TSMC closer to starting chip production in China

More than one year after receiving initial approval from Taiwan’s government, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world’s largest contract chip manufacturer, is on track to start production before the end of this year at a chip fabrication plant (fab) under construction near Shanghai.

“That’s our expectation,” said J.H. Tzeng, a spokesman for the company in Hsinchu, Taiwan.

Taiwan has moved cautiously to permit the island’s semiconductor makers to move production to China. Some officials have expressed fears that moving too quickly would lead chip makers to shift their production to China from Taiwan and hurt the development of Taiwan’s semiconductor industry.

Starting production at a fab in China will help TSMC in two ways. The company’s fabs in Taiwan are all running at or near full capacity as semiconductor demand has risen steadily in recent quarters. The extra production capacity at the fab in China can help TSMC meet this rising demand.

The plant will also help TSMC to better compete against rivals in China, such as Semiconductor Manufacturing International Corp., which benefit from a Chinese tax policy that provides a rebate of a value-added tax (VAT) on chips for some semiconductors produced domestically. The chip VAT rebate is not offered for chips produced outside China.

While TSMC expects to begin production at the fab near Shanghai before the end of this year, the company is still awaiting the second phase of approval from Taiwan’s government required to begin moving in chip-manufacturing equipment at the fab near Shanghai, Tzeng said. TSMC has not received any indication of when the government will give the go ahead for the company to begin moving in equipment, he said.

Taiwan’s Ministry of Economic Affairs (MOEA) gave its preliminary approval of TSMC’s plans to open a fab in China in January 2003. Under plans submitted to the MOEA in September 2002, TSMC is seeking approval to established a Chinese subsidiary, tentatively called TSMC (Shanghai) Corp., and will invest US$898 million [M] in the subsidiary to construct a 200-millimeter fab in Shanghai’s Songjiang Science Park.

Last week, TSMC cleared a major hurdle required for receiving second-phase approval from the government when the MOEA issued a statement that the company’s 300-millimeter fab in Hsinchu, Taiwan, is operating at near full capacity. Government certification that the 300-millimeter plant is running at full capacity is one of the requirements for approval of TSMC’s plans to begin chip production in China.

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