TSMC to build six Taiwan chip plants

By CNN's Kristie Lu Stout

TAIPEI, Taiwan (CNN) -- Taiwan Semiconductor Manufacturing (TSMC) plans to spend $20 billion to build six next-generation chip plants in Taiwan.

The expansion plan comes as the chip sector slowly recovers from its worst slump in history.

Global semiconductor sales are expected to fall 32 percent this year to $139 billion, according to the World Semiconductor Trade Statistics industry group. But many analysts believe the bottom may have been reached.

Analysts say political factors may have prompted TSMC's move, with Taiwan's unemployment rate surging as the island's manufacturers move production across the Taiwan Strait to mainland China.

Taiwan commitment

TSMC plans to build one plant in Hsinchu, with the other five to be set up in the Tainan Science-based Industrial Park in southern Taiwan.

Taiwan chipmakers had expressed concern that vibrations from a planned neighboring railway would disrupt chip production at the science park.

Concern over the issue spurred TSMC as well as rival United Microelectronics Corp (UMC) to postpone expansion plans in the area.

"The mass transit system and the vibrations raised questions on longer-term viability," said Merrill Lynch head of semiconductor research Daniel Heyler.

"But TSMC has reassured Taiwan that they are committed to the park."

TSMC in recent months had expressed interest in establishing operations in China, heightening local concerns.

But analysts say it would take several years before TSMC would start production there.

"That remains a very long-term strategy to build up a presence in China in a service and support standpoint," said Heyler.

"But we believe TSMC's likelihood to build a plant in China the next few years is very low."

Global glut

TSMC, the world's biggest contract chipmaker, is expected to post a rise in third-quarter profit on Friday.

Chip firms Samsung Electronics, Chartered Semiconductor and Fujitsu this week reported significant chip revenue fall-offs, fueled by a weak global demand in consumer electronics and personal computers.

A global glut of microchips has pushed chip prices to rock-bottom levels. Prices in DRAM chips, the least profitable semiconductor category, have fallen 90 percent over the last year.

But TSMC's decision to build the expensive, high-end plants during a severe chip slump does not worry industry analysts.

Though the chipmaker did not reveal a time frame for building the $20 billion plants, analysts believe it would take well over ten years -- or a few chip cycles -- before that kind of money could be spent.

"In the next ten years, there will be one or two bottoms for the semiconductor cycle," said Daiwa regional research head Pranab Kumar Sarmah.

"I think this is nothing new. What we need to know is (TMCS's) capex plan for next year. That is more important -- to know about their current cycle."