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Technology Stocks : Atmel - the trend is about to change
ATML 8.1400.0%Apr 12 5:00 PM EST
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To: tech101 who wrote (13398)5/13/2004 1:52:10 AM
From: tech101   of 13565
 
Commentary: Is TSMC Playing 'Foundry' Too Roughly?

-- When Manufacturing Capacity Utilization Is Running at 105%

By Peter Clarke
Silicon Strategies
05/12/2004, 2:19 PM ET

LONDON -- As parents will know there's a thin line between robust play and bullying.

And now the world's leading foundry Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) is pushing the line.

The idea that in constrained times manufacturing capacity should be provided preferentially to 'top tier' customers, would perhaps be OK, but a TSMC executive is reported to have gone a step further and said that companies that make the commitment to let TSMC be a sole source are in that top tier.

And that cuts across one of the first tenets of foundry manufacture, that designs should be portable and that foundries are there to provide an outsourcing capability -- a multiple sourced one if desired -- and in the case of some IDM customers to provide an explicit second source.

Of course as leading-edge manufacturing has become more complex the idea that you would go through the pain of bringing a design up at a second foundry may become moot. Some customers, such as small start-ups, are already constrained by their own economics to choosing a single foundry which becomes a 'bet-the-company' decision.

But perhaps TSMC is trying to protect itself from major fabless companies that want to instigate a race to yield at two different foundries and whose decisions to switch volumes can have a big impact on foundry throughput.

Whatever the reasoning, the prediction is that there will be 'tears before bedtime' even though this sort of thing has been tried before. It was during the mid-1990 boom that leading foundry customers were asked to cough up some serious money to reserve manufacturing capacity at foundries and effectively pay for their own fab in joint-venture mode, even when they wanted to remain fabless chip companies.

And with manufacturing capacity utilization running at 105 percent what does TSMC want? Taking on sole supplier status can't help it make any more wafers, although it may help it to drive wafer average selling prices (ASPs) upwards.

So in addition TSMC is presumably trying to make utilization dip at rivals such as United Micrpoelectronics Corp. and Chartered Semiconductor Manufacturing Ltd.

Is it illegal? Probably not, but it does fall in a rather unsavoury grey area inhabited by 'tied selling'. And TSMC should consider that if the current undersupply situation is being used to force the issue of sole supplier status through against the wishes of its customers, it may yet find that fabless chip company executives have memories that are longer than an economic half-cycle.

In short the situation can be conjugated thus: my child is boisterous, your child is rough, their child is a bully.

siliconstrategies.com
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