Fab times: Taiwan's TSMC thinks big in micro chip race


By Clare Jim

TAINAN, Taiwan, Oct 9 (Reuters) - Top contract chip makerTSMC may have outsmarted rivals Samsung Electronics Co and Intel Corp in the race to build thetiniest and most powerful chips for smartphones and tablets bybuilding big.

As mobile devices get slimmer and demand increases for moredata-processing and power-saving features, chip companies aretrying to cram more power into tinier chips and are buildingfuturistic factories, or fabs, to meet global demand.

At a new site the size of about 20 soccer fields in southernTaiwan, Taiwan Semiconductor Manufacturing Co Ltd is buildingfoundry facilities to manufacture chips smaller than 1/5,000ththe size of a human hair. Dozens are embedded into smartphones.

TSMC plans to invest T$500 billion ($17 billion) and hire7,000 workers for the new facilities, where the first 20nanometer (nm) chips are expected to start rolling off the massproduction line sometime early next year.

Rivals Intel and Samsung, the world's No.1 and No.2chipmaker respectively, are also building capacity, and spendingbillions of dollars on new fabs to crack into the lucrativebusiness that the Taiwanese firm dominates.

"It's a business (foundry) that will continue to growsolidly on the back of a booming mobile industry, and TSMC willsee more players in the market as many are envious of its nearly50 percent profit margin," said Doh Hyun-woo, an analyst atMirae Asset Securities in Seoul.

"TSMC remains by far the biggest player in the foundry andit'll continue to dominate as it's got the biggest capacity andbest foundry technology. But margins are set to come underpressure as it will see more competition from the likes ofSamsung."

To keep its position as the world's top foundry business,Hong Kong-based analyst of Maybank Kim Eng Securities, WarrenLau, says TSMC must invest even more on research and developmentto boost profitability.

Unlike the South Korean and U.S. companies which design andmake their own chips, TSMC makes chips for designers who do nothave a production factory.

Samsung's major system chip clients are Apple and QualcommInc. TSMC's clients also include Qualcomm, and otherchip designers such as Texas Instruments Inc and NvidiaCorp.

In turn, the firms then sell chips to smartphone makers like Samsung, Apple, Taiwan's HTC Corp, and China's HuaweiTechnologies.

Intel is new to the foundry business, but has alreadypoached programmable microchip leader Altera from TSMC,winning their contract with 14-nm technology.

The California-based company is set to open fabs in Oregonand in Arizona this year to produce microprocessors. However, inJuly it cut its overall 2013 capital spending plan for thesecond time to $11 billion from $13 billion at the start of theyear as PC demand has slowed.

TSMC appears to have staged the biggest coup. Media reports,analysts and industry sources say the company has snatched theApple contract from Samsung, and that its new 20-nmchips will be used in future iPhones and iPads.

In the secretive world of high-tech, there has been noofficial word on Apple parting company with Samsung.

But Apple has made no secret it wants to diversify fromSamsung as the two rivals battle for leadership in thesmartphone market and contest a rash of patent disputes.

TSMC's sales have shot up 19.3 percent in the first eightmonths of 2013 compared to a year ago thanks to increased chipsales, and the company will announce September sales onWednesday.


Reporters were given a look rare look inside the high-techworld of nano chip production last week during a visit to a TSMCfoundry in southern Taiwan. For security reasons, no photographsor video were allowed.

Standing on a site that was a sugar cane field about twodecades ago, the fab is the world's largest logic chip factoryand produces 40- and 65-nm chips for low-end smartphones andtablets.

In a dimly lit, climate-controlled room, masked engineersdressed in 'bunny suits' work with robots assembling wafers.Machines currently outnumber workers 20 to one. By the end ofthe year, the company envisages that will spread to 75 to one.

Before entering the fab, the jumpsuited visitors passthrough a "dust-blowing" corridor.

"The suits are for protecting the wafer, not you," TSMCspokesman said ahead of the tour. "Even a single hair or asneeze will damage our wafer."

Nearby, TSMC's latest fab will mainly produce 20-nm chipsand 3-dimensional 16-nm FinFET chips. The Taiwanese companydeclined to give details of its new capacity, citingconfidentiality reasons.

Intel started 22-nm FinFET production two years ago and itwill begin small production on 14-nm by the end of this year,while Samsung is expected to also start the same process fromlate next year.

Intel dominates the PC industry, but has been slow to adaptits chips to be suitable for smartphones and tablets.

Samsung, the world's biggest memory chip maker, isrenovating its Austin, Texas chip plant with $4 billioninvestment to boost production of mobile processor chips sincelast year. It is also building a new system chips plant in SouthKorea with 2.25 trillion won ($2.10 billion) investment.

HSBC analyst Steven Pelayo, who is based in Hong Kong, saysthat as well outsmarting its rivals by planning large capacityexpansion, the company is getting better margin on return.

"We just have to acknowledge that the risk is increasing -trying to get the next step of technology out, it's getting moreand more difficult, and competitors are pretty well funded thistime," he said.

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