Food for Thought (1)
TSMC: Silicon Central: Its chip business booms as more companies outsource
Business Week
June 21, 1999
For years, Motorola Inc. has insisted on making the majority of the microchips that go into its products. It was the only way it could control the quality and design. But in February, the company reversed course, saying that 50% of its chips will be made by outside contractors by 2002, up from about 16% now.
What's going on? With the cost of a new semiconductor plant now at $1.5 billion and rising, it's cheaper, faster, and more efficient to farm out production to specialists. The payoff goes beyond cost savings: At Motorola, outsourcing will free up resources for product design and marketing, says Steve Goodyear, director of the company's Asian semiconductor unit.
The beneficiaries of this shift are so-called chip foundries that spin silicon for companies like Motorola. Such shops already account for 5% to 10% of global semiconductor production They could hit 35% by 2010, says Dataquest Inc. The leader in the field, Taiwan Semiconductor Manufacturing Co. (TSMC), is now going a step further: changing from pure manufacturer to provider of semiconductor design services. The plan could accelerate TSMC's growth, which helped place it at No. 93 on the Info Tech ranking. More crucially, it could reshape the chip industry.
That would be a familiar role for Morris Chang, TSMC's founder and chairman. A 25-year veteran of Texas Instruments Inc., Chang started TSMC 12 years ago and single-handedly pioneered a new industry model. By eliminating the need for chipmakers to build their own fabrication plants, Chang paved the way for an explosion of ''fabless'' chip startups that design everything from graphics chips to computer memory. Many of these companies use TSMC as a virtual factory--helping drive 1998 profits to $468 million on revenues of $1.5 billion.
Now, Chang wants them to have TSMC turn their dreams into designs. He's not just offering to develop ordinary chips, though. Chang wants to help customers design fiendishly complex ''systems on a chip,'' which cram the jobs of many chips onto a single sliver of silicon. Such combos save space, power, and cost. TSMC's ace card is its access to circuit designs from many sources: Chang is creating libraries of chip design building blocks that can be quickly glued together and produced on TSMC's state-of-the-art production lines.
Customers will pay handsomely for such service. One believer is Sunplus Technology, a TSMC customer that designs the chips used in the Furby talking doll. When Sunplus goes back to the drawing board to cook up the next generation of Furby chips, it could save weeks, even months, by using TSMC's library. That would let engineers work on other projects--and help get the doll to stores sooner. It's no wonder TSMC is rocketing to the top of the semiconductor charts.
By Jonathan Moore in Taipei |
