We were going to comment on President Ma Ying Jeou's latest idea of moving Taiwan's 12-inch wafer fabs to China. When I heard about it I thought he was mad! The semiconductor industry is one of Taiwan's strategic industries. Taiwan's tax payers, through the Industrial Technology Research Institute (ITRI) invested a lot of money in developing the industry. To send it to China wrapped in Christmas wrapping is just insane! Yeah yeah, lets cut out the emotion.
As I said, I was going to comment but Professor Jason Liu from the National Taiwan University of Science and Technologydoes a much better job in the Taipei Times.
In an attempt to revive Taiwan’s struggling stock market, President Ma Ying-jeou (馬英九) said on July 10 that restrictions on chip investment in China would be relaxed. But this “good news” could severely hurt the economy.
Ma said Intel is building a 12-inch wafer factory in Dalian that will use 90-nanometer technology. He said the Wassenaar Arrangement on Export Control for Conventional Arms and Dual-Use Goods and Technologies allows high-tech transfer into communist states such as China, which means Taiwan is falling behind the rest of the world because it only allows Taiwanese chipmakers to produce 8-inch or smaller wafers in China. The Ministry of Economic Affairs is planning talks with chipmakers and it may relax restrictions in September.
The problem is that Intel is just building a DRAM memory chip fab, whereas Taiwan is looking at loosening restrictions on wafer fabs, which are capable of making multiple integrated circuits with more complex technologies. We cannot just focus on the Wassenaar Arrangement. More important is the impact that the relocation of the wafer industry will have on Taiwan’s economy and society.
Taiwan has the world’s best wafer foundry industry. Including design, testing, and packing, the total production value of the industry is as high as NT$1.5 trillion (US$49.3 billion) and employs at least 150,000 people.
Quick comment: The stock market is not struggling because the 12-inch fabs are in Taiwan and not China, the stock market is struggling because the global economy is in the gutter. Raw material prices are surging, weak deamand in big countries is also hurting Taiwan. When the economy in the world improves, the economy in Taiwan will improve. It really is that simple!
The other day we posted an article showing the decline in prices of tech companies listed in the Taiwan Technology Index! Yesterday oil dropped by US$5.00, the Dow Jones and Nasdaq went up by more than 3% and guess what, so did the Taiex. The Taiex and Taiwan stock market prices are heavily dependent on the global economy and are highly correlated with the US markets (one day when I am not too tired I will do the calculation). Moving the fabs to China will not change this.
Professor Liu ends his editorial saying:
In 2006, China launched its 11th Five-Year Plan, vowing to use 0.13-micron and even smaller technologies to develop its own 12-inch wafer foundry industry, with the goal of boosting its production value to 300 billion yuan by 2010. It is keen to replace Taiwan in the global semiconductor industry. However, the quickest way to achieve that goal is to entice Taiwan’s high-tech professionals to work in China to reproduce a copy of Taiwan’s upstream, midstream and downstream semiconductor industry.
The semiconductor industry remains crucial to Taiwan and the government must do what it can to keep the industry here. Ma cannot just loosen restrictions, thereby strengthening China’s semiconductor industry and weakening Taiwan’s national competitiveness. The government must not make a decision based solely on talks with chipmakers. It should invite all sectors of society to extensively discuss the issue.
We agree completely with Professor Liu! Do you?
Taipei Times: Don’t be in such a rush to destroy the economy
2 comments:
First, I'm not sure that moving to China makes any business sense. The Intel fab argument is ridiculous--Intel doesn't do contract manufacturing, which means that they aren't in the same business as TSMC and UMC. Second, TSMC's fabs with the highest yields (and lowest costs) are all in Taiwan. Last, TSMC fairly recently built a lab in Washington State in the US. The labor cost is really only a small consideration in building fabs, which are capital intensive. So Ma is talking out of his ass.
I have another angle that I'd be interested in your comments on. Together with your post against Taiwanese fabless chip design houses working with China's, I think there's another really big strategic reason for keeping the semi foundries in Taiwan.
In the event that IP is stolen by Chinese design houses, they still have another problem--manufacturing the chip. Taiwan right now has a near monopoly on the profitable segment of the semiconductor manufacturing industry. Chartered (Singapore) and SMIC (China) have shown they can't compete and the Koreans have long exited the market.
Thus, keeping fabs in IP-friendly Taiwan protects Taiwan's IP design houses from Chinese piracy. The alternative for pirated IP is to try to get SMIC or Chartered to manufacture for you, but in that case, your costs and time to market will be high, with TSMC and UMC boycotting you and subject to Taiwanese law.
Hi There,
Actually I never really thought about your suggestion that any design piracy would still face manufacturing difficulties and potential boycotts from TSMC and UMC.
From what I understand about TSMC is that they are a fairly ethical company (read their annual report) and do try to protect their clients (more so than most). Whether or not they would stop manufacturing because one company accused another company of patent infringements is a different issue however.
It would certainly be interesting to see! I guess if the copying were blatant they would probably withhold manufacturing, but that is not certain.
I do agree that if both TSMC and UMC boycotted a company, it would be very difficult for the chip that was pirated to become competitive if manufactured by another company.
You do pose an interesting question!
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