Global Sources
EE Times-Asia
Stay in touch with EE Times Asia
?
EE Times-Asia > Manufacturing/Packaging
?
?
Manufacturing/Packaging??

China question dogs Taiwan's IC industry

Posted: 01 Mar 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Mike Clendenin? Robert Tsao? foundry? United Microelectronics? UMC?

Robert Tsao's sudden resignation as chairman of foundry giant United Microelectronics Corp. (UMC) is quickly taking on larger implications for the technology industry than whether one company and its executives have flouted the law. In many executive suites, the central debate is Taiwan's competitiveness and whether regulations with roots in a civil war that ended 50 years ago are eroding the lead that companies here have established.

Tsao and vice chairman John Hsuan left their posts just hours before prosecutors in Taiwan released indictments accusing them of illegally investing in Chinese foundry Hejian Technology Corp., which runs 8-inch wafer fabs in Suzhou, a city west of Shanghai. Rules in Taiwan require government approval for such investments and UMC did not have it. The process is intended to serve as a check on the flow of capital and advanced technology to China, which Taiwan views as a potential military enemy.

"The government thinks that if we transfer too much technology or capital to China, then we will come to depend on China," said B.P. Lin, a professor at National Tsinghua University and an observer of IT relationships in China and Taiwan. "With this policy, they think they can delay the development of the Chinese semiconductor industry."

That endgame is nothing new. Other countries still monitor the sale of advanced semiconductor equipment to China because of its potential "dual-use" status, which could see it put to work making chips for military and civilian applications. In the United States, the tipping point for a review is gear capable of sub-0.25?m manufacturing. But such policies are growing more flexible, especially as countries in Europe become more liberal with their rules governing the sale of dual-use technologies. Yet after a period of relative liberalization, Taiwan is moving once again in a more conservative direction, which is sure to slow the expansion of its chipmakers in China.

Like other business leaders, Tsao long ago understood the strategic importance of China, which recently became the top regional chip market with $40.8 billion in consumption. By 2010, market research firm IC Insights Inc. believes consumption will top $124 billion, but that China will be able to domestically manufacture only about 10 percent of its demand.

That spelled opportunity for Tsao and UMC. So in 2001, when a group of UMC engineers decided to start a foundry in China, he lent them a handand by doing so, began to test the gray areas of Taiwan law. In January 2002, UMC sold off enough 200mm lines to produce 35,000 wafers per month. Speculation was rampant as to whether that equipment wound up in China and whether UMC would opt for an equity stake in a company building a Chinese fab, instead of cash.

In a February 2002 interview with the EE Times, Tsao said: "We don't think it's justifiable to build a brand-new 8-inch fab over there. But if you move around some 8-inch fab equipment from someplace to China, it makes perfect sense."

Given the restriction imposed by Taiwan law, he said, "our strategy will be that if someone wants to put together a project to build a fab in China, instead of us investing, we would probably give our promise to them so that they have a chance to sell their fab back to us sometime down the road, after the restriction is lifted."

Tsao's willingness to more aggressively play in the gray areas of Taiwan's law ultimately led to the indictments. But it has also put UMC far ahead of rival Taiwan Semiconductor Manufacturing Co. in its position in China. TSMC waited for government approval, meaning that it could not start its business in China until October 2004, more than a year after operations began at Hejian.

With $1.6 billion in promised investment, Hejian already has capacity for processing more than 30,000 wafers a month, using 0.15?m to 0.5?m manufacturing technology. Expansion is ongoing, with the aim of investing more than $10 billion over the next 10 years to become China's largest foundry.

"Because of the regulation, Tsao had to do something creative to bypass it. Some people may see that as sneaky, but the ultimate goal was to help UMC," said an industry analyst, who wished to remain unnamed because of the sensitive nature of the issue. "The regulation is a political restriction, and we have to wonder how much competitive potential we have lost to other rivals in China."

Yet in spite of government efforts to slow the migration of capital and industry to China, at least half of Taiwan's companies have crafted labyrinthine systems to route money through third countries and subsidiaries to push ahead with investments there, said Lin of Tsinghua University. Various estimates put cumulative Taiwan investment in China at about $100 billion and it is widely believed that much of China's $180 billion in IT exports are driven by Taiwan companies in China. Many of those firms are fed components from Taiwan, which now runs an annual trade surplus with China in excess of $20 billion.

From the industry's point of view, things look like they will get worse before they get better. After what appeared to be a slow loosening of the rules regarding investment in 2001, recent political wrangling is spurring the government to again tighten the restrictions.

Even though Tsao has resigned, few expect him to give up total control at UMC, which he co-founded. Tsao will remain UMC's chairman emeritus, while Hsuan stays on as vice chairman emeritus. Analysts believe that day-to-day operations at the foundry will remain unaffected and some think that although UMC chief executive Jackson Hu has been elevated to the chairman's post, it is still Tsao who will actively manage things behind the scenes for a few more years. He and Hsuan will continue to attend board meetings.

In the meantime, politics, business and technology will continue to muddy the waters in the Taiwan Strait.

- Mike Clendenin
EE Times




Article Comments - China question dogs Taiwan's IC indu...
Comments:??
*? You can enter [0] more charecters.
*Verify code:
?
?
Webinars

Seminars

Visit Asia Webinars to learn about the latest in technology and get practical design tips.

?
?
Back to Top