supplier of liquid-crystal display panels, and Hon Hai Precision Industry, which makes everything from PC components to Sony's PlayStation 2, and which is a fast-rising rival to Flextronics International, the world's biggest contract manufacturer. Taken together, the revenues of Taiwan's 25 key tech companies should hit $122 billion this year.

Taiwan's success is also China's. No one knows for sure how much of China's exports in information and communications hardware are made in Taiwanese-owned factories, but the estimates run from 40% to 80%. As many as 1 million Taiwanese live and work on the mainland. "All the manufacturing capacity in China is overlaid with the management and marketing expertise of the Taiwanese, along with all their contacts in the world," observes Russell Craig, of tech consultants Vericors Inc.

I love the last paragraph! Although China will surely one day find its footing and compete independently in the world of business, they owe a huge debt of gratitude to Taiwanese entrepeneurs who forged the way ahead in manufacturing and investment.

Article: Why Taiwan Matters

Contractors Increasing Prices

Both Compal and ASUSTek spin-off Pegatrong are set to increase their notebook computer costs. Both companies have started price negotiations with their clients. According to Digitimes the cause for the increases include increased component costs and a fluctuating exchange rate. Digitimes also notes Compal president Ray Chen's observations

With 95% of the world's notebooks in 2009 expected to be manufactured by Taiwan-based makers, Chen said it is time that Taiwan players stop the cut-throat competition among themselves.

I imagine most of these price increases are being catalyzed by the rising costs of doing business in China, which have increased due to a high inflation rate, increased minimum wage and a decrease in tax incentives. All three factors will have a significant effect on these contractor manufacturers since they presumably have their manufacturing bases in China and many of the notebook components are probably sourced there. Ray Chen did say they had persuaded their component suppliers not to increase prices for a short period of time but that now the component prices will in fact increase.

Perhaps Compal have started a trend and notebook contract manufacturers will start to scale up their pricing. However, I don't expect the cut-throat nature of the business to stop

Article 1: Compal in talks with notebook clients for price increases
Article 2: Pegatron to increase manufacturing quotes in 2Q08, says paper

More DRAM Market Optimism

iSuppli has added its voice to the growing optism for a recovery in the DRAM market. As noted previously, the DRAM market is set for a rebound in 2008 after a disastrous 2007. iSuppli predicts the market will start to bounce back in Q3. According to iSuppli:

Following a miserable 2007, the global DRAM module market is expected to rebound gradually in 2008 due to the projected recovery in the overall memory industry, iSuppli Corp. predicts.

Global revenue from third-party shipments of DRAM modules, i.e. components that contain DRAM chips for use in PCs and other electronic products, is expected to rise to $8.9 billion in 2008, up 9.4 percent from $8.1 billion in 2007. In contrast, third-party DRAM module revenue declined 33.5 percent in 2007, down from $12.2 billion in 2006.

iSuppli also ranked three Taiwanese companies (A-DATA, Transcend and Apacer) in the top ten third-party DRAM module suppliers. iSuppli also notes the remarkable growth of Apacer in 2007 when the market as a whole was in a slump.

iSuppli's optism comes on the back of new from Digitimes that DRAM suppliers in Taiwan are increasing their prices. Digitimes says:

Following a price hike in the latter half of April, DRAM makers have once again raised contract prices for computer memory chips by 10% for the first half of May, according to market sources in Taiwan.

The upward price trend confirms that the DRAM industry is recovering from its current slump, the sources stated.

Article 1: Third-Party DRAM Module Market to Rebound in 2008
Article 2: DRAM contract prices reportedly rise by 10% in 1H May

Interview with Adlink GM P.J. Go

In an Embedded Computing interview Adlink's general manager P.J. Go describes the motivation behind Adlink's recent acquisition of U.S. based Ampro:

The main reason we wanted to buy Ampro is because the company plays very strongly in the U.S. Military, aerospace, and medical markets. We have had fairly limited success penetrating those markets here in the United States. In addition, Ampro gives us a great revenue base in the United States. Our U.S revenue will represent 35 percent of the company’s total revenue, instead of the 15 percent that it represented previously.

Ampro also adds to our toolkit expertise in extended temperature and the shock and vibe specs required by the military and aerospace market. Ampro is used to building boards that can go from -40 ºC to +85 ºC for operating temperatures. ADLINK had been doing -20 ºC to +70 ºC or usually, 0 to 50 ºC.

Of course, as noted earlier, this makes Adlink the third largest IPC provider in Taiwan behind Advantech and ICP Electronics.

This horizontal merger is classic product and market diversification through merger and acquisitions (M&A). Many companies do this so as to develop better positions in foreign markets, to secure more reliable distribution networks in new markets and to purchase new expertise and product lines. Clearly Adlink are hoping to learn how to develop more durable systems. One of the biggest challeneges for Adlink will be cross-cultural management. Despite this, this acquisition seems to be a big win for Adlink. However, as with most M&A, only time will tell.

Interview: A few minutes with ADLINK’s PJ Go and Jeff Munch

Taiwanese Companies and XBox

The China Economic News (CENS) reports TSMC, ASE and Nanya are benefitting from Microsoft orders for chipsets for the latest XBox360. CENS reports:

Microsoft began in April farming out production of 65nm graphics chips and north-bridge chips for its latest version of XBox360 game consoles to Taiwanese foundries Taiwan Semiconductor Manufacturing Co. (TSMC), Advanced Semiconductor Engineering Inc. (ASE) and Nanya PCB Corp.

CENS continues:

TSMC is chosen to make the 65nm graphics chips and north-bridge chips for Xenon chips, ASE is contracted to package and test the two chips, and Nanya has won orders to supply flip-chip packaging substrates. The contract has booked a total of foundry capacity for around 10,000 300mm wafers at TSMC, currently the No.1 player of silicon-foundry industry worldwide.

People familiar with the contracts said Microsoft ordered 50% more contract packaging and testing capacity as well as flip-chip substrate in the second quarter than the first one, giving a boost to Nanya and ASE in their revenue growth this quarter.

Microsoft has also contracted two Asustek spinoffs to manufacture the actual consoles. According to Digitimes:

Pegatron Technology and Unihan Technology, two OEM makers spun off from Asustek Computer, have reportedly secured OEM orders for Xbox 360 consoles and will undertake the production at their factories in Suzhou, China, with an initial monthly shipment volume of about 500,000 units, according to industry sources in Taiwan.

The same Digitimes article also continues saying Wistron, the original contract manufacturer for the XBox, has declined to continue manufacturing them because of a reduction in the gross profit margin.

Article 1: Microsoft Contracts Taiwanese Foundries to Build Latest XBox360 Chips
Article 2: Asustek subsidiaries reportedly land OEM orders for Xbox 360 consoles

TSMC and UMC Still Dominate Foundry Industry

IC Insights released a report on Monday identifying the world's top foundries in 2007. Of course the two Taiwanese pure-play foundry giants TSMC and UMC were at the top of the list. According to IC Insights:

The "Big 4" (TSMC, UMC, Chartered, and SMIC) have dominated the foundry market over the past five years. With sales of almost $10 billion, Taiwan Semiconductor Manufacturing Co. (TSMC) was clearly the leading foundry supplier in 2007. Its revenue increased 1% over 2006. TSMC's sales were only 11% less than the combined foundry sales of the other companies listed in the top 14 ranking.

A third Taiwanese pure-play foundry, Vanguard, was ranked the eighth largest.

Fabless companies, and especially pure-play foundries, will have an increasingly important role to play in the future. Fabs are expensive and being able to outsource IC production to minimize costs is becoming essential. The fabless IC design business model is already well established. According to the press release:

Large companies and an increasing number of mid-size companies are ditching their fabs in favor of the fabless business model. Companies in this category include LSI and Avago (ex-Agilent), which have all become fabless in the past few years. Considering its 1Q08 financial results, AMD could be a company that is forced to go fab-lite or possibly completely fabless in the near future.

The press release is a good read and provides very basic insights into the mysterious world of the foundry business. The actual report would be more interesting but at US$2,790 a little beyond hitechtaipei's budget. If anyone wishes to purchase the multi-user corporate license for $5,990 and share with me, that would be great.

Press Release: IC Insights Ranks Top Foundry Suppliers

H.P Breakthrough in Memory Design

The New York Times (NY Times) reports HP scientists have developed a simple circuit element called the memristor that will facilitate the development of smaller circuits. According to the HP scientists, current chip technology is at 45 nanometers and the semiconductor industry can only see shrinking circuits to 20 nanometers based on current technologies. The memristor enables circuits of 15 nanometers to be developed and, according to the HP scientists, can be dropped down to 4 nanometers.

While they are touting this new component as an essential building block for advanced circuits for intelligent computer architectures, the most immediate commercialization opportunities are in developing computer memory products. The NY Times reports:

The memristor, an electrical resistor with memory properties, may also make it possible to fashion advanced logic circuits, a class of reprogrammable chips known as field programmable gate arrays, that are widely used for rapid prototyping of new circuits and for custom-made chips that need to be manufactured quickly.

Potentially even more tantalizing is the ability of the memristors to store and retrieve a vast array of intermediate values, not just the binary 1s and 0s conventional chips use. This allows them to function like biological synapses and makes them ideal for many artificial intelligence applications ranging from machine vision to understanding speech.

Independent researchers said that it seemed likely that the memristor might relatively quickly be applied in computer memories, but that other applications could be more challenging. Typically, technology advances are not adopted unless they offer large advantages in cost or performance over the technologies they are replacing.

One limitation is the speed. The NY Times says:

The most significant limitation that the Hewlett-Packard researchers said the new technology faces is that the memristors function at about one-tenth the speed of today’s DRAM memory cells. They can be made in the same kinds of semiconductor factories that the chip industry now uses, however.

However, according to HP, this disadvantage maybe mitigated by the ability of the chip to store data even when the power is turned off. According to the HP press release:

One application for this research could be the development of a new kind of computer memory that would supplement and eventually replace today’s commonly used dynamic random access memory (DRAM). Computers using conventional DRAM lack the ability to retain information once they lose power. When power is restored to a DRAM-based computer, a slow, energy-consuming “boot-up” process is necessary to retrieve data from a magnetic disk required to run the system.

In contrast, a memristor-based computer would retain its information after losing power and would not require the boot-up process, resulting in the consumption of less power and wasted time.

The news is good for Taiwan DRAM manufacturers. If memristors can be made to work faster they will provide companies like Powerchip and Nanya with new market opportunities. Of course the big Korean companies like Hynix will also be looking at this technology to see what its all about. The even better news for these companies is that the theoretical foundation for memristors was developed 40 years ago and as such is in the public domain. Therefore they can develop their own solutions royalty free. Of course HP is filing patents on their implementation of the memristor so to use the HP implementation may result in steep royalty costs.

Article 1: H.P. Reports Big Advance in Memory Chip Design
HP Press Release: HP Labs Proves Existence of New Basic Element for Electronic Circuits