The Foundry Industry -- A Recent History

In TSMC sees good Q2 but Expects Slowdown we noted some of the successes of TSMC and how TSMC project only a 4% growth over the next quarter. The Financial Times, in response to TSMC releasing their financials, has an excellent article on the last downturn in the industry when most industry experts believed TSMC would battle to survive. The FT argues the situation is now reversed and TSMC is very well placed to struggle through the next downturn. According to the FT:

TSMC, the world’s largest contract chipmaker, predicted flat sales and a slight squeeze on margins in the current quarter. Nevertheless, many analysts are keeping their overweight or buy ratings on the stock. They argue that, if anyone can survive, grow and make money in this industry, it will be TSMC.

Five years ago, the opposite appeared likely to happen.

TSMC and United Microelectronics (UMC), its smaller Taiwanese peer, invented and built up the business of contract chipmaking. The foundry industry, as it is known, thrived for more than a decade before the Taiwanese groups started facing competition. Chinese companies moved in at the low end of the foundry business while IBM started offering services at the top end.

By 2003 iSuppli, the market research group, warned that TSMC’s market share was slipping. Media reports started predicting that IBM would muscle its way to the top whereas TSMC and UMC would be squeezed out.

IBM had succeeded in snatching orders from some key TSMC and UMC customers such as Nvidia, Xilinx, Analog Devices, AMD and Broadcom. Meanwhile, Semiconductor Manufacturing International (Smic), China’s largest contract chipmaker, squeezed in to rank fifth among the global foundries.

Robert Tsao, then UMC chairman, even predicted the demise of the existing foundry model.

But, says Ming-kai Cheng, head of technology research at CLSA, “they were all wrong”.

China has not become a meaningful player in chip manufacturing nor have big integrated players such as IBM captured leadership in the industry.

Instead, TSMC has now pulled far ahead of everybody else. Over the past five years it has been the only foundry that has managed to hold on to its market share, remain cost-competitive, enhance technological capabilities and shield its profits from cyclical downturns.

Due to TSMC continue expanding their service and focusing on developing their capabilities, Mr. Cheng was quoted as saying "TSMC now looks more like Intel than like UMC.." The FT also says IBM have lost 3.5% of their market share (6.1% to 2.7%) and that both Chartered, the Singapore foundry, and UMC, the no. 2 foundry are both far behind TSMC. The FT further argues the low cost Chinese foundries are beating each other out of the market and that soon there will be fewer players. The FT also looked at the deregulation of investments in fabs in China (seeMr. Ma please don't move the fabs to China) saying it won't make much of a difference since UMC has apparently said China bound investments are not a priority. Afterall, as we argued in No 10G AUO Plant in China , China-bound investments are still strategic business decisions, not legaslative.

TSMC without doubt single handedly changed the landscape of the semi-conductor industry. They are one of Taiwan's best companies and continue to lead in the semi-conductor fabrication industry. Taiwan should be proud of this world class company and I certainly hope sensibility prevails and that both TSMC and UMC will not charge into China as soon as the new laws are passed. Histroy suggests TSMC have made the right moves at each stage of the game in their 20-year history. Lets hope they continue to do so.

Financial Times: TSMC set to forge a path through gloom

Trip Down Memory Lane....

Yesterday I found this great 1994 New York Times article about the Hsin Chu science park. It provides a great historical perspective on the origins of the high-tech industry in Taiwan. At that time some of the big companies (e.g. HTC) had not even been born and TSMC was still only a regional player. The article says:

After a slow and hesitant start, the Science-Based Industrial Park, home to 150 high-technology businesses, generated nearly $5 billion in sales last year, propelling Taiwan into the ranks of major high-tech producers. It has, for example, about half the world market in scanners and monitors, about 30 percent of the market in network cards and terminals and about 10 percent of the personal computer market.

The park is also changing the kind of goods Taiwan makes. In the last decade, much of the labor-intensive, low-tech industries such as clothing, shoe and toy manufacturing that spurred the island's economic growth have been displaced by high-tech industries, which make up a rapidly growing percentage of its exports.

"I think the park is very important for Taiwan, especially during industrial restructuring," said Wu Rong-i, the president of the Taiwan Institute of Economic Research, a private research and consulting firm. "It took five or six years really to see a response. But then it started to demonstrate good performance."

The idea for this park -- about 1,000 acres of silicon chip factories, computer and telecommunications manufacturing, research labs, office buildings, schools and restaurants -- sprang from the early successes of the Silicon Valley, the swath of computer industries that spilled south from Palo Alto and Stanford University.

"The original thought was that since there were so many Taiwanese scientists and engineers in Silicon Valley, that if we could get some of them to come back and start businesses, they could help us start a high-tech industry here," said H. Steve Hsieh, the director general of the science park and a Ph.D. from the University of Wisconsin. "Many people went to the United States and stayed forever, many for political reasons because Taiwan was under martial law. Some of these people got into middle-age crisis. So we've tried to recruit them to come here and start high-tech companies."

Today, the 150 companies here cover an array of high-tech industries, including the manufacture of personal computers and peripherals, the fabrication of integrated circuits, specialized telecommunications equipment and design, optical-electronics and, less successfully, a handful of biotechnology companies.

Since over the next year I will be doing a dissertation looking at the the influence of Chinese culture on strategies in Taiwanese high-tech companies, I found the following statements really interesting:

Yau You-wen was one of the 1,004 who returned home last year. "I was at Stanford in applied physics," he said, "and went on to Honeywell, and later I.B.M. What brought me back were the opportunities. The gap is disappearing between the U.S. and Taiwan." Now, Mr. Yau is the director of quality and reliability at the Taiwan Semiconductor Manufacturing Company, the largest fabricator of integrated circuits in Taiwan. Hybrid Corporate Culture.

Mr. Yau said that the corporate culture of Taiwan Semiconductor was more American than Taiwanese. In part, this is because the company has an American president, Donald W. Brooks, and because of the predominance of American customers. Indeed, the company's success has come not from creating its own chips but from building the factories and the technology to manufacture designs for integrated circuits created elsewhere, usually in the United States.

This was 14-years ago. What will be interesting is to see if the American culture has survived or if the advent of more and more homegrown talent moving into these companies has turned the corporate culture more towards a Taiwanese corporate culture. What will also be interesting, if it is possible, is to examine the difference between the semiconductor companies that employed many returning Taiwanese and the home-grown companies like Hon Hai Precision Technologies and Tatung.

Anyway, I thought the article was interesting and worthwhile sharing. You can read the whole article at the link below.

New York Times: High-Tech Taiwanese Come Home

TSMC sees good Q2 but Expects Slowdown.

There is a lot of news about TSMC out there today. First up is there Q2 earnings report. According to a press release:

TSMC today announced consolidated revenue of NT$88.14 billion, net income of NT$28.77 billion, and diluted earnings per share of NT$1.12 (US$0.18 per ADS unit)for the second quarter ended June 30, 2008.

Year-over-year, second quarter revenue increased 17.6% while net income and diluted EPS increased 12.9% and 16.3%, respectively. On a sequential basis, second quarter results represent a 0.8% increase in revenue, an increase of 2.2% in net income, and an increase of 2.1% in diluted EPS. All figures were prepared in accordance with R.O.C. GAAP on a consolidated basis.

Second quarter business saw an improvement from the previous quarter, although revenue and margins continued to be negatively affected by the strength of the NT dollar. Despite the negative impact from the foreign exchange rate, our margins have exceeded guidance due to significant cost improvement and higher levels of wafer movements. Second quarter gross margin was 45.6%, operating margin was 34.5%, and net margin was 32.6%.

Despite posting good results for Q2, TSMC are expecting declining macro-economic factors to impact on their performance over the next quarter. CFO Lauro Ho said:

Even with a weakening macroeconomic environment, our second quarter results were either in line with or slightly higher than guidance announced at the end of April, thanks to our continual effort in driving cost reduction and increasing utilization rates," said Lora Ho, VP and Chief Financial Officer of TSMC. "Based on our current business outlook, management expects third quarter revenue growth to be below seasonality.

Reuters notes TSMC sees only sees a growth of 4% in the semiconductor industry. According to Reuters:

Top contract chip maker TSMC (2330.TW: Quote, Profile, Research) said on Thursday it expects the global semiconductor market to grow 4 percent in 2008, compared with a previous forecast of 4 percent to 6 percent.

According to PC World any slowdown in the foundry industry will have a widespread economic impact:

The warning from TSMC raises concerns about the global IT industry. The company is considered an bellwether for the global technology industry because it produces chips for such a wide range of products, including digital cameras, music players, mobile phones and PCs. Since chips are the building blocks of all electronics products, a slowdown in the sector will reverberate across the entire industry.

As a result of the slowdown, many fabs are cutting down on their CAPEX. Electronics Weekly notes even though TSMC is expanding, this expansion may not be enough to meet global demand and therefore expects potential supply issues in 2009. According to Electronics Weekly:

TSMC is still adding capacity, despite widespread industry concerns that the foundry industry is cutting back on capex in order to squeeze higher prices per wafer.

According to TSMC's Q208 report, the company currently has the capacity to run 2.3m 8 inch equivalent wafers which is 6 per cent more than it had in Q1.

TSMC's intention is to raise the Q2 figure by 5 per cent in Q3 to reach capacity of 2.4m 8 inch equivalent wafers

Total capacity for 2008 is expected to reach 9.4m 8 inch equivalent wafers, which is 13 per cent up on the 8.3m wafers processed in 2007.

12 inch wafer capacity in 2008 will increase by 27 per cent in 2008 over 2007, says TSMC.

Despite this, according to Europe's leading semiconductor analysts, Future Horizons, capacity won't meet demand next year.

"It's the first time the semiconductor industry has cut back on capital investment at a time when capacity is at its tightest", says Malcolm Penn, CEO of Future Horizons, "they're saying: 'I've got too little capacity so I'm stopping investing'. While utilisation rates are high, the capex rate is low."

However, to remain competitive and to allow companies to transition easily from 45 nm processing technologies to 32 nm processing technologies, TSMC has rolled out a new design platform. According to EE Times India:

Feeling the heat at the 32nm node, Taiwan Semiconductor Manufacturing Co. Ltd has put the pedal to the metal and rolled out a new design-for-manufacturing (DFM) scheme. TSMC's Unified DFM (UDFM) architecture is touted as giving chipmakers unprecedented access—at no charge—to its proprietary simulator, DFM models and other production information for 32nm. The goal of is to give them a head start with TSMC's 32nm process, which is expected to move into production by the end of 2009.

Other leading-edge foundries—including IBM Corp.'s "fab club" (AMD, Chartered, Freescale, IBM, Infineon, Samsung, STMicroelectronics and Toshiba) and United Microelectronics Corp.—are taking similar steps on the design automation and DFM fronts, hoping to make the 32nm transition somewhat less painful and costly.

As I said, a lot of news about TSMC out there today. I think that covers most of it!

Reuters: TSMC sees global semicon market growing 4 pct in '08
PRN News Wire: TSMC Reports Second Quarter EPS of NT$1.12
PC World: TSMC Q2 Results Shine, but Says Business Is Slowing
Electronics Weekly: TSMC Adds Capacity but is it Enough
EE Times India: TSMC rolls out new DFM scheme

120 million Handsets to be Shipped from Taiwan in 2008

Both the China Economic News (CENS) and Digitimes report Taiwanese handset makers will ship 120 million units this year. CENS says:

With Apple Inc. focusing on operation in the global handset market, Taiwan is expected to ship some 120 million handsets worth US$15 billon worldwide this year, estimated by Taiwan`s government-funded MIC (Market Intelligence Center).

MIC projected Taiwan`s shipment of smartphones to sharply double to 13.49 million and 14.8 million units in the third quarter and fourth quarter of this year, respectively, from a year earlier, because Apple has placed OEM (original equipment manufacturer) orders with Taiwan`s Hon Hai Precision Industry Co., Ltd., while Taiwan High Tech Computer Corp. (HTC) has seen its sales of own branded smartphones keep growing.

And according to Digitimes:

With Nokia, LG Electronics and Sony Ericsson continuing to increase their handset outsourcing, and expanding shipment volumes of High Tech Computer's (HTC's) Touch Diamond, Taiwan's handset shipments are expected to grow 9-10% on quarter during the final two quarters of 2008, bringing total shipments for the year to 120 million units, up 10.7% from a year earlier.

Taiwan's handset sector saw shipments continue to drop 4.4% sequentially to 27.37 million units in the second quarter of 2008 following a 14.3% sequential decline in the first quarter as orders from Motorola remained weak, and those from clients in emerging markets were rather limited due to the transition to new models. However, second-quarter shipments represented an increase of 30.7% from a year earlier due to new orders from India's Reliance Communications and China's Hwawei Technologies.

The proportion of various categories of handsets shipped by Taiwan makers in the second quarter was similar to that seen in the first quarter, although a decrease in orders for entry-level models from Motorola, an increase in orders from LG, and more orders for smartphones were recorded.

Both articles have argued Motorola's continued non-performance will see demand for low end, entry level handsets decrease. CENS also observed that cheap generic handset models made by handset manufacturers in China and India and sold into emerging African and Latin American markets may erode the global market share of the Taiwanese manufacturers. For high-end models however, my money is stil on the Taiwanese firms to continue to beat out competitors from other countries.

Digitimes:Taiwan handset shipments to grow 9-10% on quarter in 2H08
CENS: Taiwan Poised to Ship 120 M. Handsets This Year

Contract Manufacturing to Slowdown

iSuppli has said the global contract manufacturing industry growth is slowing down. According to them there has, over the past 5-years, been under-utilization of manufacturing capacity and the industry is set for a period of consolidation. Part of the reason according to iSuppli is a slowdown at Foxconn. iSuppli says:

Revenue for the global CM industry, consisting of Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, is set to expand to $432.3 billion by 2012, rising at a Compound Annual Growth Rate (CAGR) of 7.2 percent from $305.5 billion in 2007. While a $126.7 billion gain in revenue during a five-year period may sound like fantastic growth, it actually represents a major slowdown compared to years past, on a percentage basis. Global CM revenue rose at a CAGR of 15.5 percent from 2002 to 2007. The industry CAGR amounted to 49 percent during the 1990s.

“Several factors are inhibiting the revenue surge of the past 20 years,” noted Adam Pick, principal analyst, EMS/ODM at iSuppli. “Those factors include the statistical law of large numbers, which makes it difficult for such a large market to expand much on a percentage basis. Other factors include a slowdown at leading EMS provider Foxconn, shifting EMS/ODM business models, new OEM procurement strategies and OEM/CM asset transfers.”

Right now in Taiwan and China there are many small contract manufacturers each vying for the piece of a very big pie. I think if contract manufacturers are careful about which markets they target they can still be successful. However, new entrants into the market will find it increasingly difficult to compete.

Adding to this news, Digitimes reported that ICP Electronics, a big Taiwanese EMS has also seen a decrease in demand and will therefore reduce their planned capacity expansion. According to Digitimes:

Taiwan-based IPC maker ICP Electronics has suffered a delay in expanding the production capacity of Armorlink SH, its manufacturing subsidiary in Shanghai, China, and has therefore downward adjusted the originally planned scale of expansion, according to the company.

ICP originally planned to establish eight new SMT lines in addition to three existing ones at the factory, with completion scheduled for the end of the first quarter of 2008, the company indicated. However, the expansion has lagged behind schedule, ICP noted.

To cope with the delay and in light of current orders, ICP has decided to install five SMT lines in August, with operation to begin in the fourth quarter of 2008, the company pointed out. The remaining three SMT lines originally planned may be added in 2009, depending on market conditions, ICP indicated.

iSuppli: Global Contract Manufacturing Transforms by 2013
Digitimes: ICP Electronics sees delay in China capacity expansion

DRAM Market Recovery Extended

CNN Money has a great article on the prolonged recover of the DRAM market. According to CNN Money:

In the high-stakes global staring contest of the DRAM memory market, manufacturers are starting to blink. But for some particularly battered competitors, it might be too little, too late.

The market for dynamic random access memory, used mainly in computers, is in the midst of a prolonged period of oversupply that is cutting into cash reserves. As a result, some DRAM makers have begun to cut their capital expenditures, which will eventually lower supply. However, continued investments from larger market players as well as the weak economic environment could push a recovery well into 2009.

Prolonging the market's recovery enables the larger players - like industry leaders Samsung Electronics Co. (005930.SE) and Hynix Semiconductor Inc. ( 000660.SE) - to gain market share at the expense of troubled smaller companies, such as Qimonda AG (QI).

Samsung and Hynix are "certainly contributing to and prolonging the DRAM industry downturn. It was in a recovery mode, but it looks like its going to stall and we're going to go back into an oversupply situation," Caris & Co. analyst Betsy Van Hees said, adding that her most bearish outlook has the downturn lasting into the third quarter of next year.

Not everyone agrees that a recovery will take that long to occur.

"Other than Samsung, most suppliers cut their capital spend dramatically, so the industry supply growth will slow down for sure, triggering recovery next year," said iSuppli corp. analyst Nam Hyung Kim, who believes the DRAM market bottomed in the second-quarter and expects "a few top tier suppliers" to turn a profit this year.

Some prominent DRAM makers recently announced spending cutbacks. For example, last week Taiwan's largest DRAM maker by revenue, Powerchip Semiconductor Corp. (5346.OT), lowered its capital spending this year by 28%, while Nanya Technology Corp. (2408.TW), the second-largest, reduced its capital spending expectations by 33%. The two companies have posted five consecutive quarterly losses.

The article is a good read. According to CNN Money Infineon subsidiary Qimoda is the company in the most danger of exiting the market and their shares have lost 85% of their value over the last year. However, they are not the only ones to have been hammered. Nanya and Powerchip have also had some problems. If the recovery only does start to occur next year, some companies will no doubt exit the market.

CNN Money: Spending By Top DRAM Makers Delays Recovery

Acer Sees No Slowdown in Sales

A few days ago in Compal and Quanta Expect Decreasing Demand we noted that executives from Compal and Quanta were becoming pessimistic about future notebook sales. At the time we noted demand for PCs remains strong but that the executives were expecting the declining global economy to have a negative impact on sales. Reuters now reports Acer has seen a 33% increase in sales in Q2 and sees no slowdown in demand. According to Reuters:

Acer Inc, the world's third-biggest PC vendor, said it had no major concerns about effects on its business of an economic slowdown after posting a 33 percent increase in sales in the second quarter.

Sales rose to 124.8 billion Taiwan dollars ($4.1 billion), Acer said on Thursday, while net profit grew 48 percent to 2.92 billion Taiwan dollars, below the average forecast of 3.13 billion Taiwan dollars in a Reuters poll.

Acer is expanding aggressively into emerging markets and through acquisitions in developed markets and had 9.4 percent of the market in the second quarter, behind Hewlett-Packard and Dell, according to research firm Gartner.

Chief Executive Gianfranco Lanci said Acer expected to continue to gain market share in the third and fourth quarters and to grow at about 5 to 10 percentage points above market rates.

Separately, Acer Chairman J.T. Wang said the company expected third-quarter net profit to be higher than the previous three months as the U.S. housing downturn and global inflationary woes had little impact on its business.

"We weren't really affected by the subprime crisis and global inflation problems," Wang told reporters on the sidelines of a business event in Taipei.

"We expect profit to be higher also due to new products being launched after we acquired Gateway."

As the article notes, Acer are focusing on selling into emerging markets hence making them less vulnerable to economic swings in the developed economies. A few years ago a downturn in the US economy would definitely have seen an equivalent downturn in PC demand the US market was dominant but I think more and more companies are diversifying their geographical target markets and are therefore able to hedge against a downturn in any single economy.

Reuters: Acer Q2 sales up 33 pct, no concerns about slowdown

Low Cost PCs....The March Continues

A few days ago in The March of the Low Cost PC we noted how Quanta had won an order from Sony for low cost PCs. We also commented how the advent of the lost cost PC caught everyone off guard.

Yesterday the Taiwan based research firm Market Intellingence Center (MIC) predicted the sales of low cost PCs in 2009 would increase by 128%, from 8 million units in 2008 to 18.3 million units in 2009. According to MIC:

According to MIC (Market Intelligence Center, Taiwan), an ICT industry research institute based in Taipei, worldwide low-price mini notebook PC shipment is expected to reach 8.02 million units in 2008. In 2009 shipment volume is forecasted to reach a scale of 18.3 million units, growing 128% annually.

According to MIC Senior Industry Analyst Chris Wei, "the low-price mini notebook PC market was dominated by the Asus Eee PC in the first half of 2008. Acer rolled out the Aspire One notebook PC which is very competitive on price, and Acer has shown an aggressive attitude towards developing the low-price mini notebook PC market. In the second half of 2008 price competition is expected to emerge in the market, and product specifications could be improved by vendors in order to better compete in the market. Consumers will be the beneficiaries of these developments."

Yesterday CNET added to the low cost PC buzz by showing some leaked slides from ASUS suggesting ASUS will develop a family of 23 Eee PCs. According to CNET:

Are you a travel explorer, an editor, or student? Then does ASUS have the Eee PC for you! According to this slide image taken by Engadget Chinese, it looks like ASUS will soon have a total of 23 differently configured models of the widely known Eee PC Netbook series--this includes previously released models, as well as "coming soon," and "who knows when."

And yesterday Digitimes reported Synnex will also join the low cost PC (netbook) fray with their Lemel Q PC Smart deluxe nettop. This will be in direct competition with ASUS's Eee PC and the Wind PC from MSI. Digitimes writes:

Synnex's upcoming 3-liter Lemel Q PC Smart deluxe nettop is based on the Intel Atom 230 processor and priced around NT$13,900 (US$455.7). The nettop will also be offered bundled with a 19-inch LCD monitor for NT$18,888.

This market is growing fast. More and more competitors are jumping into the fray. It seems there is also a lot of growth potential in the sector and that the companies currently in the game will be able to continue to have high margins for a while. Price competition in the future will drive the margins down but at least for now, some PC manufacturers in Taiwan are smiling!

Market Intelligence Center: Global Low-price Mini Notebook PC Shipment Forecast to Reach 8.02 Mln Units in '08, According to MIC
CNET: And the Eee PC hits just keep comin'...
Digitimes: Taiwan market: Asustek, MSI and Synnex to enter nettop war in August

VIA's Nano Outperforms Intel's Atom

PC World reports at least three reviewers have found the VIA Nano low-cost processor consistently outperformed the Intel Atom processor. Both processors were designed specifically for low cost PCs which are currently selling out around the world. PC World writes:

Performance comparisons of Via Technologies' Nano processor and Intel's Atom chip conducted by several hardware-enthusiast sites Tuesday confirmed what many industry observers have long suspected: the Taiwanese processor company has produced a chip that outperforms Intel's offering for low-cost computers.

The three reviews are listed below:

• PC Perspective: VIA Nano and Intel Atom Review - Battle of the Tiny CPUs
• Hard OCP: Intel Atom vs.VIA Nano
• Hot Hardware: VIA Nano L2100 vs. Intel Atom 230: Head to Head

This news is interesting. As far as I can tell VIA have been in the low cost CPU game for a long time. I remember when I first started in the technology industry here, VIA were already launching low power processors and people were laughing them off. They were, if I recall correctly, focusing on green technologies at a time when Intel were trying to ramp up their processor speeds. It therefore doesn't surprise too much that the VIA processor currently outperforms the Atom processor. VIA have been in the game for a long time.

However, I do think first, the Atom processor will outsell the VIA processor. The Intel marketing machine is a phenomenal one and they have far more experience than VIA. Secondly, I also think in time the Intel low power processors will get better and outperform the VIA processors. Although VIA will still have a place in the market with their niche processors, I doubt they will gain a dominant position in the low power processor market.

PC World: VIA's Nano Processor Tops Intel's Atom in First Reviews

40nm GPUs Coming Soon

TGDaily reports Taiwan Semiconductor Manufacturing Corp. (TSMC)will soon take the lead in chipset development when they roll out production processes for 40 nm graphics processor units (GPU). Although the development of 40 nm processing technology is fairly old news (we blogged about it in 40nm Processing Technology at TSMC), TGDaily offers a fairly interesting perspective. TGDaily writes:

Intel is proud of its dominant position in semiconductor in production technology and especially the fact that, for as long as we can remember, has led the industry in terms of the smallest chip structures. Its 45 nm technology is still at least one year ahead of AMD. But it appears that Intel will have to give up that lead next year, at least for a few months, when GPUs will make their transition to 40 nm.

This was bound to happen sooner or later. After speaking with several of our sources at ATI (AMD GPG) and Nvidia, we were told that a 40 nm GPU manufacturing process is on the way for first half of 2009. In fact, both companies are working on parts that should capture the spotlights at CeBit 2009 in Hannover. Both low-end and mainstream products are ready to be manufactured in 40 nm soon and should be on display at the tradeshow.

It appears that TSMC’s previously announced $10 billion investment in manufacturing technology is yielding results already, since the company is now able to develop 45 nm and 40 nm processes at the same time. The next step for TSMC is either 32 nm or 30 nm - or below. Samsung is investing heavily in 30 nm, but that is for DRAM only.

Intel has 32 nm CPUs still in development at its research, development and production facilities in Hillsboro, Oregon. 45 nm Nehalem CPUs will be the focus at the upcoming fall IDF, but it is generally expected that prototype 32 nm processors will be first shown at the company’s spring developer forum in H1 2009. Production of the chips should begin early in H2 2009, with volume shipments beginning in late Q3 or early Q4. First chips should surface in commercial products in late 2009, while 32 nm will be a 2010 topic for the mainstream buyer.

However, by that time, millions of 40 nm GPUs will have shipped already and you can bet the farm on the fact that both AMD and Nvidia will be pitching that story to the media in the same way Intel did in previous years.

Its good to see a Taiwanese company taking the lead for a change. Although Intel will catch up soon, it shows Taiwanese companies are as innovative and competitive as ever. TGDaily sums it up best:

Kudos to TSMC for developing the 45 nm and 40 nm half-node die-shrink at the same time.

TGDaily: Intel to lose its lead in chip manufacturing tech in 2009, sort of

Compal and Quanta Expect Decreasing Demand

Despite the global economic downturn, many reports have said the demand for PCs is stable and will continue to remain stable. Part of the reason is the introduction of low cost PCs. However, the PC industry is not immune to the economy and some executives from big contract manufacturers are predicting a downturn. Reuters reports:

Quanta (2382.TW: Quote, Profile, Research) and Compal (2324.TW: Quote, Profile, Research), the world's two largest laptop contract makers, turned cautious on laptop PC demand for the second half of the year due to a global economic slowdown, a local newspaper said on Tuesday. The Economic Daily News quoted Compal Electronics Inc President Ray Chen as saying the subprime woes have caused an impact on global demand for laptops, while the Chinese-language newspaper said Quanta Computer Inc Vice Chairman C.C. Leung had expressed concerns over the laptop market if the global economy deteriorates.

Leung's comments came after Quanta Vice President Elton Yang said earlier this month that his company had yet to see a negative impact on its sales from the global economic slowdown.

Interesting. PC sales have remained strong, but how long this will continue is, at best, uncertain for now. Macroeconomic factors will eventually weigh in and if those factors are negative, PC sales will indeed go down.

Reuters: Quanta and Compal cautious on H2 laptop demand - paper

Taiwan Manufacturers Move into MEMS market

More and more Taiwanese semiconductor companies are moving into the micro-electromechanical system (MEMS) market. What is MEMS? MEMS and Nanotechnology Clearing House say the following:

Micro-Electro-Mechanical Systems (MEMS) is the integration of mechanical elements, sensors, actuators, and electronics on a common silicon substrate through microfabrication technology. While the electronics are fabricated using integrated circuit (IC) process sequences (e.g., CMOS, Bipolar, or BICMOS processes), the micromechanical components are fabricated using compatible "micromachining" processes that selectively etch away parts of the silicon wafer or add new structural layers to form the mechanical and electromechanical devices.

The China Economic News (CENS) reports:

In light of increased availability of micro-electro-mechanical systems (MEMS), heavyweight Taiwanese chipmakers are competing for an advantageous position in the market.

Asia Pacific MEMS System Corp., in which United Microelectronics Corp. (UMC) holds dominant stakes, recently announced it would contract UMC to make its products designed on sub 0.35-micron processes.

Taiwan Semiconductor Manufacturing Co. (TSMC), currently the world`s No.1 pure silicon-foundry supplier, has begun using its 150-mm and 200-mm fabs to make MEMS used in inkjet heads of printers after starting to make contact image sensor (CIS) in cooperation with Omni Vision Inc. TSMC plans to shoot for foundry orders for radio-frequency MEMS and digital mirror device (DMD) next year.

Advanced Semiconductor Engineering (ASE) Inc. has won considerable orders to test and package automotive sensor devices, RF-MEMS modules, biochips, and silicon-based microphones in cooperation with subsidiary Universal Scientific Industrial Co., Ltd. for Nordic, VLSI, austriamicrosystems AG, and Medtronic. Industry watchers note that MEMS accounts for around 50% of packaging and testing costs.

For a long time, MEMS technology has been mostly applied to automobiles and industrial equipment. Recently, it has been increasingly built into consumer electronics like mobile phones and game consoles. Apple iPhone and Nintendo Wii are two typical consumer applications of the technology.

Demands for MEMS devices have surged sharply along with brisk growth of consumer-electronics market. Besides foundries TSMC, UMC and ASE, IDMs Texas Instruments (TI) and Sanyo have also entered MEMS market.

And according to Digitimes, both UMC and TSMC are bidding for contracts with Invensense, the world leader in motion sensing solutions for mobile devices. Digitimes says:

Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) are said to be geared up to bid for micro electro-mechanical system (MEMS) orders from InvenSense, with their respective backend solutions also being prepared, according to industry sources.

The sources indicated that leading MEMS gyroscope supplier InvenSense plans to outsource its front-end CMOS production to foundries in Taiwan, which has spurred the two leading pure-play foundries to compete for the potential orders.

Actually over the past while we have been reading more and more about MEMS. As the CENS articles says, MEMS have been around for a while but the rate of adoption is increasing quickly and more and more MEMS are being applied in consumer electronics. This will definitely provide Taiwan semiconductor companies with more opportunity to expand their market and product offerings. Both UMC and TSMC are ready to provide the fabrication facilities needed. This is another emerging market sector that will be interesting to watch over the next while. We will keep you posted!

MEMS and Nanotechnology Clearing House: What is MEMS Technology?
China Economic News: Taiwanese Chipmakers Venture Into MEMS Segment
Digitimes: TSMC and UMC bid for MEMS devices orders from InvenSense

The March of the Low Cost PC

Quamet reports Taiwan's Quanta computers has won a big order from Sony for low cost PCs. According to Quamet:

Quanta Computer Inc (2382.TW) has secured contracts for 10-inch budget personal computers (PCs) from Sony Corp, the Commercial Times reported.

Without identifying sources, the report said the Sony laptops will adopt the C7-M microprocessor from VIA Technologies Inc (2388.TW) and liquid crystal display panels from AU Optronics Corp (2409.TW).

This is indeed good news for Quanta and further highlights the strength of the new low cost PC market. In ASUSTek Changes the Game we noted how ASUSTek "changed the perception of what a computer can and should be." Indeed. The market still has legs.

iStockAnalyst has a nice piece describing the evoloution of the low cost PC market:

Last October, when Taiwan's Asustek Computer launched its first Eee PC - whose new acronym stands for "Easy, Exciting and Economic", instead of the earlier "Easy to learn, easy to play, and easy to work" - it did not expect the low-cost PC to become the latest buzzword in the PC industry.

Bigger rivals such as Acer, the world's No. 3 computer maker, also underestimated the threat from smaller, lower-margin laptops, casting doubt over whether users would buy such "simple-functioning machines".

But then, the US$200 (RM660) Eee PC 701 is much cheaper than the US$1,000 price tag for an entry-level laptop.

Well, figures say it all. Asustek statistics show that it has sold one million units of the Eee PC since its debut until March.

The new Eee PC 900 has an 8.9-inch screen, 1.3-megapixel camera and 12- gigabyte or 20GB solid-state drive. At NT$15,988 (RM1,705), this model comes with either the Linux or Windows operating system.

Surprisingly, the Linux model, which accounted for 60 per cent of the first sales, is well-received by Taiwanese consumers, said Asustek's product manager Jose Liao.

"The overall user-friendliness and other applications bundled in will matter more to consumers when choosing low-cost computers. We leave the choice to them." Indeed, Asustek has a slew of rivals closely tailing its back. Other Taiwanese computer makers such as Elitegroup Computer Systems, Micro-Star International and Gigabyte Technology have all unveiled plans to grab a slice of the pie.

At the recent Computex Taipei trade show, Acer introduced its first ultra-low-cost laptop armed with Intel's Atom microprocessor. Also lighter than 1kg, this machine makes a good fit for those looking for a handheld device with PC-like Internet experience, said company president Gianfranco Lanci.

Foreign bigwigs have not been spared from the frenzy either.

In early April, US-based Hewlett-Packard introduced its first low- cost notebook, the 2133 Mini-Note, aimed at the education market. Hitting stores with prices that start from NT$17,900, the machine weighs 1.2kg, is 33 millimetres thin and has an 8.9-inch screen. Wireless is built-in, and Webcam is optional.

Yes, many companies it seemed did underestimate the threat from the low cost PC model. The early-mover advantage gained by ASUSTek in this market has helped them strengthen their position in the global PC market and helped them to become more competitive than ever. What amazes me is no one thought of this idea earlier! Well, perhaps they did, but no one ever took the initative to develop these platforms. This sector is rapidly becoming as competitive as the other PC sectors and ASUSTek will have to continue to innovate to stay ahead.

But for now, the rapid growth in the low cost PC markets is good news for the notebook contract manufacturers like Quanta, Wistron and Inventec.They will surely receive a lot of orders.

Quamet: Taiwan's Quanta wins Sony order for budget laptops - report
iStockAnalyst: Low-Cost Computers Gaining Ground

Hon Hai Continues to Invest

Hon Hai Precision Technologies will continue to invest in Taiwan, China and other global centers. Trading Markets says:

Hon Hai Precision Industry Co Ltd (2317.TW) said it will continue expanding in Taiwan, China and other places worldwide despite recent minor adjustments to its production lines.

"We will continue expansion globally to meet client demand and the location of production lines will facilitate serving clients," said an official from the company, the world's leading contract manufacturing group for information communications technology devices.

It has moved three production lines for connectors back to Taiwan from China.

"The measure coupled with previous announcement of investment in Kaohsiung signal our commitment to home production," he said.

The company recently announced plans to hire 2,000-3,000 software engineers to develop digital content and other software segments in the southern Taiwan city of Kaohsiung.

The company and group members own 20-30 manufacturing plants in China, while the three connector production lines account only to a marginal part of the group's operations on the mainland.

Meanwhile, its Hong Kong-listed unit, Foxconn International Holdings (HK 2038), is due to kick off operations at a new mobile handset new site in Langfang in China's Hebei province.

"The Langfang site has been under construction for 1-2 years," he said, noting the plant is located there to be near the leading cellular phone brands' operations.

The Hon Hai group, also known as Foxconn, has also a presence in Europe, India, Central and Latin America, among others.

To further reiterate the scope of Hon Hai and Foxconns global investment, it was reported a few weeks ago Foxconn would be developing a huge factory in Mexico that will employ 20,000 and 30,000 people. The El Paso Times reported:

A Taiwan-based company will open a massive maquiladora across the border from Santa Teresa that will employ anywhere from 20,000 to 30,000 people in the next four years and create an economic boost on both sides of the border, officials said Monday.

The plant, which may be the largest in Mexico, will be in San Jeronimo, according to an announcement by New Mexico Gov. Bill Richardson's office

Taiwan-based Foxconn broke ground a few days ago, officials said.

The plant will produce computers, laptops and servers. Motorola, Nokia, Dell, Compaq, Hewlett Packard and Apple are among its clients.

"This is one of many mutually beneficial projects that I and my economic development people have worked with Chihuahua officials to carry out," Richardson said. "This is the kind of economic development that is going to bring the New Mexico-Mexico border to the forefront of international trade and development."

The global impact of Taiwanese tech firms is not in doubt. They will continue to develop and grow in many different countries around the world. This type of investment is good for both the local economy and the firm. However, I am personally pleased to see Hon Hai is still committed to its home base Taiwan and will continue to invest in operations here. It will be good for the economy and Taiwan as a whole.

El Paso Times: Maquila bordering New Mexico to employ up to 30,000
Trading Markets: Hon Hai to continue expansion in Taiwan, China

Is AMD Going to Spin-Off their Manufacturing

A recent story has emerged that AMD will soon spin-off their manufacturing plants. AMD have, over the past few years, been in a brutal price war with Intel that has left the future of AMD in doubt. There was already speculation about AMD outsourcing most of their manufacturing earlier this year. In AMD to Oustource CPU Manufacturing to TSMC we observed IC Insights predicted AMD may have to go fab-lite or even fabless. Earlier this month the Austin American Statesman broke the story that AMD would be splitting into several different companies.

According to the Statesman:

Executives have essentially guaranteed Wall Street that AMD will achieve an operating profit in the second half of the year. And Meyer says the company is just months away from a major restructuring that will spin the manufacturing operations off into a separate company, wth new ownership.

Without the expensive manufacturing operations, AMD can concentrate on designing, marketing and selling chips that compete effectively against its two tough competitors - Intel Corp., the largest and richest company in the semiconductor industry, and Nvidia Corp., the foremost maker of graphics chips.

AMD have now denied this claim. EWeek has said:

Advanced Micro Devices is planning to keep its fabs for now.

AMD is denying a report that appeared in the Austin American-Statesman that contains an interview with new CEO Dirk Meyer that seemed to indicate that the chip maker was preparing to spin off its manufacturing facilities in Germany and sell its two fabrication plants, or fabs.

Interesting! AMD has been hammered. Without looking at the financials its hard to say either way whether they stand a chance of recovering. They are way behind in their innovation and while Intel are moving to 45nm technologies soon, AMD are still a long way off. Maybe they can stay in the fight. Who knows? But to be honest, losing the manufacturing arm will help them become more flexible and agile in responding to market demand and will certainly help them to cut down on their capex requirements. There are of course advantages and disadvantages to keeping the manufacturing.

However, before ruling out spinning off their manufacturing plants completely, perhaps they should look at the Acer and ASUSTek business model. A few years ago Acer was struggling. They spun off their manufacturing into Wistron and focused on brand development. This gave Acer the ability to focus on developing a market for their own branded products and enabled Wistron to focus on manufacturing products for many other companies, not only Acer. ASUSTek has done the same thing and earlier this year spun-off their manufacturing into two companies called Pegatron and Unihan.

AMD might consider doing the same thing. I know the semiconductor industry is very different from the PC industry but there are many many examples of very successful fabless design companies. Consider Mediatek and Nvidia! AMD can succeed in this realm. I personally think to continue to compete with Intel head-on is sheer madness. AMD have to return to profitibality and I for one am interested in seeing what they will do next.

EWeek: AMD Denies Fab Sell-Off
Austin-American Statesman: New AMD chief sees clear path to recovery

Advantech to Support Qseven COM

Advantech joins Taiwanese industrial PC manufacturer IEI Technology Corp. in supporting the Qseven computer-on-module (COM) form factor. The Qseven form factor specifies a 70mm x 70mm COM and only provides support for the latest serial interfaces. No legacy interfaces (e.g. ISA) are supported. According to the Qseven presentation, the new form factor is neccessary to enable COM to support the latest 45 nm chipsets and the latest graphics interfaces.

According to Electronicstalk:

Advantech has joined the ranks of supporters of the new Qseven computer-on-module (COM) standard This brings the total number of companies that actively support the new Qseven COM standard to a total of 11

Qseven, initiated by Congatec and Seco, is the first COM standard that is specifically designed for mobile applications requiring the latest low-power processor technologies within a small footprint.

With a maximum power consumption of 12W specified in the standard, the new form factor is expected to appeal to manufacturers of applications that require battery operation.

"We are faced with a rapidly growing market for ultra mobile applications", says Jeff Chen, CTO of Advantech.

"Qseven is perfectly streamlined to this emerging market".

"I'm confident that Qseven will establish itself as the global industry standard of the future".

"Due to the strong support from the embedded community Qseven is already a de facto industry standard today".

"Qseven enables new applications in mobile and battery powered systems, which current solutions do not support adequately".

"This will open exciting new markets", says Gerhard Edi, CEO of Congatec

The proliferation of new form factors in the embedded computing industry is exciting and enables system develops to create better systems and applications. The Qseven standard will certainly enable baseboard designers to develop small baseboards for specific applications in mobile devices.

Presentation: Small Form Factor for Ultra Mobile Applications
Electronics Talk: Computer-on-module standard gathers support

No 10G AUO Plant in China

We noted earlier this month the Taiwanese government is allowing more and more manufacturing technologies to be imported to China which, according to them, will help Taiwanese firms remain competitive.

In Will Taiwan LCD Makers Move to China? we observed the laws surrounding LCD panels were being loosened and more opportunity for Taiwnese firms to invest in China were being opened. We also argued in Mr. Ma please don't move the fabs to China and China Strategy for Fabless Chip Designers that Taiwnese firms should be careful not to import too much technology into China as there is a lack of intellectual property rights protection. We observed this lack of protection in Hon Hai Fights in Shenzhen where Chinese courts are delaying proceedings brought by Hon Hai against their competitor in South China. This lack of action by the Chinese legal system allows the Chinese companies to become more competitive. However, in China Strategy for Fabless Chip Designers we also speculated the lack of partnerships between Taiwan fabless design houses and their Chinese counterparts was perhaps due to this lack of trust.

When I commented to a friend of mine that I thought the government was wrong to lift restricitions on imported technologies, he pointed out that although the legal restrictions were being eliminated, the business decisions were still in the domain of the companies, not the government! We agree! This certainly seems to be the case for AU Optoelectronics (AUO).

AU Optoelectronics (AUO) has made the decision not to invest in 10G fabs in China, even though the government may allow them to. Right now AUO are looking for land in Taiwan to build their newest 10G fab. Rebecca Kao at Digitimes writes:

AU Optronics (AUO) will not build its 10G plant in China although the Taiwan government is considering allowing the island's LCD panel makers to set up front-end production lines in China, according to AUO president LJ Chen.

Taiwan has a strong cluster of players in the LCD panel industry, enabled by abundant talent, rich resources, sound infrastructure, and advanced technologies, Chen said. With the panel industry growing fast in Taiwan, it will be impossible for AUO to consider China as the site for the 10G project the company is planning, he added.

AUO has been looking for land in Taiwan for its 10G project. Taiwan is considering lifting a ban on LCD panel makers setting up front-end production in China, although the latest speculations have been that the government may only allow makers to run 6G and lower-generation lines.
Chen commented that relaxing the ban will benefit the development of the panel industry in the long run, but the government will still need to assess a host of issues, such as the extent of the relaxation, timing, capex, supply chain, China's competitiveness, and import taxes. The most important factor is demand in the market, he added.

For example, Chen said, if China imposes taxes on imported LCD TV panels, Taiwan makers may then consider operating front-end production in China. But there are a lot of factors that panel makers cannot handle alone, and therefore careful evaluations must be done before running panel lines in China, he said.

Chen said AUO does not see any need to set up lower-generation lines in China for the time-being.

The decision for Taiwanese firms to invest in China will always be a business decision. Not a political one. Sure enough, the Chinese government can create an attractive investment environment and indeed seem to be doing so as we noted in Attracting Taiwan, and the Taiwanese government may lift restrictions, but the decision will always be made by the management teams, not the governments. China and the Chinese government must understand, for high-tech firms to be willing to put their latest technologies into China, they must be assured their intellectual property rights will be protected. If not, only older technologies will land on their shores.

Digitimes: AUO will not build 10G line in China

Terry Gou Tai Ming Donates....!

We were stunned to see Terry Gou Tai Ming, founder and Chairman of Hon Hai Precision Technologies, will be donating 90% of his NT$173 billion (US$5.7 billion) fortune to charity after he gets married on Saturday! The Straits Times wrote:

Terry Gou, Taiwanese high-tech tycoon and one-time suitor of Carina Lau, has pledged to donate 90 per cent of his NT$173-billion (S$7.7-billion) fortune to charity after he marries a dancer tomorrow.

The 57-year-old widower made the promise at his engagement banquet on Wednesday sitting beside his bride-to-be, 33-year-old dancer Delia Tseng, said reports.

His Hon Hai Group's flagship company, Hon Hai Precision Industry, is the world's largest contract manufacturer in the electronics sector for brand-name companies such as Dell, Nokia and Sony.

Mr Gou said he had signed papers to pledge away his fortune before he decided to marry his fiancee, said reports quoting a lawmaker at the banquet.

But with Mr Gou's remarriage, she had to sign the documents too for his pledge to take effect.

He said he was moved when she signed the papers without hesitation.

Mr Gou made the decision to donate 90 per cent of his personal assets to charities in the future and his bride-to-be supports the decision without any hesitation,' lawmaker Wu Den-yih told TVBS news channel.

Mr Wu, who is also secretary-general of the ruling Kuomintang, was a guest at the banquet at the Grand Hyatt hotel. So were President Ma Ying-jeou and his wife.

Mr Gou's first wife died of breast cancer in 2005. They have two children.

Absolutely amazing! Mr. Gou is following in the footsteps of Bill Gates and Warrent Buffet and the precedent they are setting is an excellent example to all of us! Mr. Gou, however, has long been a philanthropist. In 2007 he donated NT15 billion dollars to the Taiwan University to develop a cancer hospital. Da Hsuan Feng, Senior Executive Vice President of the National Cheng Kung University wrote:

The news stated that Taiwan’s multibillionaire Terry Guo Taiming donated a whopping NT15 billion (around $455 million US,) lock-stock-and-barrel, to National Taiwan University to develop a cancer hospital and advanced medical facilities such as a proton therapy center and other biomedical engineering projects. To this point in time, this donation is the largest single gift made to a single university anywhere on earth. It even topped the $300 million gift of Joan and Sanford Weill's to Cornell University’s School of Medicine which was just announced as recent as June 13 of 2007. The claim then was that it was by far the largest single gift to a single university. This claim certainly did not withstand the test of time!

Da Hsuan Feng continued, saying:

Guo’s gift is sweeping the media almost on a daily basis in Taiwan and other regions of Asia, and is the intense discussions in coffee shops and restaurants all over East Asia. It is interesting that the intensity has not dropped off even though the event is by now well over a week ago. The “Terry Guo Effect,” as I would call it, seems to be here to stay.

Mr. Guo has indeed been a leader in both business and philanthropy. Perhaps other Tycoons will follow his example in the future. After all, who really needs billions of dollars?

Straits Times: Billionaire's act of love
Cimat: A Tale of Two “Typhoons”: The “Terry Guo Effect” (Opens PDF file)

Hon Hai Plans to Set Up Shipping Center in Kaohsiung

I know this is old news already but its worth a mention. Earlier this week a number of news sources said Hon Hai planned to invest in an international shipping hub in the Southern Taiwanese city of Kaohsiung. According to the China Economic News (CENS):

Following its plan to set up operations in the Kaohsiung Software Park, Hon Hai Group has planned to establish a transshipment center for its Asian operation in Kaohsiung Harbor, which may further develop into the group`s global logistics and operation center in the future.

The projected transshipment center will handle finished and semi-finished products from its factories in Vietnam and China`s Guangdong province, in addition to undertaking some simple processing works before transporting those goods to final destinations. Currently, Hon Hai transships those goods mainly via Hong Kong or Singapore.

Kaohsiung harbor officials revealed that Hon Hai has requested to lease a new plot of 38.8 hectares entirely, originally the site of a factory of Tang Erng Iron Works, being acquired by the harbor authorities for use as the free-trade harbor area.

The plan follows the group`s previous pledge with the Ministry of Economic Affairs for establishing an R&D center staffed with 520 engineers inside the Kaohsiung Software Park by mid-2009.

This is good news for the Kaohsiung port and comes hot on the heels of Maersk announcing they would slash their shipping capacity from the port by half. According to a Reuters report earlier this month:

A.P. Moller-Maersk plans to slash about half its container handling capacity in Taiwan's Kaohsiung, Asia's No. 6 port, the latest blow to a harbour that has been losing ground steadily to South Korea and China.

The Kaohsiung Harbour Bureau confirmed on Wednesday a newspaper report that Maersk (MAERSKb.CO: Quote, Profile, Research), Kaohsiung's largest foreign operator, intends to give up berths 118 and 119, two of the four it operates in the harbour, when their leases expire in October.

The move by the operator of the world's largest container shipping fleet is expected to further hurt Kaohsiung's declining position as one of Asia's top ports.

The 143-year-old harbour has been losing ground to fast growing rivals across the Strait in China, with the global container shipping industry under pressure from a slowing world economy and rising fuel prices.

But the bureau hopes to convince Maersk to at least move some of its capacity to a berth adjacent to the two berths that will remain following Maersk's departure, arguing that will help the company cut costs.

"We are in talks to have them move to berth 75 and relocate the existing operator, South Korea's Hyundai, to 118 and 119," said Huang Kuo Ying, deputy director general of the Kaohsiung Harbour Bureau.

Kaohsiung will definitely benefit from Hon Hai's investment in both the science park and the port. One wonders however how politically motivated the move was? While I am glad to see investment in Taiwan and glad to see tech companies making an effort to keep Taiwan competitive in all areas of economic activity, I am saddened to think this decision may not entirely be based on good business principles but more political motivation. Yesterday Terry Gou Tai Ming, the chairman of Hon Hai, got engaged in Taipei and his guests included the new president Ma Ying Jeou and many KMT legislators. Honorary Chairman Lien Chan of the ruling Kuomintang will also be the host at the wedding (see China Post article).

One wonders if the Democratic People's Party (DPP) won the election, if Hon Hai would have pledged the same level of investment! Once again, this is not a political blog so we stop here! At least Kaohsiung will reap some benefits.

China Economic News: Hon Hai Plans to Set UP a Transshipment Center in Kaohsiung
Reuters: Maersk to slash Taiwan port ops, focus on China

MediaTek Moves into the GPS Market

China Economic News (CENS) reports:

Fabless house MediaTek Inc. and several Taiwanese manufacturers good at global positioning system (GPS) products recently jointly won the Ministry of Economic Affairs` approval to take part in its Galileo Project to develop crucial GPS technologies.

The project will offer MediaTek, currently Taiwan`s No.1 design house by market revenue, a chance to enter the market for satellite navigation systems simultaneously built with the U.S. GPS and the European Galileo modes.

Industry watchers point out that MediaTek has integrated GPS and Bluetooth devices into its mobile phone chips to hone its competitiveness in the mobile-phone chip market. The company has projected 50 to 60% of mobile phones to be shipped worldwide throughout this year will deliver GPS function.

China Economic News: MediaTek Ventures Into GPS Business

CNET Reviews the ACER P241W

CNET has a great review on the ACER P241W low cost PC. The PC comes in at around USD380. CNET were no too impressed with it and recommend an alternative low cost PC. The most impressive feaute of the P241W is the brightness of the screen. CNET claims this is the brightest screen they have seen. CNET writes:

The Acer P241w can be found for as cheap as $380--a very fair price for a 24-inch LCD--and boasts a unique look and very bright image. Of the five 24-inch displays we've reviewed this year, we'd rank it fourth, but it still does some things better than its higher-ranked competitors. It posted the highest score we've yet seen in our brightness test, although we discovered it comes at the cost of producing full and deep colors and true black. At $380, it's the second cheapest of the five we've reviewed, with the V7 D24W33 coming in lowest at $371. If you wanted something a bit prettier, however, with a better designed connection layout, check out the BenQ V2400W, which can be found for $434. The most expensive of the lot is the $679 Dell UltraSharp 2408WFP. It's the overall best 24-inch display we've tested, thanks to its many connection options and outstanding performance. Unless you absolutely need the brightest screen for the lowest price, we recommend not the Acer P241w but the V7 D24W33 for 24-inch LCD bargain hunters.

The P241W does seem to be a decent product and another choice in the low price PC market sector, which is quickly becoming saturated.

CNET: Acer P241W

Interview with the author's of Blue Ocean Strategy

I have been hearing a lot about the book "Blue Ocean Strategy" and for some unknown reason did a google search for it. I landed up on the official page and found a very interesting interview with the two authors of the book. A sampling of the first two questions is below:

1) What is a blue ocean strategy?

Kim & Mauborgne: Blue Ocean Strategy is a way to make the competition irrelevant by creating a leap in value for both the company and its customers.

2) What are red and blue oceans, and why do you use the colors red and blue?

Kim & Mauborgne: We use the terms red and blue oceans to describe the market universe. Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. Hence, the term “red” oceans.

Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. Like the “blue” ocean, it is vast, deep, powerful, in terms of profitable growth, and infinite.

The interview is a pretty good one and I have linked to it below. I haven't read the book but based on the interview it seems things like the low cost PC launched by ASUS could be classified as a Blue Ocean strategy. The start of the pure play foundry business model by TSMC in 1987 could also be considered a Blue Ocean strategy.

It seems this would be the right approach for the high tech industry in Taiwan. Many high tech products are being commoditized and there is very little differentiation between the products. The difference is brand and reputation but this is becoming less of a market force than before. Seeking new markets and creating demand as the authors of Blue Ocean Strategy suggest seems to be the way to go.

I have certainly seen this approach in my own industry with the explosion by industrial PC companies into medical computers, digital signage players and point of sales (POS) systems. This type of strategic thinking will become increasingly important for CEOs in Taiwan in the future. The rise of China and India in the tech sector will force them to think out of the box and to leverage their own and their staffs' creativity in seeking new places to apply their products and services.

Hopefully I will have time to read this book in the near future, maybe you will too. In the meantime, enjoy the interview.

Blue Ocean Strategy: A Conversation with W. Chan Kim and Renee Mauborgne
authors of BLUE OCEAN STRATEGY [Opens a Word document]

UMC Shifting Strategy

Last week in Jackson Hu Takes a Step Back at UMC we mentioned the executive team at UMC is changing. The change in the executive team seems to have brought about a change in the companies strategy. According to Digitimes UMC will start to focus more on the bottom line and less on their affiliated IC design companies.

With Taiwan foundry United Microelectronics Corporation (UMC) recently restructuring its executive team by announcing that Stan Hung has been elected to the position of UMC chairman and Dr. Shih-Wei Sun has been appointed CEO, market watchers noted that they also have confidence that IC design houses with UMC investment will also benefit in terms of their sales and stock price. However, comments from sources at a number of those UMC affiliated IC design houses appear to show that this confidence is not shared with the group.

UMC has investments in a number of IC design houses, including Integrated Technology Express (ITE), NexPower Technology and Faraday Technology, among others.

Hung has served as UMC's CFO, and previous to his appointment to chairman, he was senior vice president at UMC. He was also chairman of NexPower Technology and Integrated Technology Express (ITE). However, market watchers are predicting that Hung may resign his chairmanships of those two companies. The sources pointed out that the future directions for these companies is up in the air.

Change in management at any company usually brings about change in strategy. It seems this is true for UMC too. How will the affiliated design houses fare? Its hard to say right now. ITE for example has had a rough ride on the stock market over the past year. After rising from NTD60 to NTD180 per share, it recently dropped down to NTD68 per share and yesterday was sitting at NTD89! Talk about volatility!

As for UMC, well their stock price is in the gutter and has been for a while. Yesterday UMC shares traded at NTD15.7 per share, the lowest since before 2003. Certainly a change in strategy seems to be in order!

Digitimes: New UMC CEO said to focus on bottom line, not affiliated IC design houses

Nanya on the road to recovery

Memory chip giant Nanya seems to be on the road to recover. Memory companies have had a tough couple of years. The dip in prices started when the companies were preparing for the launch of Windows Vista a few years ago. Vista requires a lot of memory and therefore memory companies went into full gear in producing the chips. However, the low adoption rate of Vista meant many PC makers and memory retailers had bloated inventories which forced the price down. Nanya has just come out of its fifth successive quarter of losses. The Taipei Times however reports this company may be on the way back. Accoring to the Taipei Times:

Nanya Technology Corp (南亞科技), the nation's second-largest maker of memory chips used in computers, said yesterday quarterly losses had shrunk significantly over a price rebound, adding it would trim capital spending this year to help accelerate recovery from the industry’s severe, glut-driven slump.

Taoyuan-based Nanya posted its fifth consecutive quarterly losses at NT$7.3 billion (US$240 million) for the quarter ending on June 30, contracting 17 percent from NT$8.78 billion in the first quarter, a company statement said. The chipmaker posted losses of NT$2.83 billion a year ago.

“The improvement is mostly because of better chip prices,” said Pai Pei-ling (白培霖), a vice president at Nanya.

Contract prices for dynamic random access memory (DRAM) chips rose at a 20 percent quarterly pace in the April to last month period, Pai said.

Looking forward, Pai said net losses should narrow next quarter on the back of stabilizing DRAM prices, but the recovery may not be strong enough to bring Nanya back to profit any time soon.

It has indeed been a tough few years for the memory companies. Hopefully they will be able to recover quickly.

Taipei Times: Nanya outlines plan for recovery

Semiconductor Market Trends

EE Times India says an analyst has predicted 10% growth in the semiconductor industry over the next few years saying the lack of investment on expansion in the semiconductor industry and the growth in the global economy will spur growth in the semiconductor industry. According to EE Times India:

Malcolm Penn, founder and principal analyst with Future Horizons Ltd, believes the market forces are at last moving into place to deliver a couple of years of booming growth for the semiconductor industry. Penn offers three possible results for annual chip market growth in 2008, ranging from 7 per cent at the low side up to 10 per cent growth at the top end.

He is convinced that, because of a lack of investment in semiconductor manufacturing capacity at present, prices will continue to rise, alongside units in 2009, giving rise to a market growth in the "high-teens" of per cent.

This would be a return to glory days of the semiconductor; albeit one prompted by an unprecedented move away from chip manufacturing at the leading-edge by many of the major chip vendors.

But Penn is being bullish while the analysis forest remains full of bears. Others have expressed concern that a general economic slowdown could suppress demand in the second half of the year. Falling units with weak pricing is a recipe for a semiconductor market collapse. In contrast Penn believes that unit sales will hold up and when put together with increasing average selling prices (ASPs) will start to deliver strong overall chip market growth for the first time in many years.

The article is an interesting one and well worth the read. There have been concerns in the semiconductor industry about the low prices being driven down by high inventory levels. Any growth in the semiconductor industry will be good for Taiwan firms such as TSMC and UMC.

EE Times India: Expect 10% chip market growth, says Penn

Micro-Star Moves into Low Price PCs

Micro-Star International (MSI) has recently followed ASUS, ACER and HP into the low price PC market. MSI has recently launched the Wind "netbook", another name for the low price PC. The Wind PC has a nice review on Geek.com. Geek.com writes:

MSI’s Wind is a 10-inch netbook, designed to compete with the Asus Eee PC 901/1000/1000h as well as any number of similar products that are now available. You might not be familiar with Micro-Star International but they are turning a lot of heads with the Wind, not just for its reasonable price but also a smart design and its advantages over the rest of the field.

The Wind is another white netbook that is built on a small, plastic-y platform, but it differentiates itself with a 10-inch display and an 80GB hard drive. It also bucks the original netbook trends by arriving with Windows XP as opposed to a Linux distribution (a SuSE version will be available in the future). None of these features are completely unique to the Wind though, so the device is competing with its overall quality and design as opposed to any specific killer feature. The Wind uses Intel’s Atom processor as opposed to a Celeron, like the Eee PC 701/900, or a processor from VIA, as seen on HP’s 2133. This means reasonable power and an extended battery life over more power demanding processors.

Personally I must confess I do like the 80GB hard drive. The 20GB Linux hard drive on the Eee PC does seem a bit small considering some of that space is used by the operating system (OS). The Wind seems to be a tantalizing option and something worth looking at if you are in the market for a low price PC i.e. netbook.

Staying with MSI, Digitimes has also commented MSI will be producing low cost PCs for the Korean giant LG Electronics. Digitimes writes:

Korea-based LG Electronics is planning to launch its Atom-based netbook in October this year and since most of the company's notebooks were manufactured by Micro-Star International (MSI), the netbook is also expected to be manufactured by the Taiwan maker, according to sources.

The low price PC market sector is becoming crowded fast. Although ASUS will continue to dominate the sector for the time being, they will need to innovate to stay ahead. All this competition is indeed good for the consumer!

Geek.com: Review: MSI Wind Notebook
Digitimes: MSI has chance to make netbook for LG

Delta Moves into Digital Signage

China Economic News (CENS) reported Friday Delta, manufacturers of power supplies, have moved into the digital signage display market. This is a new market with many competitors trying to establish an edge. Digital displays started becoming more popular a few years ago and currently many hardware companies are looking at them and the high margins they offer. As for Delta, CENS writes:

Since venturing into production of digital signage displays and winning big orders from European and American clients, Delta Electronics Inc., Taiwan`s leading supplier of power supplies, is ambitious to rank among the world`s top-10 suppliers of the new product line in the next three years, according to company sources.

Meanwhile, an influx of orders for power supplies from electronic sectors in upcoming booming seasons is also expected to help Delta score record revenue in July and make the firm`s revenue for the second half of the year surge 40% from the first half to reach NT$69.7 billion.

Since its establishment, Delta has been profitable for 37 consecutive years, with a compound annual growth rate of up to 38.4% in earnings. The firm even reported a high ROE (return of equity) rate of 27.5% last year.

Optimistic about prospects of the market for digital signage displays, Delta has focused its development on the products and launched a series of related solutions incorporating images, video and audio. The firm projects global sales of the products to reach 1 million units this year and to grow to 3 million units in 2011, which will be widely used in public places such as airports, shopping malls, department stores and restaurants in the future. At the moment, the firm provides 42- and 47-inch models, priced at about NT$80,000 (about US$2,581 at US$1: NT$31) and boasting higher gross profits rates among the firm`s existing product lines.

The future for digital signage displays is definitely bright. The market is new and therefore nowhere near saturated and many manufacturers have seized the opportunity to get involved with developing the displays.

The difficulty for the hardware companies is the associated software interface that must come with the display. The software interface is neccessary to enable user to develop presentations and shows to be shown on the display. Unfortunately the hardware companies are not software developers and software development is definitely very different from hardware development so I expect the fairly crude software interfaces I have seen will improve over time.

CENS: Delta to Rank Among World`s Top-10 Suppliers of Digital Signage Displays in Next 3 Years

Hon Hai Fights in Shenzhen

As if on cue!

A few days ago in China Strategy for Fabless Chip Designers I argued against Lung Chu, President of Asia field operations at Cadence, that Taiwan chip designers should partner with Chinese competitors. Also, yesterday in Mr. Ma please don't move the fabs to China I argued it would not be such a great idea for Taiwan to move stategic technologies to China. My main concern and the concern of many is the lack of protection against property rights.

In cases like this I hate to be right!

Today we read in the International Herald Tribune (IHT), Hon Hai Precision Technology (Hon Hai) is taking their Chinese competitor to court for stealing trade secrets. We also read the courts are delaying the proceedings enabling Hon Hai's competitor to become stronger. The IHT says (emphasis added):

Taiwan's giant electronics manufacturer Hon Hai Precision Industry Co. appears to have a big advantage in the China market — its principals all speak Chinese and have an intuitive sense for the country's often bewildering business culture.

But last week the company took out half-page ads in major Taiwanese newspapers to complain about delays in a mainland court over the prosecution of a Chinese competitor.

Spokesman Edmund Ding said Hon Hai suspects that BYD Company Limited, a Chinese electronics maker based in the southern city of Shenzhen, is systematically looting its trade secrets.

The purpose of BYD's alleged actions, Taiwanese media have reported, is to give the Chinese company a leg up against Hon Hai in winning big parts orders from international mobile phone powerhouse Nokia.

The row is a stark reminder that even for the most sophisticated Taiwanese companies — in this case one employing 500,000 Chinese workers — doing business in China is not as simple as it seems.

Later we read (emphasis added):

Cheng Jung-wen, a senior official at the Taiwan Merchant Association in Shenzhen said the Hon Hai case reflected a tendency among some Chinese officials to favor local companies over outsiders in intellectual property rights disputes.

Cheng said intellectual property theft is a common problem suffered by Taiwanese businesses, but that provincial Chinese officials seemed unwilling to
help them address it.

"We have long given up the thought of asking Chinese authorities for help," Cheng said. "The only way we can avoid damages is to develop new products all the time."

The context of this is clearly given in the IHT. Hon Hai, as the IHT points out, is a huge company. They are the world's largest contract manufacturer producing everything from mobile phones to computers. Their leader Terry Gou Tai Ming is a legend in Taiwan and one of the richest men on the planet. There are not many companies in Taiwan bigger than Hon Hai. If Hon Hai can get hammered by the theft of trade secrets, what can the smaller competitors do? What realistic chance do they have?

In China Strategy for Fabless Chip Designers I said:

So there is potentially a huge downside for Taiwan design firms establishing partnerships with Chinese competitors. They might steal their stuff and blow them out of the water! Don't get me wrong! Partnerships and joint ventures can and do work, but for them to work there must be trust and a record of behaviour that speaks for itself. Chinese firms must realize that business is not about getting ahead at all costs and at the cost of those you work with. Only then will people be more willing to partner with them.

I stand by those comments today! Do you?

International Herald Tribune: Taiwan electronics maker Hon Hai wages judicial battle against Chinese competitor