Netbook Chip Demand Rises

An excellent article on The Street argues that while Intel are still dominant players in both the traditional PC/Notebook space and the netbook space, they are being challenged in both the notebook and netbook space. According to Robert Castellano at The Street:

....the Atom is propping up Intel's unit shipments in the mobile PC sector. It's (Intel) making little or no money on the Atom anyway. A more important issue is that it (Intel) may be losing market share in the notebook market. Why? Because Intel had to fill orders for netbooks in the fourth quarter of 2008 and the first quarter of 2009 and made Atoms instead of Penryns, resulting in lower margins on a $29 CPU. Once PC OEMs migrated to the AMD CPU, they stayed with it.

I've also forecast previously that while Intel's Atom will hold more than an 80% share of the 23.5-million netbooks sold in 2009, a movement is underway that will enable the processor from ARM Holdings (ARMH Quote) to gain a 55% market share in 2012.

What I find astonishing (not unbelievable mind you) is Castenallo's prediction that ARM processors will have a 55% market share of the netbook space in 2012. This would be a drastic inversion of the market share for both companies. I am assuming Castenello is making this assumption based on his knowledge of both the Intel and ARM roadmap (as far as he can see it anyway) and so this inversion must be troubling for Intel. Certainly ARM has been pressing them in the mobile phone space for many years and this does indeed seem to be the natural progression for them. It would be interesting to see if ARM in the future plans to move further along the product train and try (at some point) to compete with Intel in the notebook space.

In related news Electronics Weekly reports that ARM-based netbook chip orders are set to max out the 65 nm and 55 nm processing plants at both TSMC and UMC. According to Electronics Weekly:

According to the Commercial Times of Taiwan, both TSMC and UMC will be at 100% capacity utilisation for 65nm and 55nm processes by November, because of a flood of orders placed on them for ARM-based Netbook chips.

The orders are coming from Qualcomm, Texas Instruments, Freescale Semiconductor Via Technologies and Nvidia.

Freescale says it has three Netbook design-ins expected to go into production before the end of this year, while Qualcomm says it has half a dozen design-ins. If TI, Via and Nvidia have three or four each, then there could be 20 ARM-based Netbooks on sale before Christmas.

Both Paul Jacobs, CEO of Qualcomm and Rich Beyer, CEO of Freescale, point out that the new metric for measuring computing performance is going to be power efficiency rather than CPU speed. This massively favours ARM which has always designed for power efficiency as against Intel which has always designed for speed.

The Electronics Weekly article sheds further light on the growth of ARM chips on netbooks. Of course there is less visibility into the production of Atom chips as (although some of it apparently is being done at TSMC) most of it would still be in house anyway. ARM chips do seem to be making a big bang on the netbook stage and one wonders just how Intel are going to compete in the long term. Remember Intel are used to competing as the dominant market leader and not as one among equals so it will be interesting to see if they have the ability to alter their strategic approach to remain dominant and also to see if they adjust their business model to compete against ARM. One thing is for sure, many people around the world would prefer a weaker Intel.

Electronics Weekly: Netbook Chip-Set Orders To Max Out Capacity At TSMC & UMC
The Street: Intel's Grip on Notebooks, Netbooks Slips

Globalfoundries Getting in on the Game

Competition in the pure play foundry industry is about to heat up. ars technica has an interesting blog article on AMD's spinoff company Globalfoundries who seem to be on thr prowl for TSMC and UMC customers. ars technica writes:

It's launched, online, and the now-independent Globalfoundries is searching for its non-AMD customers. CEO Doug Grose is reportedly visiting Taiwan to seek relationships with companies that may be currently contracting with TSMC or UMC for their semiconductor foundry needs. If true, this would raise questions regarding the future of AMD's relationship with TSMC. That company currently fabricates Radeon processors for Advanced Micro Devices, and while Globalfoundries and AMD are now separate entities, they are separate entities that remain joined at the hip. Globalfoundries will probably take over fabbing ATI Radeon processors at some point, but is not yet believed to have the bulk silicon production in place to do so.

So what are your thoughts? Will Globalfoundries actions in Taiwan threaten the relationship between AMD and TSMC? Will Globalfoundries be able to compete effectively? Are TSMC and UMC in a world of trouble? I will be interested to read your comments. In the meantime, I look forward to see how the pure-play foundry industry landscape changes. (Remember last week TSMC and Intel signed an agreement). The future is always exciting, especially in this industry

ars technica: Globalfoundries on the prowl for non-AMD customers

Foundry Utilization Rates Set to Drop

The financial crisis is set to continue to depress the foundry industry into Q1 2009. According to one analyst, utilization rates in the foundries are set to drop by a significant amount. Solid State Technologies reports:

Wafer shipments at the world's top two foundries, TSMC and UMC, are set to plunge further than anticipated in 4Q, but the picture for 1Q is even uglier with "historic lows" looming for utilizations, according to an analyst report.

Wafer shipments sunk 30% in 4Q vs. 3Q vs. a historical average of 5%-8% growth, and FBR Research's Mehdi Hosseini says checks indicate they'll keep dropping another 20% in 1Q09, vs. a typical -5% decline, with weak demand seen in "all customers across the board," he writes. Foundry customers are seeing inventories decline, suggesting the sluggish shipments are due to weak end-demand. Look for some eye-popping floors in foundry capacity utilization, he warns -- "reaching 50% and below levels," which will further depress equipment spending.

It is no secret that part of Taiwan's success in the pure play foundry model has been there ability to maintain their high-utilization rates. Declining utilization will definitely affect their competitive advantage over the short term. Silicon foundry's are not cheap to run and any significant decrease in orders and production will greatly impact the cost of production and naturally effect gross margin these companies can expect to earn. This is certainly going to impact their abilities to develop and introduce new technologies into the manufacturing process and may even provide a space for other competitors to gain an edge over these foundries although one should think that the low utilization is spread accross the entire industry and not only affecting TSMC and UMC.

Wafer News: Analyst: Foundries face "historical lows" in utilization

Taiwanese Firms Investing in China

Here at Hi Tech Taipei I have long argued Taiwanese companies should be careful about migrating their latest technologies to China. President Ma Ying Jeou believes enabling companies to invest in China and specifically migrate their latest technologies to China will enable those companies to remain competitive. I am not so sure.

We noted objections to moving 45 nm fabs to China in Mr. Ma please don't move the fabs to China. We also argued in China Strategy for Fabless Chip Designers that design companies should be careful about partnering with Chinese companies because their intellectual property may be at risk. In Hon Hai Fights in Shenzhen we observed how Taiwan's largest contract manufacturer is struggling to maintain its intellectual property rights from marauding Chinese pirates. In the article quoted we observed how the Chinese legal system may be complicit in the piracy by not accelerating the case and enabling Hon Hai's competitor to gain traction in the market.

However, in No 10G AUO Plant in China we conceded any investment decision into China will be a business decision and not a political one and were also pleased to note both AU Optronics (AUO) and (in Fabs to Stay in Taiwan) the big Taiwanese foundries UMC and TSMC were going to stay invested in Taiwan.

To follow up Digitimes has posted an excellent commentary on the issue of Taiwanese firms investing in China. The beginning of the commentary is quoted below.

Since Taiwan's new president took office in May this year, the government has promised to relax various restrictions on its ties and exchanges with China. Taiwan's semiconductor and flat panel industries are now eagerly awaiting changes to the investment rules that have prevented companies from setting up operations involving advanced technologies in China.

President Ma Ying-jeou has on several occasions spelled out the principles for lifting the China-bound investment restrictions. First, after the restrictions are eased, Taiwan's IT industry can remain competitive globally, and its share of global market for IC and semiconductor will not be affected. Second, the advanced technologies developed by Taiwan players and their intellectual property must be well protected in China.

Signs in the market have indicated that an announcement from the government is expected in September.

The article is well worth the read. Follow the link below.

Digitimes: Taiwan and restrictions on China-bound investments

UMC To Buy Back Shares

UMC are planning to buy back 200 million shares between now and October. This follows TSMC's plan to buy back shares and recent insider trading accusations against a UMC executive. Trading Markets writes:

United Microelectronics Corp (UMC) (2303.TW) said it bought back 25.41 mln shares, or a 0.19 pct stake, at an average price of 13.13 twd per share from Aug 28 until today.

The repurchase was part of the wafer foundry's plan to buy back 200 mln of the company's common shares from the open market in the period from Aug 28 to Oct 27.

The 200 mln shares, to be bought at prices ranging from 9.31 twd to 21.05 twd, would represent 1.51 pct stake in the world's second-largest contract chipmaker.

This is one way for the company to return money to shareholders and also another way to keep their shares competitive. Right now UMC shares (2303.TW) are trading for NTD12.85 per share and are 36.23% down on the year so far.

Trading Markets: Taiwan's UMC buys back 25.41 mln shares at avg 13.13 twd

UMC Facing More Trouble

The media are reporting that the Hsinchu and Taipei offices of United Microelectronics Corporoation (UMC), the worlds second largest contract chipmaker, have been searched by prosecutors in relation to allegations about insider trading that took place in 2006. The Taipei Times reports:

Taiwanese prosecutors yesterday raided offices at United Microelectronics Corp (UMC, 聯電), the world’s second-largest custom-chip maker, as part of a probe into insider trading.

Prosecutors are investigating transactions that took place around April to July 2006, Lo Hsueh-mei (羅雪梅), a spokeswoman for the Hsinchu District Prosecutors’ Office, said by telephone yesterday.

A public relations official at UMC confirmed to the Taipei Times that the company’s Hsinchu headquarters and its Taipei office were searched yesterday afternoon over some of the company’s re-investments.

But the official, who requested anonymity, did not clarify which re-investments prosecutors were investigating nor confirm that the raid was connected to the insider trading probe.

The business news Web site cnYes.com said last night that the probe could be related to UMC’s purchases of shares of ProMOS Technologies Inc (茂德科技), the nation’s third-largest maker of computer memory chips, in 2006. It did not cite sources.

News of the raid came on the same day the company announced it would spend as much as NT$4.21 billion (US$134 million) to buy back 1.51 percent of its shares on the open market to prop up distressed share prices.

This is just another scandal in the long history of UMC. A few years ago the then Chairman Robert Tsao was accused of (and later acquitted) of not disclosing information about investments in China a few years ago. Robert Tsao was one of the early and youngest stars of the Taiwan tech sector and the allegations led to his early resignation and the rise of Jackson Hu to Chairman (Jackson Hu recently resigned from the position. See Jackson Hu Takes a Step Back at UMC ). The International Herald Tribune wrote at the time:

United Microelectronics Corp., the second-biggest supplier of made-to-order semiconductors, has challenged Taiwan prosecutors to indict its chairman, Robert Tsao, to clear up allegations of wrongdoing relating to He Jian Technology, a company based in Suzhou, China.

"In order to eliminate disputes arising from the He Jian case, we would like to ask the Hsinchu District Prosecutor's Office to indict Chairman Robert Tsao as soon as possible" for any wrongdoing, UMC said in an open letter published Wednesday on the front page of the China Times newspaper.

A United Microelectronics spokesman, Alex Hinnawi, confirmed that the letter had come from the Hsinchu-based company. He declined to elaborate. Tsao was unavailable to comment, according to his secretary, as was a spokesman for the Hsinchu District Prosecutor's Office, Tsai Tien-yuan.

Tsao was questioned by investigators on June 9 after being fined 3 million Taiwan dollars, or $95,600, by Taiwan's Financial Supervisory Commission in April for breaching securities laws with late disclosure of information relating to He Jian.

UMC said in March that it would receive a 15 percent stake in He Jian, worth more than $110 million, in compensation for "past assistance" and for anticipated cooperation. The companyearlier had denied that it had an investment in He Jian.

Earlier this month the Chairman of Powerchip, Frank Huang, was also indicted for insider trading. The China Post wrote:

Powerchip Semiconductor Corp., Taiwan's biggest maker of computer-memory chips, fell the most yesterday in more than five years after prosecutors indicted Chairman Frank Huang for insider trading and breach of trust. Powerchip tumbled 7 percent, the daily limit, to close at NT$6.68 on the Taiwan Stock Exchange, the biggest decline since June 23, 2003. The benchmark TAIEX index lost 0.3 percent.

Huang, 58, profited from a share sale in Macronix International Co. based on insider knowledge, and breached shareholders' trust by using company funds for renovations and furniture for his residence in 2003 and 2004, the Hsinchu District Prosecutors Office said on its Web site Thursday.

Taiwan prosecutors are seeking a jail term of four years and six months and a NT$60 million fine for Huang. Powerchip denied the allegation.

Who knows what these people were thinking or why they were targeted. They are two fairly big companies and have been around for a long time. They should know better. It will be interesting to see how these two cases pan out.

Taipei Times: UMC headquarters, Taipei office raided over ‘insider trading’
International Herald Tribune: UMC lays down challenge over He Jian
China Post: Powerchip shares fall after chairman Huang indicted

MEMS Market Attracting more Players

In Taiwan Manufacturers Move into MEMS market we noted that TSMC, UMC and ASE were all moving into the micro-electro-mechnical system (MEMS) market sector. In TSMC Increases Their CAPEX we noted TSMC were upgrading their 0.35 micron processes to be able to accomodate MEMS systems.

Reuters noted yesterday that the growth of the MEMS market due to the rapid adoption of motion sensor chips in the Wii gaming devices and the Apple iPhone has provided an increased incentive for the world's chipmakers to jump into the market. Reuters notes TSMC had sat on the sidelines of this sector for sometime but has now jumped into the market, confirming the earlier reports. Reuters observes:

Chip makers are convinced of the potential for motion sensing chips in portable gadgets, thanks to the success of Nintendo's Wii game consoles and Apple's iPhones.

The market for micro-electro-mechanical systems (MEMS) devices, which detect motion using acceleration sensors, could reach $7.3 billion this year and $11 billion by 2011, Taiwan chip maker TSMC has said, quoting independent research.

However, although there is growth opportunities in this sector, the sector is still small. Reuters writes:

In dollar terms, the MEMS market is still relatively small for firms that generate billions of dollars in revenue each year. But potential growth is triple that of the meager 4 percent rise that TSMC projected for the entire $280 billion semiconductor market this year.

But with chip manufacturers facing a downturn in demand for memory and logic chips, the growing use of motion sensing devices in mass market gadgets, such as phones and music players, offers a chance to boost sales.

At its annual technology symposium in May, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's top contract chip maker, featured MEMS as among the most promising new technologies.

"TSMC sat on the sidelines for several years but now appears convinced that MEMS is ready for prime time with consumer electronics and mobile applications," iSuppli analyst Richard Dixon said.

"Following iPhone's lead, which put motion sensing to the core of the stunning display, we expect to see (MEMS) mobile phones rapidly expand as manufacturers scramble to differentiate with similar functions."

NEW DEVICES

TSMC, which has started making MEMS chips for Analog Devices , could see the business make up 10 percent of its total sales this year, with the ratio growing to 20 percent in the next 2-3 years, Taiwan's Topology Research said.

Rival United Microelectronics Corp (UMC) is also reportedly preparing to supply similar chips later this year or next, although the company declined to comment.

MEMS suppliers that traditionally made most of their revenue in the automotive sector have reached the limits of capacity, and many have chosen either to upgrade their manufacturing technology, like STMicro or Freescale, or to subcontract out production, iSuppli's Dixon said.

In an interview with Tech-ON, the head of TSMC's MEMS business Robert Chin-fu Tsai discussed TSMC's movement into the sector. Mr. Tsai said:

MEMS output is about 4,000 chips per month at both Fab2 and Fab3. Considering that the output capacity of both lines is slightly more than 100,000 chips per month, MEMS production accounts for a tiny portion at the moment. This amount will expand rapidly, however, in the second half of this year.

The number of MEMS devices to be mass-produced will increase all at once from late 2008 to early 2009. Among the multiple MEMS projects we are currently conducting, three will enter the volume production phase within 2008 and one in early 2009. In accordance with this schedule, the ratio of MEMS production is likely to increase at Fab2 and Fab3 first.

This is another new sector for Taiwanese companies and once again they are leveraging their pure-play foundry strengths to establish a dominant position.

Reuters: Chip makers get moving with motion sensing chips
Tech ON: TSMC Discusses MEMS Foundry Biz

More Foundry News

Tech-On has an insightful article on the development of TSMC's 300 mm (12-inch) fabs in Hsinchu, Taiwan. Tech-On writes:

Taiwan Semiconductor Manufacturing Co Ltd (TSMC) explained the current condition of its 300mm plants as well as its business results for the second quarter of 2008 at a press conference in Tokyo August 1, 2008.

Fab 12 and Fab 14 in Hsinchu are the company's main 300mm plants. The production capacities of the plants are being enhanced to make them "Giga Fabs" with a capacity of more than 100,000 300mm wafers per month. To meet strong demand for the advanced processes of the 65nm generation and beyond, the company has been making capital investments ahead of schedule.

Tech-On further notes the convergence of the foundries with the fabless design houses suggesting that as technology advances, the foundry is becoming more involved in the design of the actual chips. Tech-On writes:

TSMC operates a silicon foundry business with enormous production capacity, but its relationships with users, fabless companies, are changing recently. Until recently, there was a distinction between the roles and users were responsible for designs, while TSMC was responsible for process development and manufacturing.

However, since several years ago, the boundary between their roles has not been as clear as it used to be. I many cases, TSMC works closely with a user from the initial stages of process development and collaborates with a user till the last stage of production, not to mention the designing process.

Following on from our story Fabs to Stay in Taiwan , Digitimes notes that while senior executives at both TSMC and UMC have welcomed the relaxation of laws regarding foundry investments in China, both companies are indifferent to investments in China. Digitimes notes:

When semiconductor demand takes off in the local China market, that will be a judging factor for making the move, said Rick Tsai, CEO of TSMC. While saying that TSMC welcomes an open policy, Tsai added that investing in 12-inch wafer fabrication in China would require taking economic and administrative issues into account.

Morris Chang, chairman of TSMC, indicated that TSMC will focus on expanding its 12-inch wafer capacity at its Hsinchu, Taiwan base. Tsai noted that TSMC is consistently growing its capacity at its Shanghai 8-inch fab (Fab 10). He highlighted that customer base at Fab 10 is broad and he believes that Fab 10 will be a direct beneficiary of a booming semiconductor industry in China. But both of the executives said there seems no urgency to invest in 12-inch wafer fabrication in China.

Shih-Wei Sun, CEO of UMC, said the company has no special comments about potential 12-inch wafer fab investment in China. Company CFO Chi-Tung Liu added that UMC has no plans yet to construct a 12-inch fab in China, as the company will focus on expansion at Fab 12B in the near term. Monthly capacity at Fab 12B could reach 50,000 wafers in the future, he added. UMC has taken three years to ramp capacity at Fab 12A to a 30,000 wafer level.

Digitimes also notes IC Insights has shown TSMC had the largest growth of the top 20 semiconductor companies. Digitimes says:

Recent research from IC Insights uncovered a big shakeup in its global top 20 semiconductor supplier rankings, with many of the major DRAM and flash suppliers (e.g., Qimonda, Elpida, Spansion, Powerchip, Nanya, etc.) no longer part of the top 20 ranking. Although the top four ranked companies remained the same from last year in the rankings – Intel, Samsung, Texas Instruments, Toshiba – it was fifth ranked Taiwan Semiconductor Manufacturing Company (TSMC) that showed the strongest growth among the top 20, with its sales up 35% on year.

Tech-On: TSMC Discloses Under-construction 300mm 'Giga Fabs'
Digitimes: Relaxed restrictions welcomed in Taiwan, but indifference remains about actually building 12-inch wafer fabs in China
Digitimes: TSMC leads growth among top 20 semiconductor suppliers in 1H 2008, says IC Insights
IC Insights: Shakeups Rock 1H08 Top 20 Semiconductor Supplier Ranking

Fabs to Stay in Taiwan

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

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

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

Jackson Hu Takes a Step Back at UMC

Jackson Hu has resigned from his position as chairman and CEO at UMC and will now only take part as a senior advisor. According to Digitimes:

United Microelectronics Corporation (UMC) has announced the election of Stan Hung to the position as company chairman and Shih-Wei Sun to the position of CEO in a board meeting held today (July 16). The election was held after chairman and CEO Jackson Hu announced his decision to resign from active leadership of the company to pursue a role as a senior advisor to UMC.

Hu commented that he felt he has accomplished many of his objectives and that the timing is right for a younger and more energetic management team to take over. Incoming chairman Hung said UMC remains committed to serving customers while enhancing the strength of its financial structure and controlling costs, shareholders and employees. Sun added that his top priority as CEO will be to ensure that UMC delivers solutions that target customer success as they face the ongoing economic uncertainty.

Jackson Hu has had quite an impressive 30-year career in the semiconductor industry. According to the UMC profile page:

Dr. Jackson Hu is the Chairman and Chief Executive Officer of UMC. A 30-year veteran of the industry, Dr. Hu possesses extensive experience in the IC design industry in the fields of MPU, Graphics, and wireless communications.

Before joining UMC, Dr. Hu served as President and CEO of SiRF Technology, a fabless communications IC and IP company focused on GPS-based location technology which went public in April 2004. Dr. Hu also helped found IC Ensemble and Verticom, which were acquired by Via Technology and Western Digital in 2000 and 1988, respectively.

Before joining SiRF, Dr. Hu worked at S3, the leading fabless PC graphic chipset and software provider, as senior vice president and general manager. While at S3, Hu helped grow the company into the market leader.

Dr. Hu earned his bachelor's degree in electrical engineering from National Taiwan University and his master's and doctorate degrees in computer science from the University of Illinois, Urbana. He later earned an MBA from Santa Clara University.

Dr. Hu rose to the positions he is now stepping back from after the founder and former chairman of UMC Robert Tsao was accused of illegally investing in China. PC World provides some background:

Jackson Hu took over as chairman of UMC in early 2006 after his boss stepped down in a spat with the Taiwan government. Robert Tsao [CQ], founder and former chairman of UMC, left his job amid allegations of illegally investing in China. Last year, he and another UMC executive were exonerated when a Taiwan court ruled there was not enough evidence to convict them in the case.

UMC has been going through some tough times lately. Their share price is at a near all time low! Their business structures are probably still OK and they are inevitably victims of a global slowdown. Anyway, I am sure Dr. Hu will continue to contribute to UMC and Taiwan's semiconductor industry in a significant way. These business leaders never do step back all the way, its not in their blood!

Digitimes: UMC announces restructuring of executive team

PC World: Chairman of Chip Maker UMC Resigns

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

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

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

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

UMC to Manufacture iPhone Chips

According China Economic News (CENS), UMC has received orders from Infineon to manufacture second generation chips for the Apple iPhone. According to CENS:

Infineon Technologies will contract United Microelectronics Corp. (UMC) to make the 65nm base-band chips it designs for 3G version of Apple iPhone, ending Taiwan Semiconductor Manufacturing Co.`s (TSMC`s) monopoly in foundry manufacturing of iPhone chips.

The German chipmaker has placed foundry orders for frequency chips used in first-generation iPhones with TSMC, which uses 90nm process to make the chips. Insiders pointed out Infineon decides to farm out the production contract to UMC, the No.2 pure silicon foundry, out of cost concern. They estimated Infinenon will maintain production of the 90nm analog frequency chips at the No.1 foundry player.

Taiwanese industry watchers pointed out that the latest contract represents 65nm market is growing mature and competition in market of leading-edge processes will become more intensive. In the meantime, Infineon will entrust chip assembler Siliconware Precision Industry Co., Ltd. to package and test its chips.

(Article: UMC Breaks TSMC Monopoly in iPhone Chip Foundry)