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Analysis: UMC needs new strategy

Posted: 26 May 2010 ?? ?Print Version ?Bookmark and Share

Keywords:foundry? UMC recovery? R&D? fab?

Silicon foundry vendor United Microelectronics Corp. (UMC) celebrated its accomplishments during its 30th anniversary at a low-key event in Taiwan.

But will 2010 be UMC's last party? Despite the current upturn and renewed growth at UMC, many wonder if the foundry vendor will survive in the long run, as the company has fallen behind the technology curve, seen a key customer in Xilinx Inc. defect to its rival and been the subject of takeover rumors.

Now, there is speculation that UMC may join IBM Corp.'s fab club or form a new R&D alliance with Texas Instruments Inc., in an effort to play catch-upor even survivein the foundry market. Others believe that GlobalFoundries Inc. or its big investorAbu Dhabi's Advanced Technology Investment Co. (ATIC)may take a stake in UMC in return for fab capacity.

In fact, there was once a rumor that ATIC would buy UMC. Rumors aside, this could be a make-or-break year for UMC. At one time, the company sat comfortably as the world's second largest foundry vendor, behind neighbor Taiwan Semiconductor Manufacturing Co. Ltd.

But besides TSMC, UMC had little competition to speak of, that is, until recently. Now, it faces competition from a trio of strong players, including TSMC, GlobalFoundries and Samsung Electronics Co. Ltd.

Faced with a new set of rivals, UMC's current strategy may not be viable in today's climate. The company is a member of Sematech, but besides that, the foundry vendor is not part of a major R&D alliance and prefers to go it alone in technology.

And at one time, UMC attempted to keep up in the process-technology race with TSMC. Now, UMC is quietly shifting towards more of a "fast follower" strategy. It continues to develop leading-edge processes, but it is a step or two behind the leaders.

The fast-follower strategy could keep UMC relevant for the near term, but the question is will its customers continue to believe in the company? And can it keep up in the process-technology race without partners? After several requests, UMC refused to discuss its strategy for EE Times.

Clearly, though, UMC is on a slippery slope. "I have talked to some people, who say: 'UMC has totally lost it,'" said G. Dan Hutcheson, CEO of VLSI Research. "UMC fell behind technically in terms of process technology."

On the other hand, UMC is still a viable player, perhaps by default. "The fabless guys don't have a lot of choices (at the high-end). If you don't have a high-volume (product), it's sometimes hard to deal with TSMC," he said. "In some cases, UMC's yields are better than TSMC."

"UMC is still the No. 2 foundry, but they will possibly drop to number three next year," added Dean Freeman, an analyst with Gartner Inc. In market share, UMC could fall behind GlobalFoundries, he said.

A more pressing question is whether UMC can keep up in the technology race. "It's going to be tough, because they don't have a technology R&D partner," Freeman said.

UMC recently rolled out its 45-/40nm process and has even talked about its 28- and 20nm developments. In reality, though, UMC "is not as aggressive in technology" as TSMC and others, Freeman said. UMC remains "six to nine months behind TSMC."

Simply put, UMC is down but not out. "Bottom line: Don't count them out just yet," said Steven Pelayo, an analyst with HSBC.

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