Global Trend in Semiconductor Industry Development

In recent years, the semiconductor industry has experienced rapid transformation in the complexity of product functions including precision in the fabrication process and rising costs for production. Therefore, many international integrated Device Manufactures (IDMs) are increasingly outsourcing as the logical alternative. Based on the analysis by the industrial Economics and Knowledge Center (IEK) of the Industrial Technology Research Institute of Electronics (ITRI), packaging and testing companies subcontracted half of their production volume in 2009. The dramatic change has caused IDM to develop specialized ―Fabless‖ and ―IDM-light‖ production models.

After a long development period, Taiwan‘s semiconductor industry has distinguished itself from other industry clusters by integrating process from IC design to manufacturing, to packaging and testing companies. The global industry companies are located primarily in HsinChu and Great Taipei. Most IC fabrication is scattered through Taoyuan, HsinChu, TaiChung, and Tainan, while the first-tier packaging and testing companies are in the central and southern parts of Taiwan. An analysis of the potential business of the semiconductor industry with its complete industry chain and strong technology indicates that Taiwan has many powerful global clients and networks DRAM companies. Samsung has set up its procurement hub and sales center in Taiwan. Some companies joint venture with other companies, such as Hynix and ProMosm Elpidia, PSC, Qimonda and Nanya Technology and Inotera Technology and Winbond.

In the mid-stream semiconductor foundry industry, we can take TSMC, the leading global company, as our example, more than half of the top 20% global semiconductor companies which are TSMC clients, including Intel, the leading foreign business. Eight of the 10 leading global IC design companies order from TSMC, demonstrating TSMC‘s significantly presence in the global semiconductor industry. Even the other two potential foreign businesses in IC design, Xilinx and Sandisk, also order from IC manufactures in Taiwan. These facts show that the Taiwan semiconductor industry has a widespread range of clients from IC manufacture in Taiwan. These facts show that the Taiwan semiconductor industry has a widespread range of clients from IC manufactures in Taiwan.

To address the gaps of the supply chain, the recommended foreign businesses fall into several categories: facility manufactures, like Applied Materials, Tokyo Electron, ASMI, KLA-Tencor, Lam Research, Advantest, Nikon, Novellus System, and Cannon; IC

design companies, like Qualcomm, Broadcom, Nvidia, SanDisk, ATI, Xlins, Marvell.

Altera, Conexant, Qligic, CSR, Silicon lab, SST and Solomon systems; IC manufactures, like intel, Samsung, TI, Toshiba, STM, Renesas, Hynix, NXP, Freescake, NEC, Micro, AMD, Infineon, Qimonda, Elpida and IC packaging and testing companies, like Amkor, Stats-ChipPAC, UTAC, Caresem, Shinko and ASAT.

The output value of Taiwan‘s semiconductor industry had reached the goal of NTD 1 trillion in 2005 and the output value is estimated to hit NTD 2 trillion by 2010. Taiwan is the second largest IC design center, behind only the United States. Taiwan‘s IC fabrication continues to grow rapidly with its outstanding performance in profitability and production capability. The silicon foundry service pioneer model, Taiwan Semiconductor Manufacture Company, provides fifty percent of the global market demand with the 65 nanometer (nm) process, and it advancing to the cutting-edge 45 nm and 28 nm process technology. Other than TSMC, United Microelectronics Corporation (UMC) is the second major foundry player in the market, and Powerchip Semiconductor Corp (PSC), ProMos technologies Corp, and Nanya technology Corp. are engaged in DRAM manufacturing production. In line with its very strong IC foundry industry, Taiwan has also risen into a leading position in the world‘s IC packaging and assembly arena. ASE (Advanced Semiconductor Engineering Inc.) group, the world‘s largest provider of semiconductor packaging and assembly services, develops and offers a wide portfolio of technology and solutions including BGA; and flip chip to wafer level packaging. Siliconware Precision Industries Co, (SPIL) holds the third position worldwide in semiconductor packaging and assembly business. The main clients include ATI, Qualcomm International, and Freecale. In IC design, Media Tek has performed impressively in China and is expected to replace Trident TO as a leading IC manufacturer in North America. Their clients include Samsung, LG and Phillips.

In conjunction with design and fabrication segments, upstream silicon-proven IPs, service and EDA tool technology are expanding into Taiwan‘s semiconductor supply chain. Global Unichip Corp. (GUC) which has a close investment partnership with TSMC. Fareday technology Corp., a member of the UMC group, SpringSoft Corp., and Integrated Service Technology Inc. are companies pursuing advanced technology development. In the masking and IC substrate business, Taiwan Mask Corp., Nanya Technology Corp and Phoenix Precision Technology Corp., are conducting business with outstanding performance.

2.2.2 Development of Taiwan's IC Industry

1. Infancy (1964~1974)

National Chiao Tung University established a semiconductor fabrication (hereafter.

fab) curriculum in 1964 and identified as primary academic focus. Semiconductor

knowledge cultivation in schools is the key to the success of Taiwan‘s IC industry.

General instrument set up factories in KaoHsing in 1966 for transistor packaging, the first packaging industry in Taiwan, opening the door for foreign investors, such as Texas instruments, Philips, and other factories in Taiwan. The General instrument facility thus laid the foundries for IC packaging, testing, quality control for IC packaging and downstream IC business.

2. Technology introduction (1974~1979)

In 1974, the government begins the development of the domestic electronics industry and continued to gradually transition toward technology-intensive and multi-evaluation businesses. The research center (formerly ITRI electronics research institute) established the IC demonstration plant. RCA technology was introduced from US companies and mask technology was introduced from US IMR (International Materials Research) companies to establish a 7.0 micron CMOS technology, expanding the IC manufacturing capability.

In 1976, the Executive Mr. Li Gounding promotes the science and technology development progress in the HsinChu Science Park, which serves as the ―Silicon Valley‖

in Taiwan IC industry.

3. Technological self-reliance and expansion (1979 to now)

Following the ITRI, the electronics industry established the first demonstration plant for IC projects in 1975~1979, revealing the second phase of the development plan in 1979 – 1983 and the final VLSI development project in 1983-1988. Industrial technology applied the Taiwan semiconductor technology to the stage of VLSI in 1980. UMC derived from ITRI became the first IC manufacturer and began four-inch IC manufacturing. Successful IC production was achieved after five manufacturers officially crossed over into technology development. In 1987, TSMC derived from ITRI began manufacturing six inch IC products. TSMC collaborated with Taiwan Mask Corporation in making the IC products prototype. The Taiwan IC industry in the first 15 years was focus on IC packaging and testing. The following 15 years, 4-inch plants had begun operations and the domestic IC industry began to flourish. From 1993 to 1995, the rise of 8-inch plants stimulated huge investment in IC business. In 2000, investment began in 12-inch plants, initiating the current period of the Taiwan IC industry‘s unprecedented success.

The significant difference between Taiwan and the overseas IC industry is Taiwan‘s adopting the vertical division of labor. In the rapidly changing industrial environment, this unique division of labor model aligns with the trend of rapid development to meet industry demands. The international factories operate in vertical integration models to make the most efficient use of labor has achieved good results based on effective management between upstream and downstream levels. Our business model includes specialized resources and technology orientation.

The wafer fabrication industry has been part of the semiconductor for some time.

Before 1995, integrated device manufactures (IDM), such as IBM, Toshiba and others

dominated the IC industry. These manufactures controlled the entire value barrier for outsiders existed due to technology and capital concerns, and so the leading IDM vendors dominated the IC business until 1987, when the professional foundry production model emerged. Our country‘s professional status foundries achieved the top position in the world after the establishment of TSMC and UMC, which expended the production capacity substantially through factory expansion and thus dramatically increased the scale of the Taiwan IC industry.

The riser of professional foundries leads the division of the structure of the semiconductor industry. The foundry masters the key technology, which enables fables IC design and fab light IDM to flourish. The success of structure division highlights the traditional integrated device manufactures‘ lack of flexibility in production design. After the economics depression of 1996, the IDMs reconsidered the pure-play foundry as collaboration partners. Then, in the 2001 global recession, the stagnant demand for the semiconductor industry highlighted the cost pressures of IC wafer manufacturing. To respond to market fluctuations, the professional foundry model is important and the pure-play foundry and fables IDMs are crucial structure in the IC industry.

Table 2.1 indicates the Taiwan IC industry value net

Taiwan wafer foundries have relied on IC designers in the past. Manufacturing IC chips carrier not only a large capital burden but also market risks. Since Taiwan foundries, in contrast, have high yield and low cost advantages, they can have endless business opportunities. Taiwan‘s two leading foundry companies, TSMC and UMC, use different business models. TSMC has a professional dedicated IC foundry, in a specific location, providing customers a full set of products and services with a single development strategy.

TSMC adopts the strategy of creating all aspects of the virtual wafer plant, while spreading the investment risks, and sharing the benefits of its operation with the alliance.

President Chang asserts that their IC manufacturing grows continuously but with two

major challenges, how to continue to grow and how to sustain profitability. UMC adopts the symbiotic relationship of IC design and foundry by setting the design element for its own products, controlling the testing departments and adopting a market segmentation strategy. UMC does not accept customers‘ design and commissions.