The success of Taiwan Semiconductor
Manufacturing Co. (TSMC), the island's biggest microchip foundry, is paradoxical.
TSMC has made a name for not putting
its brand name on its products. As a foundry --in fact, the world's first, its business strategy is to manufacture advanced
integrated circuits (IC) for IC design houses and other microchip producers. It is bound by its corporate statutes not to
design or crank out its own brand name ICs. Herein lies the microchip producer's
primary claim to innovation. In the ten years since TSMC pioneered the pure IC foundry concept, foundry clones have mushroomed
in Taiwan and all over Asia.
But with the dizzying initial growth
have come other challenges. TSMC's competitors, particularly those from Korea, have flooded the world market, profit margins
have halved from 50 percent in early 1996 and memory chip prices are still in a viselike squeeze. As a response to all this,
TSMC is striving for economies of scale. Also, it is contemplating innovation, this time in the context of cutting-edge technology.
It plans, for instance, to turn out about a tenth of its output in the high-performance 0.25 micron format by early next year.
That is only within a half year after Intel launched the new technology.
Funding for such a program can come
from several sources. The latest is the sale of about 130 million shares at US$25.5 apiece in early October at the New York
Stock Exchange. It was only the second Taiwan company (Pacific Electric Wire and Cable was the first) and the first Asian
microchip producer to get a listing on the Big Board. Other local semiconductor manufacturers are looking --once again-- at
how TSMC will fare on the US capital market before following suit.
Closing the Gap
Morris Chang, the chairman and president
of TSMC, stresses that his company is fast nipping at the heels of the world's best microchip developers.
"The impression is that TSMC and Taiwan
semiconductor companies are followers," he said in between taking puffs at his pipe. "TSMC has been one of the biggest innovators
in the past decade. We are listed among the top 20 patent owners in the US, having rights to hundreds of patents."
"Just like private courier Federal
Express (FedEx) which revolutionized mail delivery, TSMC did something similar in the semiconductor industry. But FedEx doesn't
invent planes. TSMC is better in this regard. We've been developing our own technologies."
TSMC's innovations even extend beyond
the 0.25 micron microchip. It is developing the even smaller 0.18 micron kind. One micron, a millionth of a meter, is a unit
of measurement for the distance between two IC transistors on a silicon wafer. Industry analysts give kudos for this strategy.
Adam Chou, an analyst with Core Pacific, for instance, says this drive to innovate, coupled with its reputation for flexible
manufacturing, may draw even the likes of Intel to source microprocessors from here within the next two years.
Chang says Taiwan has all the prerequisites
to reach the same level as the US and Japan in microchip manufacture. It has both local talent and business experience. But
The pioneering foundry's attempt at
technology development could set off the entire domestic semiconductor industry on the same course for the next decade. This
also has implications on the domestic computer industry much of whose revenues comes from similar outsourcing pacts with US
and Japanese companies. The benefits from subcontracting for foreign firms, however, are too great for most local firms to
abandon it for peddling their own brands.
This new emphasis on innovation is
all the better for Taiwan which has been gripped in protracted soul-searching over competitiveness since it dipped in a worldwide
competitiveness survey and Harvard don Michael Porter berated it for lacking creativity.
Just as in 1987, many industry players
are likely to train their sights on TSMC and scrutinize the results of its technology development before following the same
path. But by the time others start imitating it, TSMC may be starting off on yet another innovative course.