UMC seeks control of Japan joint-venture fab

TAIPEI, Taiwan — United Microelectronics Corp. is seeking to gain management control of its 300-mm wafer joint venture with Hitachi Ltd., UMC chairman and chief executive Robert Tsao said Friday (Feb. 8). The aim is to improve foundry access at the Japan-based facility for fabless companies and integrated device manufacturers, which may be competitors with the Japanese electronics giant, Tsao said. If the two sides cannot reach an agreement, then UMC will drop out of the venture, he added.

In a wide-ranging interview with EE Times, Tsao also disclosed the company's plans regarding investment in China, Singapore and Taiwan and its strategy for diversifying its customer mix to lessen its reliance on telecommunications customers. The latter exacerbated the Taiwanese foundry company's woes during the worst of the 2001 downturn.

Tsao said UMC is seeking management control of Trecenti, a fab capable of producing 40,000 twelve-inch (300-mm) wafers per month, but he was uncertain whether a deal would be struck. Originally, when UMC and Hitachi entered into the joint venture, Hitachi agreed to eventually cede control of the fab to UMC. But since then, changes in management at Hitachi have cast some degree of uncertainty over whether this will happen.

In good times, one of the problems for foundry customers at the fab is a possible conflict of interest on Hitachi's side in letting potential fabless competitors book capacity. "We think that if we have a majority share and can control the fab it will be easier to do business with others. So we proposed that," Tsao said. "If we cannot get control, it will make it more difficult to do foundry [production] for others. Either we take over or we sell the shares back."

UMC has two other 300-mm wafer joint ventures on the drawing board, one with Infineon Technologies AG and the Singapore Economic Development Board, and another with Advanced Micro Devices Inc. Both are in Singapore, each will cost around $3.5 billion and each will have a capacity of about 40,000 wafers per month. UMC is also now ramping a 300-mm wafer fab that it wholly owns in southern Taiwan.

The agreements with AMD and Infineon look less likely to encounter the growing pains of the Trecenti joint venture, which was UMC's first entry into 300-mm wafer technology. The Infineon-UMC fab, called UMCi, is majority-owned by the foundry, and the AMD-UMC fab, called AU, is a 50-50 split and will be co-managed.

Yet the most important differentiation among the Singapore and Japan deals is the existence of manufacturing-technology development agreements and foundry relationships, Tsao said. UMC started collaborating on process technology with IBM Corp. and Infineon at the 0.18-micron node and continues to do so. It will soon start to work with AMD on microprocessor manufacturing technology, too.

"The lesson we learned is that we should align the JDP [joint development program] with the foundry relationship and the JV [joint venture]. If you have this alignment, a lot of things will go very smoothly. If you don't have this, then you won't be connected and some time down the road you may have a business issue," he said. "In the AMD case, we have the JDP, foundry and the JV all tied up into a solid alliance. Hitachi was a JV. There was no foundry relationship between UMC and Hitachi."

Where to build?

UMC plans to continue its strategy of diversifying the locations of its fabs, Tsao said, ensuring that the next generation of plants isn't as concentrated as the current ones are in Taiwan, thus lessening their vulnerability to natural disasters. In 1999, a major earthquake temporarily crippled Taiwan's electronics industry, causing shortages worldwide. "Too much concentration in one place sometimes may cause concern among the customers," Tsao said.

But there are other reasons to diversify away from Taiwan as a foundry base. AMD looked at southern Taiwan as a potential location for a recently announced joint venture, but did not think the area's quality of life would have been acceptable to the numerous foreign engineers who would need to work there. The region is still relatively undeveloped, with numerous farms and fields ringing the Tainan Science Park.

Compared with Singapore, Shanghai or even Hsinchu, it would have been a hard sell, analysts said. Tsao acknowledged that Singapore had a lot more to offer in tangible and intangible incentives for the companies.

Initially, UMC and its rival, Taiwan Semiconductor Manufacturing Co., both signed on to build fabs in the park. Recently, however, UMC has relinquished the rights to three sites, in part because of a high-speed train project that is running through the park. Potential vibrations from the train, which will be completed in 2005, are making chip executives in the park nervous.

Even so, UMC still has one 300-mm wafer fab running there and room for one more, with a combined output of 80,000 wafers per month. "That's massive," Tsao said. "So we don't need the additional expansion space. Besides, if some day we want to expand, we will move farther away from the railroad."

Tsao also noted that UMC has room to grow in Singapore. Beside the UMCi and AU ventures, there is room for another two-module "megafab" with a capacity of 80,000 wafers per month.

It is also likely that the company will continue to form joint ventures for 300-mm fabs to mitigate the risk of research and development as well as facilities build-up, Tsao said. However, he did not rule out UMC's building 300-mm wafer fabs on its own.

China fever

Over the past few months, Taiwan's government has been mulling whether to lift restrictions on local companies' investment in 200-mm wafer ventures in mainland China. The current rule is in place to guard against the transfer of technology that is now at the core of Taiwan's electronics industry success. It also serves to lessen the island's economic reliance on China, which view's Taiwan as a "renegade province" it lost at the end of the Chinese civil war in 1949.

Also for months, the island has bubbled with rumors of the foundries finding ways to circumvent the restrictions so they could get a toehold on the mainland and remain competitive with smaller foundries that have already done so — among them Singapore's Chartered Semiconductor Manufacturing and Shanghai's Semiconductor Manufacturing International Co.

In January, UMC sold off enough 200-mm (8-inch) lines to produce 35,000 wafers per month. Speculation is rampant as to whether that equipment will end up in China and, in return, whether UMC would opt for an equity stake in a company building a fab in China instead of cash.

"We don't think it's justifiable to build a brand new 8-inch fab over there. But if you move around some 8-inch fab equipment from someplace to China it makes perfect sense," Tsao said.

"With this [government] restriction, our strategy will be that if someone wants to put together a project to build a fab in China, instead of us investing we would probably give our promise to them so that they have a chance to sell their fab back to us sometime down the road after the restriction is lifted," Tsao said.

Communications: Boom or bust?

UMC will stick with its emphasis on communications, despite suffering more than TSMC during the downturn because of a greater concentration in that market segment. "The telecommunications area still offers the highest growth rate among all the application segments," Tsao said. "Although last year wasn't so good, our customer base can provide us with good potential for very fast growth. So we are not going to abandon that."

Yet the company will more aggressively pursue PC-related customers, such as graphics chip makers like ATI Technologies and Nvidia Corp. Although the growth is more limited in these segments, it is a larger, more stable customer base, Tsao said.

Tsao thinks his foundry — and others — will do better during the next industry downturn that it has during this one, when as much as 70 percent of the foundry's capacity sat idle and the company lost money for the first time since turning to the foundry model in the mid 1990s.

Outsourcing by integrated device manufacturers (IDMs) will continue to grow after a brief pullback last year, Tsao said, and that will cushion the effects of future downturns. "Especially in the 12-inch era, the chance of reversing outsourcing will be very much minimized because there will be very few internal 12-inch fabs to allow the IDMs to go back.," he said.