INDUSTRY NEWS

On the hunt for foundry capacity, TSMC announces mergers with WSMC, Acer

C apacity-hungry TSMC started the new year by buying two chip factories in a little more than one week. The Taiwan-based foundry announced an agreement on January 7 to acquire Worldwide Semiconductor Manufacturing Corp. (WSMC). The chipmaker preceded that announcement on December 29 with the news that it would take over complete ownership of TSMC-Acer Manufacturing. Both acquisitions will be completed by June 30, the company says.

TSMC did not disclose a purchase price for either transaction. Under the terms of the merger approved by both companies' boards, the WSMC consolidation will take place as a stock exchange at a ratio of two shares of WSMC to one share of TSMC securities. The exchange ratio is based on the net worth per share and future earning prospects of WSMC.

The third-largest foundry in Taiwan, WSMC operates an 8-in. fab using 0.25- and 0.18-µm processes. A second 8-in. fab is scheduled to start production in March, TSMC says. Acer Semiconductor Manufacturing Group sold a 30% stake to TSMC in June 1999 following the decision by TI to quit the DRAM joint venture. After TI left, Acer converted the Taiwan foundry from DRAM to logic manufacturing.

WSMC's two fabs are expected to produce a total annual output of approximately 400,000 8-in. wafers this year and an estimated 760,000 wafers at full capacity. The two mergers will enable TSMC to increase its annual capacity of 8-in. wafers from approximately 2.8 million to approximately 3.4 million.

TSMC will not step up the pace of development of copper-based processes as a result of the mergers, says Chuck Byers, the company's director of communications. He notes that the foundry is the first to make copper-based chips commercially available, adding that the new metal processes won't be a "major driver" until the 0.13-µm regime. "I don't think you're really going to see that being a major consideration until 2001." (Please see foundry story in 'Round the Circuit, page 30.)

When TSMC announced the WSMC merger, Morris Chang, TSMC's chairman, pointed out that the global demand for foundry products "has steadily and strongly increased for some time." Byers cites several reasons for the increased demand. "The most obvious but the biggest driver perhaps is the cost of capacity. There are some numbers floating around that it's going to cost about $4 billion to build a 12-in. fab. How many companies are going to build that, fill it up, and get a return on capital?"

Another factor--what Byers calls the "disaggregation of the semiconductor market"--underlies the increase as well. The company spokesman says the industry is seeing "a burgeoning development of design houses" as well as an expansion of "third-party libraries" and IP vendors.

Another overall trend fueling industry demand for foundry product is chipmakers' need to focus their funds and attention on manufacturing. After putting some R&D funds into product design and development and then "spending some money for marketing and sales," chipmakers are asking themselves, 'How much does that leave for other things?' " Byers says. "The answer is 'not that much.' "

The twin acquisitions will increase TSMC's industry lead, giving the foundry approximately 40% of the global market, according to Byers. He says 60% of company revenues come from U.S. customers. The foundry focuses on manufacturing logic chips with CMOS processes with an estimated 5 to 10% of its production capacity in DRAMs. In addition to its copper development at Fab 5 in Hsinchu, TSMC has the WaferTech plant in Camas, WA, and is building a fab with Philips Semiconductor in Singapore.

Byers indicates that TSMC took only a small hit following last September's devastating earthquake in Taiwan. The foundry's fabs were "up and ready to run in about three days" following the disaster. The quake destroyed approximately 18,000 in-process wafers, although "when you look at it in terms of overall impact, I think we've got an output of 1.89 million wafers in 1999. What's 18,000? If somebody gets clumsy and drops a tray you've probably lost 18,000 wafers."

The lack of adequate power to Hsinchu Science-Based Industrial Park "slowed us and everybody in Hsinchu down," he adds. Byers notes that Taiwan is improving the electrical grid infrastructure by building a substation and generation unit "to service strictly Science-Based Park."

On a visit to Taiwan shortly after the quake Byers was in a meeting at the TSMC site when he and the others "felt this little tremor, and I thought, 'Oh, it's an earthquake!' The nonreaction was what struck me. The guy from Hsinchu was just talking, and he didn't bat an eyelash. You might as well have heard the rustle of a tree outside.

"We ran around, rechecked the equipment, and were up in five minutes," he continues. "The TSMC rep says to me: 'The bad news is that we're good at this. The good news is that we're good at this.' "

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