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Asia's chip industry reaches a new trajectory

Posted: 01 Jan 2004 ?? ?Print Version ?Bookmark and Share

Keywords:fab? computer? communications? pc? cellphone?

The year 2003 ended on a high note for the Asian semiconductor industry despite a slow start caused by the SARS epidemic. Demand for chips picked up in the second half and a strong growth is expected this year, driven largely by demand from the computer, communications and consumer electronics sectors. Mainland China is expected to once again dominate the scene this year as more domestic consumers gobble up new gadgets.

Growth rates in China's computers, communications and consumer electronics sectors reached 53 percent, 27 percent and 18 percent respectively in 2003. This trend is expected to continue this year, which will boost China's IC industry. Notebooks, monitors and storage products took three spots in China's top 5 product categories in terms of export sales in 2003. The other two categories were mobile phones and semiconductors.

Demand for ICs in China is expected to grow at a rate of 20.3 percent from 2004 to 2005. Chips used in 3G phones will account for 80 percent of the total demand as handset makers shift from 2.5G to accommodate more multimedia functions for the demanding customers.

A plethora of DVD players, digital still cameras, DTVs and stereo products will drive growth in China's consumer electronics industry. Growth in the communications segment is expected to be driven by demand for cellphones, base stations, fixed and wireless phones, switches, as well as wired and wireless access products. The hot spots for the computer segment will continue to be notebooks, desktops and portable storage devices.

China's plans for its own 3G and video compression standards are expected to drive further expansion. Automotive electronics is also expected to contribute as car prices in the local market continue to drop. China's huge consumer base is bringing in a lot of companies wanting to grab a share of the market. "China remains the world's top cellphone market, and more than one-third of the world's handsets will be made in China this year," said Gloria Shiu, senior communications and public affairs manager for Motorola's Semiconductor Products Sector in the Asia-Pacific.

Chips manufactured locally are used mainly in consumer electronics like TVs, stereos and remote controls. These account for 60 percent of the overall demand, while communication chips, such as telephone ICs and SPC switches, will account for 25 percent. Storage ICs are expected to take 6 percent of the market.

Memory mainstay in Korea

The year 2003 was also a big one for Korea's semiconductor industry led by Samsung Electronics Co. Ltd, which posted revenues of around $9.5 billion. A major shakeup in the flash business in Q3 pushed Samsung to the top of the global flash memory business. Toshiba came in second, while Intel, which has led the market for years, slipped to fourth place. Hynix Semiconductor Inc. also closed the year in the black posting a net income of $113 million in Q3 alone.

Despite gains made by other companies in 90nm products and MRAMs, this is not expected to dent DRAM profitability this year. Dataquest reports that the worldwide DRAM market will grow by 49 percent this year, double that of last year. "DRAM technology is not that easy to catch up within such a short time. Considering the time required for equipping facilities and setting up relations with technology partners, the advances from competing products and technologies will not seriously affect Samsung's profitability this year," said Kim Chang-Soo, senior analyst for Dataquest.

Hynix's hiccup caused by the tax issue last year was a major setback for the memory maker. The U.S. International Trade Commission upheld a ruling by the U.S. Department of Commerce based on a complaint filed by Micron Technology Inc. and Infineon Technology's U.S. DRAM business. Still, Hynix recovered and posted sales of around $838 million in its third fiscal quarter last year.

Samsung is increasing its investments to $4.4 billion, up from $3.44 billion last year, in anticipation of what it predicts as a real economic recovery. Samsung currently uses 130nm process for its products, however, 90nm process is not taking a back seat in the company's road map for 2004. What's worrying some quarters is Hynix's investment plans - or the lack of them. Where will the company be once competitors roll out products on advanced processes?

Currently Hynix has 0.11?m process geometry as the finest and has a plan to expand below 0.13?m production next year, while Samsung is planning to roll out 70nm product this year.

While DRAM exports are drifting along with Korea's economic situation, imports of non-memory products, such as CMOS image sensors, are increasing sharply. Some industry experts have pointed out that the country needs to change its industrial architecture centered on DRAM. iSuppli predicts worldwide CMOS image sensor revenues to hit $1.67 billion next year.

According to Kim Chang-Soo, increasing demand for digital consumer products and camera phones will drive revenues for these sensors. Other non-memory products showing strong gains in Korea are micro-components, optical semiconductors and analog chips. DRAM is expected to continue to dominate Korea's chip industry, but it might be more prudent for the big players to take a serious look at other product segments as well.

Show me the wafer

Over the past years, fabs in Taiwan have made a significant progress in the 130nm process. Both TSMC and UMC are gradually ramping up their production using 130nm. By Q4 of last year, the production ratio at 130nm reached 19 percent, compared to 8 percent in the same period in 2002.

Morris Chang, president of TSMC, said "We'll gradually transfer our main production capacity to 12-inch fabs this year." Last October, production capacity at TSMC's 12-inch fab reached 10,000 units, and its second 12-inch fab is expected to turn into mass production this year. The company is currently using 130nm process in its 300mm fabs.

UMC's 130nm production in last year's Q3 accounted for only 9 percent of its total production. However, the company has more expectations for 130nm process this year. "There are many IC design companies who are making design wins with UMC at 130nm process. I estimate that the overall gain will be fairly stronger in Q1 of 2004," said UMC CEO Jackson Hu.

The company hopes to improve on its 130nm process and is confident of delivering more wafers on this process. "We're still in the preliminary stage of mass production using 130nm," said Peter Chan, vice president of UMC. "By the end of 2004, the ratio of 130nm process in UMCs production will reach more than 30 percent of the company's total production capacity.

TSMC and UMC hope to improve the production capacity and yield rate of their 130nm process. However, both fabs are relatively conservative on the 90nm process. "90nm is way too high, not only is the design very complicated, the demand is also rather low," said Chang.

Both foundries are, however, working with partners on 90nm products to be rolled out this year. Altera Corp. outlined its plans for its next-generation FPGAs and has partnered with TSMC to manufacture its new FPGA families on TSMC's 90nm process. These new products are being aimed at system designers who are now pushing programmable logic as their de facto platform for digital design. Altera's Stratix II device family, which will debut in the first half of this year, will be the company's first 90nm FPGA line that will increase device densities to more than 140,000 logic elements. The Cyclone II device family is also scheduled to debut this year using TSMC's 90nm process.

Rival Xilinx Inc. is not letting itself get caught off guard. The company is also developing a 90nm product line with UMC as its foundry partner. UMC has already started using 130nm process technology for mass production of Xilinx's Virtex II Pro XC2VP100 FPGA in last year's Q3. UMC is working with other partners as well on 90nm process.

TSMC and UMC have made significant investments in advancing 90nm or even 60nm. However, both companies expect 130nm process to continue playing a dominant role in 2004.

- Dave Ledesma

Electronic Engineering Times - Asia

* Park Dong-Wook in Seoul, Joy Teng in Taipei and Yorbe Zhang in Shenzhen contributed for this story.

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