Editor's Page

Taiwan opens the door

TAIPEI, TAIWAN--In less than 20 years of existence, the Taiwanese semiconductor industry has emerged as a global powerhouse. It has come a long way from the creation of United Microelectronics Corp. in 1979, the first of three chip companies spun off from the government's Electronics Research & Service Organization (ERSO). Taiwan trails only the United States and Japan in capital equipment and materials expenditures this year; in fact, Taiwanese companies' capital spending in 1996 exceeded their total IC sales for that year, according to ICE.

Projected investment figures for the next decade are staggering. Numbers stated at the Semicon Taiwan 97 press conference ranged from $67 billion, cited by Chintay Shih, president of the Industrial Technology Research Institute (ITRI) and chairman of the Taiwan Semiconductor Industry Association (TSIA), to as high as $175 billion, an amount noted by David Wang, senior vp of Applied Materials. Most of this money will be invested in the new Tainan Science-Based Industrial Park, successor to Hsinchu Science-Based Industrial Park, home to most of the country's fabs. Although the Tainan site holds little more than sugarcane fields at this point, ERSO/ITRI believes that as many as two-dozen 300-mm fabs will be built there. Given the high-tech sector's torrid pace of development over the last 10 years and the Taipei government's commitment to fund R&D, develop infrastructure, and offer economic incentives so such growth can continue, there is little reason to doubt such an optimistic scenario.

Industry watchers accustomed to the close-to-the-vest corporate and product announcements of fully integrated companies like Intel and AMD are skeptical of these kinds of numbers. But 45% of Taiwan's chip business is foundry -- processing wafers for customers -- which fosters a different approach to publicizing future plans.

"Because Taiwan is doing so much in foundry -- we're number one at this point -- they need to let the customers know the capacity will be there," explains Genda Hu, vp and general director of ERSO/ITRI and president of TSIA. Because of the scale of investment, "they also need to let people know so that when they try to raise money... a lot of the funders will come to them instead of the companies going after the funds." And competition among Taiwanese companies is intense. "Once a foundry company announces its plans, other companies -- even if they're not in foundry -- have to announce whatever they are planning. Because if they don't, it may affect the market value of their company since some people might say, 'These companies are growing and you're not.'"

Taiwan's future is not without challenges to increased prosperity. There aren't enough trained personnel on the island. The equipment and materials infrastructure must grow, both through the creation and expansion of locally based companies and the development of local divisions of multinational players. If the Taipei government becomes pro-independence or the regime in mainland China turns bellicose, the threat of war could turn off high-tech investment spigots with a clank. But the larger the Taiwanese microelectronics industries grow, the less likely the Beijing government would be to decimate what could be, with eventual reunification of the two Chinas, a prize as big or bigger than Hong Kong.

Tom Cheyney

Editor

tom.cheyney@cancom.com

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