Taiwan's decision to lift ban on chip may help China

["Ulhas Joglekar" <joglekarulhas@xxxxxxxxxxx>]

The Times of India

WEDNESDAY, APRIL 03, 2002

Taiwan's decision to lift ban on chip may help China

REUTERS

SHANGHAI: Taiwan's decision to allow chipmakers more freedom to invest in
China will help the mainland realise its cherished dream of becoming a
global technology manufacturing centre, analysts said.

The move opens China's vast market to Taiwan chipmakers amid mounting
protests on the island over the loss of sensitive technology to its
political rival.

Critics warn that China stands to gain more than Taiwan, because the
mainland wins a crucial step-up to the next level while Taiwan faces job
losses — as it did when textile and toy industries fled for cheaper mainland
labour markets.

Taiwan technology has been dodging investment curbs and filtering into China
through offshore channels, but the official go-ahead will jumpstart the pace
of migration, analysts said.

The move will tear down a key barrier and allow China-based foundries to
legally acquire the necessary high-end equipment to develop a viable
production base in the country.

"It will take China less than 10 years to be a global IC (integrated
circuit) production centre. With help from foreign invested enterprises or
Taiwanese, I think it could happen," said Dorothy Lai, Gartner Dataquest's
chip analyst in Hong Kong.

"You get equipment, you get technology, you get the knowledge to produce ICs
in-house. They (China) will be able to support themselves and they won't
have to depend on imports."

China now imports more than 75 percent of its microchips.

Taiwan set tough conditions last Friday for what it called a small-scale
opening, allowing only current generation technology in a fast-moving
industry to set up shop across the Strait.

Taiwan chipmakers would be allowed to build chip plants using eight-inch
wafers in China only after their homegrown plants had undertaken mass
production of 12-inch wafers for six months.

Not worried

Taiwan chipmakers will get a new lease on life in a fresh market driven by
galloping sales of everything from personal computers to telecoms equipment
like mobile handsets.

They have welcomed the chance to gain access to the mainland's annual demand
for $15 billion in chips, a monster market growing at 20-30 percent
annually.

"They have a brand-new, open legal market they can go into, but then the
rule seems to target only UMC and TSMC," Lai said.

The new regulations seem to favour more established foundries like TSMC and
UMC that are already moving on to 12-inch wafers, experts said.

China-based foundries said they had nothing to fear from the new entrants.

"The world is big enough, the pie is big enough for everyone to have a
bite," Nasa Tsai, president of Taiwan-backed Grace Semiconductor, told an
industry seminar last week.

The China Semiconductor Industry Association estimates China will be the
world's second biggest semiconductor market by 2010.

"It's definitely a positive for the foundry industry from Taiwan in the
sense that they will now have the opportunity to be able to go to China and
can get access to new markets," said William Dong, director of equities
research for UBS Warburg.

Under the new initiatives, chipmakers transferring old equipment to China
would be given priority, and the government would set an initial limit of
three plants by 2005.

China's domestic chip industry is awash with low end players mostly dealing
in four- to six-inch wafer technology.

Several China-based chipmakers have stated they intended to leapfrog to
eight-inch wafer making using older gear purchased from abroad, including
niche foundry Advanced Semiconductor Manufacturing and Shanghai Belling.

An old eight-inch fab could cost as little as $200 million versus more than
$3 billion for a 12-inch line. Industry executives have said Belling will
buy gear from UMC, although that plan has not been formalised.

"This will remove a major obstacle to our efforts in cooperating with a
foreign partner and buying used equipment from overseas," a Belling official
told Reuters.

The world's largest maker of chipmaking equipment, Applied Materials, has
said it would help its customers on dismantling, refurbishing and
installation if the sale proceeds.

Copyright © 2002 Times Internet Limited. All rights reserved.