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To: DJBEINO who wrote (9038)	12/19/2000 1:31:14 AM
From: DJBEINO	Respond to of 9582

UMC and TSMC to benefit from expansion FUTURE PLANNING: Constructing new plants in a market downturn to take advantage of lower costs makes good strategic sense, according to market analysts By Thomas Ker CONTRIBUTING REPORTER The recent decisions by the world's two largest makers of made-to-order chips to invest in current or future wafer foundry plants come at a time when other semiconductor companies are cutting back or delaying investment plans as a result of lower than expected demand and concerns about the impact of a slowing US economy. Still, analysts applauded the investment plans by Taiwan Semiconductor Manufacturing Co (¥x¿n¹q) and United Microelectronics Corp (Áp¹q) as good long-term strategies to diversify areas of production and to be prepared for the next upturn in the semiconductor market. The announcement Friday by UMC to build a 12-inch wafer foundry in Singapore came a day after TSMC, its larger rival, said it would increase its ownership in US-based WaferTech LLC to 100 percent. WaferTech is an 8-inch wafer fabrication plant. Intel Corp, the world's largest chipmaker, preceded TSMC's announcement with a decision on Wednesday that it would delay the opening of a US$2 billion wafer plant in Ireland by one year. In Taiwan, memory chip maker Winbond Electronics Corp (µØ¨¹¹q¤l) announced last month that it would build one rather than the originally planned two 12-inch foundries next year because of technical and structural concerns. Local media had speculated the decision was because of concerns about the outlook for the memory chip industry. Meanwhile, Microsoft Corp Thursday joined the slew of other computer-related companies that have issued revenue or profit warnings for the fourth quarter or next year because of slowing PC sales and a weakening US economy. Still, the move by UMC in particular to start construction of a new plant now makes good strategic sense, analysts said, and will not result in any increase in the company's capacity in the short-term. "They will begin operations in 2003, so this project has no immediate impact on the company's operations this year or in 2002," said Alfred Ying, an analyst at BNP Paribas Peregrine Securities in Hong Kong. At the same time, "To enter into the market when the industry's not good will be cheaper compared with when the market's in its optimum period," he said. Ying said the strategy was similar to UMC's acquisition of a majority stake in Nippon Foundry Inc from Nippon Steel Corporation in September 1998. "They bought in a downturn period and they've got a very good return," he said. The foothold in Japan, and now the move into Singapore, also reflect UMC's strategy to diversify production beyond Taiwan. "Following the success of NFI, our joint venture foundry in Japan, the establishment of this company [in Singapore] will further diversify our manufacturing operations, enhancing our ability to serve our rapidly growing customer base," said John Hsuan («Å©ú´¼), chairman of UMC, in an announcement Friday. "Looking at the long term, they want to be close to their market customers," said Alex Chiang, an analyst at First Taiwan Securities (µ×^ÃÒ¨é). "TSMC and UMC haven't gone into China because China's market isn't big enough. The market is the US or Asia," he said. UMC's decision to build the 12-inch plant in Singapore in partnership with Germany-based Infineon Technologies AG also represents a good way to reduce risks at a time when the short-term future for semiconductor products is unclear. "For UMC, the operational risk has fallen a lot because it can obtain orders from Infineon once production begins," said Thomas Chen, senior analyst at Polaris Securities Co (Ä_¨ÓÃÒ¨é). Further, the partnership with Infineon has reduced UMC's capital requirement for the project, said Chen. As for TSMC, the increase in its stake in WaferTech is part of its plan to create a global presence close to its customers, analysts said. The acquisition will also have little effect on TSMC's current capacity, they said. "They want to get whole control of the fab to increase its efficiency in a very short period of time," said Alfred Ying. Lowering costs and improving yield rates is very important when the market is slowing down, he said. The yield rate is the percentage of chips that work out of one wafer. Other analysts had their doubts. With a stake of over 50 percent before the latest stock purchase, TSMC was already able to control policy at WaferTech, said Chen. "Is the stock purchase really because it plans to increase efficiency? I don't know," said Chen. "The benefits are not so clear." taipeitimes.com