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National struggles to find chip division buyer

Executives from the Taiwan Semiconductor Manufacturing Company say they're not interested in buying the Cyrix microprocessor division from National Semiconductor, paring down the possible suitors.

TAIPEI, Taiwan--While discussions have taken place, executives from the Taiwan Semiconductor Manufacturing Company stated flatly that are not interested in buying the Cyrix microprocessor division from National Semiconductor, though they are increasingly serious about the microprocessor business.

TSMC's stance pares down the field of potential purchasers. Earlier this year, National Semiconductor said that it will sell the bulk of its Cyrix microprocessor subdivision, which makes the Cyrix M2 processor found in many sub-$500 computers, as well as the majority interest in its South Portland, Maine, fabrication facility, to one or separate buyers. With both properties, a semiconductor company could enter the PC processor market virtually overnight.

Candidates, however, appear tough to come by. One reason: Cyrix has been losing money because of a bruising price war with Intel and Advanced Micro Devices. The company essentially became a bottom feeder, winning customers at only the lowest segment in the lowest end of the market where profits are minimal.

Moreover, National has been asking a fairly healthy price, sources at competitors said. IBM was interested earlier, but dropped out, said sources. TSMC, which makes its money by serving as the manufacturing backbone for "fabless" chip designers and other types of chip companies, was considered a leading candidate along with UMC, another Taiwanese foundry manufacturer.

"We wouldn't be interested in all that [the Cyrix subdivision]," said Ronald Norris, senior vice president of worldwide marketing and sales, adding, "They of course have tried to sell us the fab."

While downplaying any National deal, Norris nonetheless added that TSMC is rapidly adding manufacturing capacity and that it will also likely move aggressively into the microprocessor manufacturing business, which generates more revenue per wafer than average TSMC clients now. The projections for capital spending for the company have been revised upward from the early year figure of $670 million to $1.4 billion to accommodate projected growth.

Acquisitions could also occur. "We're out there scrambling to increase capacity. When any fab is for sale, people tend to come to TSMC," Norris stated.

TSMC's heady expansion plans come from the convergence of business trends and internal technological improvements. The rapid expansion of networking and cellular communications is fueling strong demand for semiconductors. The majority of chip companies, simultaneously, are increasingly turning to foundry operations as a way to avoid the expense of building their own factories and speed time to market. Although smaller companies have typically been foundry customers, large companies, including Japanese giants have begun to adapt to the business model.

"The Japanese have made a strong and broad move toward foundry. They realize they no longer need to do the lion's share of the work internally," Norris said.

At the same time, TSMC claims it has managed to boost its internal manufacturing technology to close to the same level used by companies such as Intel to manufacture processors. As a result, TSMC will be able to serve as a manufacturer for companies such as Sun Microsystems, who design microprocessors but pass on production.

"We've caught up and we are closing in on the leading edge of the technology curve," Norris said. "Now we are looking at higher performance parts."