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Tuesday, July 20, 2010

TSMC to Spend $9 Billion on Chip Plant to Meet Rising Demand

Bloomberg / Business Week

Taiwan Semiconductor Manufacturing Co. will spend NT$300 billion ($9.3 billion) on a new factory, betting higher demand for the most advanced technology used in making components for phones and computers will offset the rising cost of building plants.

The world’s largest custom manufacturer of chips will hire as many as 8,000 workers at the facility in Taichung, central Taiwan, Chairman and Chief Executive Officer Morris Chang said at a ground-breaking ceremony today.

Taiwan Semiconductor, whose clients include Qualcomm Inc. and Nvidia Corp., is expanding after posting record sales last quarter as global demand for computers and digital electronics climbed. The Hsinchu, northern Taiwan-based company’s $4.8 billion expenditure for this year, which excludes the new plant, will be equal to 15 percent of global chip-equipment revenue, according to data from industry group SEMI.

“As TSMC has the capital and its smaller rivals don’t, its investment in a new plant has the potential to increase its market share,” said Jack Hung, who rates the company “neutral” at Mega Securities Co. in Taipei. “The spending plan shows TSMC is very confident about the industry outlook and expects a global shortage of chips in the long term.”


TSMC fell 0.7 percent to close at NT$59.90 in Taipei, compared with a 0.5 percent decline by the benchmark Taiex index. The stock has lost 7.1 percent this year, compared with a 6.4 percent drop for the Taiex.

The Taichung factory will be TSMC’s third so-called gigafab, with capacity to make 100,000 12-inch wafers of chips per month, Chang, 79, said. Wafers are the silicon dies from which semiconductors are struck.

Adding to plants in Hsinchu, Tainan, southern Taiwan and China, the new facility will incorporate solar power and light- emitting diode lighting with a goal of zero greenhouse gas emissions, Chang said. The cost of the new facility will be spread over coming years, he added.

Among the new hires, TSMC expects to employ as many as 4,000 engineers at the site, Senior Vice President of Operations Mark Liu said before the ceremony. A TSMC gigafab running at full capacity can generate annual revenue of $5 billion, Liu said.

Demand for advanced chipmaking technology, which TSMC defines as having connections smaller than 90 nanometers, will more than double in the six years to 2014, compared with 30 percent growth for standard technology, Liu said. One nanometer is equal to one billionth of a meter, with smaller metrics indicating more-advanced technology.

Rising Cost

A gigafab costs $6 billion to $10 billion, compared with $3 billion to $4 billion for older “megafabs,” which have capacity to produce 25,000 wafers per month, Liu said.

Chang on June 15 raised his industry sales growth forecast to 30 percent from 22 percent, citing the global economic rebound and rising demand in emerging markets. The CEO, who founded TSMC 23 years ago, is closely followed as a market forecaster because his company has wide access to the chip industry.

TSMC last month received Taiwan government approval to take possession of an 8 percent stake in Semiconductor Manufacturing International Corp., which it accepted as settlement for a trade-secrets lawsuit it brought against the Shanghai-based company.

Intel Corp., the world’s biggest chipmaker, posted record second-quarter revenue, topping analysts’ estimates, driven by corporate spending. ASML Holding NV, Europe’s biggest maker of chip equipment, had profit for the period that surpassed analysts’ predictions and forecast record revenue for the year.

Global sales of semiconductor equipment will more than double to $32.5 billion this year and climb 9 percent next year, San Jose-based SEMI said in a July 13 statement.