Reports suggest Taiwan Semiconductor will stay local for now

The world's largest maker of built-to-order semiconductor chips is investing more than $6.1bn in two state-of-the-art chip factories in Taiwan, according to local press reports.

Taiwan Semiconductor Manufacturing Company (TSMC) is ready to begin building the new foundries, the Economic Daily News and Commercial Times reported, citing unnamed sources at the company.

The two new plants will bring TSMC's 300mm wafer facilities at Taiwan's Southern Science Park to four, making the park the company's main global production base, analysts from MasterLink Securities said in a research note.

TSMC has one 300mm factory already in operation in the park, producing 30,000 wafers per month, and another ready to start pilot production this summer.

"With 300mm fabs ramping up operations after 2004, Asia's semiconductor manufacturing capacity has continually grown, especially in Taiwan which has become the highest fab density area worldwide," In-Stat reported in a summary of research this month.

The news comes against a background of an upswing in the chip-making business. TSMC said that its existing plants were fully booked with orders during the previous quarter, and that production facilities are running at 104 per cent of nominal capacity.

Smaller local rival United Microelectronics Corp (UMC) has reported similarly positive data.

But both companies are expected to face increasing pressure from China-based rivals in coming years, leading to speculation that they may begin shifting their own production there.

"TSMC and UMC are the leading foundries in Asia, accounting for over 50 per cent of Asia's output up to 2009," In-Stat's report stated.

TSMC reported revenue of just under $2.5bn in the fourth quarter of 2005, and net income slightly over $1bn. Unaudited revenues for the traditionally slower first quarter were $2.4bn.

Company representatives had not returned a call requesting comment on the reported expansion plans by press time.