Chip report is good news for PC industry

Taiwan Semiconductor Manufacturing Corp. said that income for the fourth quarter came to $8.3 billion NT (U.S.$270 million), a 229 percent increase over the same period the year before. Revenue rose 104 percent to $769 million. Earnings per share rose to 17 cents from 5 cents.

While net income was boosted by outside investments, operating income for the year rose 60 percent to $841 million from $523 million. For 2000, growth is expected to continue, the company told analysts on a conference call. Merrill Lynch analyst Dan Heyler stated in a report that revenue should grow 103 percent for the year through a 79 percent increase in wafer shipments and an increase in average selling prices.

In all, the numbers and the outlook seem to pave the way for positive times in the silicon industry. TSMC has close to half of the market, and it and other foundries can be seen as something of a leading indicator. If the outlook is positive, semiconductor equipment companies such as Applied Materials will likely see an increase in sales, as will communications, graphics companies and others who use fabs.

"The outlook is tremendous," said Lucas Ward, an analyst at Chase H&Q, who estimated that TSMC will likely buy more equipment than Intel this year. "I probably raised estimates 12 times in the past year and probably will raise them again."

TSMC is the world's largest semiconductor foundry, a business segment that is growing because of skyrocketing demand for semiconductors and the cost and risk associated with erecting fabrication facilities or "fabs."

The Taiwan-based company doesn't design chips. Instead, like UMC and other foundries, it produces chips on behalf of the growing number of graphics companies and other silicon-centric firms that do not have the means or inclination to sink billions into fabs.

Chip demand is so strong that TSMC has of late been snapping up extra factories. In December, it bought the remainder of the Acer's semiconductor manufacturing operations.

Time is of the essence for TSMC and other foundries. The Semiconductor Industry Association estimates that demand for semiconductors will grow by 20 percent or more over the next two years and account for $234 billion in sales in 2002.

Additionally, United Microelectronics (UMC), the second largest foundry, announced an extension of development agreements with IBM and Infineon. Under the agreement, the companies will converge to develop common standards for manufacturing copper chips on the 0.13-micron and 0.10-micron process. Currently most advanced chips are made under the 0.18-micron process. The numbers refer to the size of the transistors.

"Our efforts in developing leadership chip technologies are widely recognized; this agreement is intended to make them more widely available," said John Kelly, general manager of the IBM Microelectronics Division, in a prepared statement.

While initially viewed with skepticism, the foundry business has exploded with the rising costs of fabs, which can now cost between $2 billion and $5 billion. A substantial number of semiconductor companies have decided to outsource manufacturing to outfits like TSMC or UMC. Like these two, most are based in Taiwan's Hsinchu industrial park.

The foundry business has also helped foster the growth in semiconductor start-ups because these companies can skip around huge capital expenses early in their history. TSMC, for instance, will manufacture samples so semiconductor designers can show tangible examples of their work to potential customers, according to Ronald Norris, senior vice president at TSMC.