Taiwan Semiconductor Manufacturing Company

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Taiwan Semiconductor Manufacturing Co., The Semiconductor Services Company

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[Type the company name]

Taiwan Semiconductor Manufacturing Co., The Semiconductor Services Company

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| |
| |
| |
| |
| |

STUDY QUESTIONS

Taiwan Semiconductor Manufacturing Company

1. Explain the “foundry model” that TSMC carved out in the semiconductor industry. How does it differ from the conventional business model?

A typical semiconductor manufacturing company can be categorized into one of these two groups and they are as follows :

IDMs - Prior to the emergence of foundries, all IC manufacturers in the IC industry were Integrated Device Manufacturers. These fully integrated manufacturers had the ability to design, fabricate and market their own products while some even had the abilities to build their own production equipment. Included in the group of IDMs are both systems companies such as Hitachi, IBM and chip companies such as Amtel and Microchip. These IDMS were reluctant outsource their chip production because they viewed fabs as providing leverage in acquiring ideas for new chip designs. However, rising production costs in countries such as the United Stated forced these IDMs to start outsourcing their products to more efficient manufacturers such as Toshiba in Japan and Samsung in Korea.

Foundries : Entrepreneurs started fabless companies in the late 1980’s when they realized that they can utilize these production facilities in other countries. These firms generally have high profit margin and strong cash flows, reflecting the relative lack of capital intensity in their business model. It opened the door for the foundation of foundries and in 1987, Taiwan Semiconductor Manufacturing Company was founded. TSMC was the first pure “foundry,” a pure chip manufacturer without a product of its own. It produced a win-win situation for both the fabless companies as well as the foundries as each were able to locate and concentrate their resources to the area of expertise.

2. How should TSMC respond to large-scale entries by new foundries in the mainland China?

China is one of the biggest markets for semiconductor. One study suggests that China consumes 33% of the global market for semiconductors. However, Chinese have been unable to achieve success in the lucrative segments of semiconductor design and front-end manufacturing for the following reasons.

“First, China exerts little influence on semiconductor design and selection in major production categories such as mobile phones and laptop computers. The majority of design decisions for these goods are made by global champions—such as Nokia, Acer, and Apple—in their home countries, at the headquarters level.

Second, the home countries of major semicon­ductor companies ban the export of leading-edge manufacturing technologies to China. Both the United States and the island of Taiwan prohibit the export of equipment used to manufacture sub-65-nanometer process technologies, which leaves mainland Chinese foundries two generations behind the current 32-nanometer standard.

Third, concentrated clusters of semiconductor excellence failed to fully develop in China. Instead of focusing investments on one location, as did the island of Taiwan with Hsinchu Science Park, the Chinese government made invest­ments in multiple provinces, setting up semicon­ductor fabrication plants as far north as Jilin and Dalian, as far south as Shenzhen, and as far west as Chengdu. In all, fabs capable of producing more than 1,000 wafers per month are spread across 19 cities. Because the industry was so fragmented, government support did not lead to the formation of a vibrant semiconductor ecosystem in any single location.

Fourth, and perhaps most important, foreign players own most of the intellectual property throughout the semiconductor value chain. Applied Materials, for...
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