TSMC Raises Capex as Samsung Eyes Foundry Market

Published April 09, 2012

| Reuters

Asian chipmakers, from Taiwan foundry maker TSMC to South Korean memory chip heavyweights Samsung Electronics and SK hynix , are eyeing record investments and big acquisitions as they vie for a bigger share of the booming mobile market.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's top contract chipmaker, said on Monday that it would increase 2012 capital spending and also invest more than T$350 billion ($11.9 billion) in advanced production technology in Tainan, southern Taiwan, over the coming years.

The move comes as Samsung, the world's top memory chipmaker, rapidly encroaches its territory with record investment plans in a bid to expand into non-memory chip and foundry chip making, and embarks on a $7 billion chip investment plan in China, its biggest overseas chip investment.

Samsung said in late January it would spend 15 trillion won ($13.3 billion) in semiconductors this year and analysts expect spending in non-memory chips such as mobile application processors (AP), used to power smartphones and tablets, to exceed spending on its bread-and-butter memory chips for the first time.

"The great thing about media tablets is that they drive markets for a wide variety of semiconductor products," said Dale Ford, an analyst at IHS iSuppli.

"We are now seeing designs that include four processor cores on a single chip. In addition to AP, there are chips required for communications... and if the tablet supports cellular data, it will include a baseband processor and RF ICs. These products are key drivers of demand for flash memory and mobile DRAM also."

Global smartphone market is expected to grow around 40 percent this year, while overall cellphone market growth is estimated at only 7 percent, according to research firm Gartner.

SAMSUNG TARGETING TSMC

Samsung is already the world's biggest AP manufacturer and is riding a boom thanks to roaring sales of Apple's iPhone, iPad as well as its Galaxy line of smartphones and tablets.

"Samsung's AP business is very much customized and counts just two customers--Samsung itself and Apple ...But what it eventually is aiming for is to become a major foundry company like TSMC by producing more commodity chips designed by the likes of Qualcomm, Texas Instruments, and Nvidia," said Greg Noh, an analyst at HMC Investment Securities.

"It's attractive market with high profit margin and the industry is set to grow led by mobile devices. Samsung is naturally setting its eyes on the sector as there are not many competitors in the sector capable of meeting growing demand except TSMC."

Foundry makers manufacture chips for customers who lack their own fabrication plants.

TSMC, which makes chips for Texas Instruments and Nvidia among others, had an operating margin of 33.15 percent last year and enjoys over 50 percent of the global foundry market. competing with UMC and Global Foundries.

"I see the main competition between the two companies will happen next year if Apple gives its A7 20nm (nanometer) chip orders to TSMC, then Samsung will have over-built capacity," said Patrick Liao, Nomura analyst.

"You can say part of the investment of TSMC is for getting ready for Apple orders."

The investment decision by TSMC came after the company said last month it may enhance its advanced 28 nanometer process technology to meet rising demand for the technology.

A of TSMC fell 0.95 percent versus a 1.4 percent drop in the broader Taiwan market. Samsung closed down 1.1 percent in Seoul, beating a 1.6 percent drop in the KOSPI.

Global chipmakers from Micron Technology to Toshiba Corp and SK hynix are interested in Japan's bankrupt Elpida Memory, as they seek to better compete with Samsung, which is in a dominant position in DRAM (dynamic random access memory) chips used mostly in laptops and computers and mobile chip packages.

As chip price volatility increase, producers are moving up the value chain by bundling various chips such as AP, baseband chips, mobile DRAM and NAND "flash" chips together in a package.

"If Micron or Formosa, who are already involved in the DRAM business, acquire Elpida, this would be positive, as it would reduce supply," said Brian Park, an analyst at Tongyang Securities.

"However, if Toshiba takes over Elpida, this could pose a threat to Korean rivals, given possible synergies between the mobile DRAM and NAND businesses." ($1 = 29.50 Taiwan dollars) ($1 = 1127.2750 Korean won) (Reporting by Argin Chang, Clare Jim in TAIPEI, Miyoung Kim in SEOUL; Additional Reporting by Lee Chyen Yee in HONG KONG; Editing by Matt Driskill and Alex Richardson)

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