UMC chasing TSMC

Electronic News, March 16, 1998 by Dylan McGrath

Taiwanese foundry hopes to dominate industry; service not technology is its secret weapon

Sunnyvale, Calif.--"It is our intent to be number one by the end of the decade," says Don Brooks, United Microelectronics Corp. (UMC) Group International Operations CEO. UMC had 1996 revenues of about $350 million, slightly behind Chartered Semiconductor, according to James Hines, principal analyst at Dataquest, Inc. In 1997, he thinks UMC's revenues were about $500 million, which would put it in a horse race with Chartered Semiconductor in Singapore for the market's No. 2 slot. "It's been kind of going back and forth," Mr. Hines said. "I suspect that UMC may have a slight edge. UMC has an advantage by being located in Taiwan. There is a perception that that is the place to be in the foundry business."

That still places UMC far behind the industry leader, Taiwan Semiconductor Manufacturing Co., whose revenues boasted more than a $1 billion edge over its Taiwanese rival last year. To overtake TSMC, UMC intends to focus on customer services, rather than technology.

"Foundries are a lot like DRAM suppliers in terms of being differentiated," Mr. Brooks said. "There's no Intel in the DRAM business. Some are better than others, but the difference between the best and the third best is not that great. That's a little bit the way the foundry business is."

Mr. Brooks said he thinks UMC has in the past stood above the best in many respects, but he does not see that much difference between UMC and TSMC. "I think what will ultimately make one company stand above the other will be the service," Mr. Brooks said. "It's not going to be technology, per se."

Over the last couple of years, the silicon foundry industry has grown in revenues and significance. According to Mr. Hines, foundry work was worth about $5.6 billion in 1997 to both dedicated foundries and integrated device manufacturers (IDMs) who engaged in it. TSMC, which posted revenue growth of 11 percent last year, remained far and away the leader. Among dedicated foundries, though, the question of who is number two seemingly remains unanswered, at least for now.

Regardless of its current market position, Mr. Brooks said there is no doubt about where UMC is aiming.

To reach the number one position in the foundry market, Mr. Brooks believes UMC will have to offer a wide range of services--those that are not traditionally associated with the foundry business. Mr. Brooks gave a broad definition of services, including design services, where he said UMC will acquire or license EDA technology; delivery capabilities, where UMC must deliver on-time anywhere in the world; time-to-market requirements, where UMC must vow to help customers beat their own time-to-market goals; and intellectual property capabilities and contributions, where acquiring IP or partnering with an IP vendor can save a company months (see related story, page 16). He would like to see UMC evolve into a kind of "one stop shopping" area for customers; a place where they could take a concept and get assistance with the design, purchase IP to add functionality and have the chip manufactured and on the market in far less time than the customer originally thought possible. He also said UMC, as a smaller company than TSMC, can tend to be more flexible in creating solutions for customers.

Technology, of course, remains important to all foundries and their customers. UMC is in production of logic chips with 0.25-micron feature sizes, which began this quarter. The company's roadmap calls for 0.18-micron production on logic to begin in 2Q99. The company currently has DRAM process technology available for 0.30-micron, with 0.25-micron becoming available in 1Q99 and 0.20-micron in 2000.

The company is also far along in developing its copper interconnect process, which it hopes to have available next year. "I don't think we take second to anybody in broad technology," Mr. Brooks said. "In fact in the two key areas of quarter micron and embedded DRAM, I think we might even show some leadership. I hesitate to say we are first, but I also hesitate to say we are second. We are right in the running. Only months separate us at the most. I think this is good for our customers. Our customers need dual sources."

Late last year, UMC entered into a joint venture (JV) with DuPont Photomasks, Inc. (DPI) of Round Rock, Texas (EN, Dec. 22, 1997). The JV, named DuPont Photomasks, Taiwan, will manage and expand UMC's photomask production operations at its wafer foundries in Hsinchu City, Taiwan.

It is the type of agreement Mr. Brooks believes can help customers differentiate between foundries and help UMC gain market share. "We are committed to protecting our customers, upstream and downstream from the foundry business," Mr. Brooks said. "Masks haven't been a big issue in the past, but as you get to quarter micron you can start to see the technology change. It is part of our strategy to have what we feel is a critical part of the technology as a part of the company. We did the joint venture so we could have that close relationship. I also think its going to be a good investment." Mr. Brooks said he expects UMC to next make an investment in design tools.