In recent weeks we have been following the proposed new legislation in Taiwan that will allow advanced 12" semiconductor fabs to be moved accross the straits to China. In Mr. Ma please don't move the fabs to China and China Strategy for Fabless Chip Designers we argued Taiwanese firms should be careful moving their most advanced technologies to China because of the lack of protection for intellectual property rights. We noted this lack of proctection in Hon Hai Fights in Shenzhen where Hon Hai Precision Technologies have sued their Chinese competitor but deliberate delays in the courts have resulted in their competitor being able to strengthen their business position.
In No 10G AUO Plant in China we conceded that any investment decision into China will ultimately be a business decision and not a political one. Although Taiwanese legislation may change, the business leaders still need to do their own analysis to decide if it is worth the investment. Investing in fabs is afterall an expensive affair. Intel's 12" Dalian fab for example is costing in the region of US$2.5 billion. We were therefore not surprised to read in PC World that the two biggest pure-play foundries in Taiwan, TSMC and UMC, have no immediate plans to invest in China. PC World writes:
The Taiwan government is planning major changes to regulations governing chip-related investments in China, but the island's companies are in no hurry to build new factories on the mainland.
"Currently, we do not have a fab expansion plan in China," said Rick Tsai, CEO of Taiwan Semiconductor Manufacturing (TSMC) at the company's second-quarter investors' conference on Thursday. The company's current Shanghai facility will reach its maximum capacity by the end of the third quarter and TSMC owns enough land at the Shanghai site to build a few more fabrication plants, or fabs there.
But the world's largest contract chip maker sees worsening business conditions on the horizon, caused by high energy prices and rising materials costs.
Other chip makers have also noted problems.
Taiwan's DRAM makers, for example, continue to post losses in a tough market for their chips. DRAM prices have fallen below the cost of production due to a chip glut, leading to the losses. Taiwanese DRAM makers have all cut back on their expansion plans.
TSMC's biggest rival in the contract chip making business, United Microelectronics (UMC), doesn't plan to build any new factories in China soon, either.
UMC is focused on legally taking ownership of a 15 percent stake in China's He Jian Technology, a contract chip maker UMC executives have admitted to aiding in its start-up phase. But UMC and company executives say they broke no Taiwanese laws by helping the Chinese company. He Jian is UMC's partner in China.
"Aside from the He Jian stake, we have no other plans to invest in China," said Sun Shih-wei, CEO of UMC, during the company's second quarter investors' conference on Wednesday.
A number of global companies have been attracted to China for its huge market, low-cost labor and incentives for chip related investment, such as construction subsidies, low-cost land in special technology park zones, and tax breaks.
Last year, Intel, the world's largest chip maker, announced plans to build a US$2.5 billion chip fab in Dalian, on China's northeastern coast.
What will be interesting to see is what incentives the Chinese government will use to try to attract the fabs to China. Incentives offered to Intel made building the fab in China US$1 billion cheaper than the states. The Chinese government aggressively pursues Taiwanese investments on the mainland as we noted in Attracting Taiwan. No doubt over the next few years incentives will be offered, but my guess is the Taiwanese businessman are fully aware of the risks attached with moving these investments to China and will therefore be extra cautious.
PC World: China May Have to Wait for Chip Investment From Taiwan
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