Off Topic: Cheerleading again a must read...
FEATURE-Bullish Taiwan defies microchip naysayers
November 8, 1997 09:24 PM
By Lawrence Chung
TAIPEI, Nov 9 (Reuters) - Taiwan's microchip makers have shaken up the industry by announcing plans to invest over US$80 billion to build more than 30 advanced wafer fabrication plants in the next ten years.
But is all that investment just money down the drain or the bedrock of a world-beating and lucrative high-tech future?
Latest statistics compiled by the U.S.-based Semiconductor Equipment and Materials International showed that the industry's investment ratio is far larger on Taiwan than in the United States, Japan and South Korea in the first half of 1997.
For every US$100 in earnings, Taiwan plans to spend $110 in investment, compared to $60 in South Korea and just $22 in Japan and $21 in the United States, the data show.
Worldwide spending for wafer fabrication equipment during the first half of 1997 totalled US$9.6 billion, of which Taiwan accounted for 14 percent, the same survey showed.
TAIWAN BUCKS TREND OF SLOWING INVESTMENT
Analysts caution that just when the world is slowing wafer fabrication investment due to declining profits, it could be risky for Taiwan to pour even more money into the business.
Due to a global glut, integrated-circuit production value in Taiwan fell 13.6 percent to US$2.133 billion in 1996 from $2.47 billion in 1995, according to the Industrial Technology Research Institute.
Taiwan powerhouses like United Microelectronics , TI-Acer and Mosel have suffered from cascading global prices for dynamic random-access memory chips, which have become a digital commodity, industry experts said.
TI-Acer has said it soon will stop six-inch DRAM production. Mosel, too, plans to halt standard DRAM production.
Even Taiwan Semiconductor Corp , the world's top made-to-order "foundry" chipmaker, is taking fewer DRAM orders.
MANY MAKERS CAUGHT IN DRAM PRICE CRUNCH
Experts said almost 80 percent of makers of 16-megabit DRAM chips have lost money as chips have plummeted in price.
"The whole world is slowing down investment in the chip business," said Dennis Wang, operation department vice president of TI-Acer, Taiwan's largest DRAM maker. "Taiwan is still very aggressive in pumping its money into the industry."
The company, a joint venture of Acer Inc and Texas Instruments Inc TXN , suffered a loss of T$667 million in the first half of 1997, compared with T$1.1 billion in 1996.
A spectacular tumble in Taiwan's technology share prices has increased concerns that Taiwan's chipmakers were out on a limb. The technology sector has crashed more than 50 percent since leading the Taiwan market to a seven-year high in late August.
Taiwan Semiconductor, the island's leading blue chip, was down almost 32 percent at T$118.0 on Saturday.
Arch rival United Micro has fared even worse, seeing its shares slump 55 percent since late August to close at T$65 Saturday.
TECH-SHARE WOES NO MEASURE OF CHIPMAKERS' HEALTH
Company and stock analysts said the tech-share correction would only have a short-term impact on the industry.
"Basically, the connection between the stock market and the chip industry is not that close. A semiconductor firm's share price will not affect its sales at home or abroad," said Ben Lee, senior researcher of Nomura Securities.
Lee recalled that the tech index had plummeted when China staged intimidating war games against Taiwan in March 1996, but that high-tech companies still reported handsome 1996 earnings and went ahead with plans for large investments.
Undaunted, TI-Acer plans a state-of-the-art plant for Taiwan by 2000 -- a US$3.4 billion fabrication plant to make eight-inch wafers.
"Overall prospects should be good as the industry is growing at a rate of between 10 percent and 15 percent annually," Wang said, noting that prices for chips other than DRAM remain good. "There are many areas for investment, including foundry, logic and graphics."
SEMICONDUCTORS STILL SEEN AS TAIWAN'S FUTURE BEDROCK
Industrial Technology Research Institute president Chintay Shih called the industry outlook bright, saying the global chip industry should grow 800 percent over the next decade with US$66 billion in new profits by 2005.
Taiwan's 2.9 percent slice of world market share is seen swelling to eight percent in 2005, Shih said. Semiconductors already account for 18.4 percent of local Taiwan industry.
Foundry chipmaking is leading Taiwan's development.
"Taiwan's foundry market is the largest in the world. It has been growing at a rate of 25 percent annually," said Alan Jung, a regional director of the U.S.-based Semiconductor Equipment and Materials International.
Jung said Taiwan had been hit by the 1996 DRAM price war but was protecting itself through alliances with Japanese firms to make advanced, high-margin chips.
"A lot of the power chips, for example, are produced through joint ventures with Japan," Jung said. "Mitsubishi is buying most of those chips," he said.
DEMAND FOR SEMICONDUCTORS GROWING STEADILY
What's more, Jung said, Taiwan remains the largest global producer of motherboards and notebook computers, and local chipmakers are able to meet less than 50 percent of demand -- meaning plenty of room to grow without erosion of margins.
Tseng Pang-chu, vice president of Powerchip Co, a microchip producer under Umax group , said integrated circuits would find an ever wider range of applications.
Tseng said that in 1990, the production value of integrated circuits accounted for only 11 percent of overall electronic production value and estimated the ratio would rise to 24 percent in 2000 -- indicating a bullish outlook of the industry but only if Taiwan stays at the technological cutting edge.
"Taiwan must step up research and development efforts and upgrade its technology to stay competitive," he said. ($1 = T$30.9) |
