Professional OEM Advantages

OEMs do not have to bear the cost of product sales and R&D. Since the OEM does not own any products, its risk from product failures is low and customers do not worry about the professional OEM market learning their technology. The disadvantage is that the OEM has no listed products, and so must rely on and cooperate with customers.

The relationship between OEMs and their customers is very close. Contractually, the foundry customers can get complete product information and manufacturing process status from the virtual fab. They can take full advantages of the production quality and status of orders. The foundry shares the operation outcomes with customers. They can use strategic alliances and joint investment to diversity investment risks for a win-win situation with customers. The professional foundry enjoys three additional advantages: (1) Each sector can excel in its own skill through the tight-knit professional division of labor. (2) When the business becomes simple and high specialized, the system can easily be integrated for spontaneously integration.

(3) The trend of ―anti-concentration‖ for semiconductor becomes more and more obvious, including the value of the depth and the breadths of vertical integration.

The principle of virtual fab is that only one company is responsible for the entire process: product order, IC design, and end packaging, testing and final product delivery. The production status of orders is offered on-demand to ensure that customers can track their products. Therefore, the factory can fully control the complete flows including products confidentiality, production flexibility, testing service, intellectual property, supply, product technology, and technical information.

The Taiwan foundry industry was supported in its early stage with deep government intervention. Among its competitors in Asia, Hong Kong was slower paced, and the science park movement was not established as early as still operates in a socialist framework and laws, and its institutions are not healthy enough to support such a capital-intensive industry.

The factors affecting the competitiveness of the IC foundry business including human resource, technology level, cost structure, capital allocation, and yield stability.

The industry needs to adjust related industries completeness and technology skill.

Since the Taiwan business enjoys some conditional advantages, the Taiwan IC foundry industry has a unique entrepreneurial spirit, coupled with high standards and abundant human resources and a strong overall industry basis. Unlike some companies that are heavily reliant on foreign companies, foreign companies may not pose an immediate threat to Taiwan.

However, Taiwan does need to pay attention to the possible threats from mainland China. China is gradually joining the market; this attracts many world-renowned manufacturers that are eagerly to enter China. The electronic information industry is developing in China now with the advantage of China‘s abundant and cheaper labors. The downstream business once its technology foundation is built.

The complexities of IC manufactures come from many business units. The vertical division of labor in the Taiwan IC industry has been implemented thoroughly.

The technology integration is relative simple and competitiveness can be achieved through virtual cycling. In terms of worldwide investment, Taiwan holds three of the top ten in the global market. The Taiwan IC industry offers integrated manufacturing capabilities, a high degree of flexibility and international strategies. Its IC foundry industry is gradually becoming the leader in this field and plays an important role in the international area.

TSMC‘s strategies for maintaining its superior positions are as follows: (1) To upgrade its human resources technology level, cost structure, capital allocation and yield enhancement (2) To continuously explore the market for opportunities. (3) To set the market entry barrier high and expand its industry investment.

Based on the existing implantation of strategy and their experience, European, United States and Japanese companies are partnering with overseas foundries. In fact, Japan has closed it foundry business and places orders with Taiwan foundries. Most of the top five Japanese companies –NEC , Hitachi, Toshiba, Mitsubishi, and Fujitsu have recently transformed to fab-lite IDM and collaborate with Taiwan foundries.

Many countries‘ IDM adopt a conservative strategy and delegate orders to foundries because of cost consideration and Taiwan foundries mainly service theses orders.

The semiconductor industry trend is clearly toward specialization. In contrast, Japan‘s large financial groups integrate their business units from middle-stream to down-stream. Unlike the business specialization trend in the global semiconductor

industry, Japanese companies focus on complete business units. The performance of the integrated process remains to be investigated, is competitive edge is not clear.

To summarize, the Taiwan IC foundry industry still exhibits the strength in the face of change and competition. The IC foundry remains the model for the semiconductor industry. Taiwan‘s semiconductor industry has a unique labor-division structure and a high degree of specialization with each individual business units performing its business independently. Furthermore, the IC industry networking integrates the business units, including design, manufacture, packaging and testing.

The Taiwan IC manufacturing industry can adapt flexibility, creating international competitiveness. In contrast, Europe, the United States, and Japan are adopting vertically integration for wafer processing. The main advantages for foundries are human resources, technology level, cost structure, capital allocation, and yield stability. The IC manufacturing industry combines process technology and product design. The world‘s IC fabless design companies grow continuously. The fabless design companies have brought unlimited potential to the foundry business. The combination of IC design and foundries can not only cope with the variety of market demands but also benefit from new products.

Furthermore, when the economy is depressed, foundries and IC design companies can face together a ―slow growth and increased investment‖ situation.

During periods of marginal profits, the IC design companies may fear losing bargaining power when bring their new products to a dedicated foundry. However, if the IC designer chooses tow foundries, it may limit high costs since different foundries offer different technology capability. On the other hand, the foundry may also fear the loss of customer orders to competitors. There does exists that tension between IC design houses and foundries.

In order to seize the market, Samsung, IBM, and Chartered Semiconductor formed an alliance for increasing their market share. TSMC immediately struck back and signed a TI OEM orders. With the increasing entry threshold of wafer manufacturing, TSMC needs to maintain their technology leadership more carefully.

IC technology drives new application, and IC manufacturing takes the new application to the market. Given the length of IC product cycling time, gaining profits in the IC design and IC foundry industry is challenging.

Taiwan foundry industry needs to consider the technology threshold to maintain continuously profit gain. Figure 4.2 indicates the revenues of IC foundry market share

and revenue.

Fig 4.2 The global foundry market trends, Unit: billion /%