TSIA President Predicts Upturn

Staff -- Semiconductor International, 2/1/1999

At the Taiwan Semiconductor Day '98 event held in Santa Clara, Calif., in December, Semiconductor International editors had the opportunity to meet with Dr. Genda J. Hu, president of the Taiwan Semiconductor Industry Association (TSIA), general director of the Electronics Research and Service Organization (ERSO) of the Industrial Technology Research Institute (ITRI) and an IEEE Fellow.

Hu said Taiwan is feeling the effects of industry malaise. "There is no question that, worldwide, the semiconductor industry is in a downturn. This year (1998), compared to 1997, we expect about an 11% decrease. Nevertheless, even so, Taiwan is doing reasonably well; by the time we close the books, we anticipate that we will have had a flat year."

Hu conceded that Taiwan is experiencing results of the "Asian flu." As he put it, "Our problems are similar to those being felt by the rest of our industry. It is no secret we have had to, for example, dramatically slow down our expansion plans from what we had originally planned and published one or two years ago."

According to Hu, Taiwan's major semiconductor industry players are adapting and improvising. He cited the cancellation of cooperation plans between Texas Instruments and Acer. "When TI withdrew from the agreement, Acer began operating alone and now has finished by changing its business model completely." He said that Acer has gone from being a DRAM producer to being a new contender in the foundry business. "Acer now produces chips for the Acer group; this is a major change. And not too long ago, Acer signed a technology transfer contract with IBM to get the latter's logic process." Hu said that Acer is almost totally out of the DRAM business.

On the other hand, Hu referred to the recently signed partnership contract between Winbond and Toshiba. "Winbond is entering the DRAM market with Toshiba's technology and has become an integral part of Toshiba's global business plans. This is typical of the changes that are taking place," he said. "Concurrently, some of our leading companies are discussing with the Taiwanese government the creation of a joint pre-competitive R&D consortium similar to SEMATECH, which will enable them to perform what is, essentially, higher-risk R&D. This was unthinkable before."

Hu views the Asian economic problems as having little or no connection to the semiconductor industry's downturn. "I think that the industry, as a whole, was little affected by the Asian economic crisis. You have to remember that while the economic problems began in 1997, the first signs of a semiconductor industry slowdown surfaced toward the end of 1995, when SRAM prices dropped. Soon after, at the beginning of 1996, DRAM prices began to nosedive. Since then, the semiconductor world has been struggling with overcapacity issues. This is why I do not believe that these two events ­ the Asian economic crisis and the downturn in the semiconductor industry ­ are related in a major way."

Hu conceded that an economic hit closer to home, such as the People's Republic of China devaluing its currency, might have a major impact on Taiwan's semiconductor industry. "It is true. The economy is a far larger animal than the whole of the industry. When the economy is bad, everyone is affected. Fortunately in Taiwan the economic crisis that has swept throughout Asia has not really hit us as hard. This has allowed us ­ in particular our semiconductor sector ­ to operate with a healthier financial infrastructure. I mentioned the case of Winbond partnering with Toshiba. This is partly based on the fact Taiwan still has much of the financial muscle needed to carry out at least its part of the deal. This is of particular importance to Japan, especially while its economy remains in its currently weakened state."

Questioned when he foresaw an industry upturn in Taiwan, Hu's answer was straight to the point. "Taiwan is part of the global industry. When the global situation changes, Taiwan will see the improvement as well. At present, the best estimates are that the semiconductor industry's upturn should become apparent sometime during the second half of 1999."

Asked what advise he would give to his U.S. colleagues Hu said, "During bad times, people and industries have to think and work differently. I believe our American counterparts would be very interested in considering how we, in Taiwan, have structured our semiconductor industry. We have separated the entire infrastructure of the industry into design, wafer fabrication, testing, packaging, etc., in such a way as to create a very flexible industrial infrastructure. Hopefully, through that flexibility, we can work with American companies and others in different regions of the world. For example, fabless semiconductor companies can use our foundries, while others can form partnerships with us. A big advantage for us, in Taiwan, is that we have a manufacturing capability that could probably be described as the world's most efficient. This, in turn, enables cost reduction whether it is in wafer manufacturing, testing, or packaging or even design." Hu said he could not emphasize enough the Taiwanese semiconductor industry's desire to create a closer partnership between it and its U.S. counterparts.