Zeev --
Today's IBD has a revealing article on Taiwan chip makers:
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How much Taiwan's chipmakers are spending on new factories and manufacturing gear is being closely watched by an industry mired in a lingering slump.
Estimates of Taiwan's capital spending for chip-making gear this year range wildly - from a 27% gain to a 16% decline from last year.
But if Taiwanese firms expand too quickly, they could worsen the industry's glut in manufacturing capacity that began in '96.
Since the mid-'90s, Taiwan has emerged as a center of contract chip manufacturing. Customers range from small start-ups to chip kingpin Intel Corp.
Despite the chip glut, Taiwan's foundries will step up expansion to gain an edge on recession-wracked rivals in South Korea and Japan, some industry analysts say.
''Clearly the Taiwanese have recognized with the Asian financial crisis that there's a significant opportunity for them,'' said G. Dan Hutcheson, president of market researcher VLSI Research Inc. in San Jose, Calif.
VLSI projects that Taiwan's spending on chip gear will rise 27% from last year, to $6.5 billion. ''The next time there's a memory chip shortage, the Taiwanese and (Germany's) Siemens AG are going to walk away with the market,'' Hutcheson said.
Other analysts see more cautious expansion by the Taiwanese. ''They're continuing to invest, but I think (they're buying) on an as-needed basis,'' said Carl Johnson, president of market researcher Infrastructure Inc. in Irving, Texas.
Most analysts expect the Taiwanese will spend only 5% to 10% more this year on expanding their manufacturing capacity.
Even at that, Taiwan's chipmakers would be expanding at a time when rivals in Japan and Korea are cutting back sharply because of their financial problems.
''Long range, the Taiwanese think they can survive longer than some of the more financially strapped companies, because they've taken strides not to overleverage themselves,'' Johnson said.
Korea's suppliers of memory chips are a case in point.
Samsung Co., Hyundai Corp. and L.G. Electronics Inc. invested heavily in the early '90s to gain market share. And they reaped profits during the chip industry boom in '94 and '95.
The tables turned as memory chip prices plummeted 80% in '96 and 60% in '97.
Now Korea's cash-strapped chipmakers are struggling to keep pace in chip manufacturing, a fast-moving field that requires near constant upgrades.
Taiwanese firms will be more cautious in their spending because they've learned from Korea's mistakes, say some analysts.
Since '96, Taiwanese firms have been trying to one-up each other by announcing new factories. Many of those plans were tied to construction of a second large industrial park in southern Taiwan, which is under way.
In April, a group of Taiwan's leading chipmakers and the government disclosed aggressive plans to add manufacturing capacity. They said they could spend nearly $80 billion on chip factories over the next 13 years.
Some analysts took that with a grain of salt.
''These types of announcements are gratuitous, cost the companies nothing, score them points with investors and government, and maybe scare the Koreans,'' said Lucas Ward, a Hong Kong-based analyst with Goldman, Sachs & Co.
On the other hand, there's no doubt that Taiwan's chipmakers are playing a bigger role within the industry. They've been aided by average production costs that are generally lower than that of chipmakers in the U.S. or Japan.
Taiwan's costs are lower because the government pays for much of the research, workers are paid less and the companies enjoy favorable tax structures.
By focusing on the foundry business, the country may have made a smart move. ''It's the best opportunity in semiconductors for the next five years at least,'' Ward said.
Chip foundry sales are expected to rise to $15.5 billion in '01 from $6.5 billion in '96, says market researcher Dataquest Inc. in San Jose.
The biggest foundries are Taiwan Semiconductor Manufacturing Corp. and United Microelectronics Corp. TSMC's sales rose 11.5% in '97 to $1.5 billion.
Taiwan's foundries, which account for about 5% of worldwide production, could be well positioned if chip sales rebound in '99. One reason is that many other semiconductor firms have canceled new plants or postponed equipment orders.
''The foundry business is going to grow faster than the total semiconductor business,'' said Morris Chang, TSMC's chief executive. ''So, I think the Taiwan semiconductor industry will do well during an industry upturn.''
TSMC says it's boosting its manufacturing capacity by 40% this year.
Several big Japanese chipmakers, though, are taking a different tack. They've formed joint ventures with several Taiwanese chip firms. The Taiwanese firms produce memory chips for the Japanese in exchange for key production technology.
Texas Instruments Inc. pursued a similar business model in the early '90s. It formed a memory chip joint venture with Taiwan's Acer Inc.
But in March, Acer bought out TI's stake in the joint venture as losses mounted because of falling memory chip prices.
Many Taiwanese firms new to the memory chip market, such as Powerchip Semiconductor Corp., are also struggling. As a result, they're trying to enter the more profitable foundry business.
In April and May, signs pointed to excess capacity in Taiwan's foundry business.
''The foundry guys could wind up in the same boat as the memory chip guys,'' warned Infrastructure's Johnson.
Transmitted: 06/02/98 20:42 (p0admb00)>>>
Not sure how this plays out for CYMI, but welcome comments.
Pat |
