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TSMC celebrates 20 years in chips with new forecast

By Dan Nystedt , IDG News Service , 04/30/2007
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Taiwan Semiconductor Manufacturing, the world's largest contract chip maker, celebrated 20 years in business on Monday with a new growth forecast for the global chip industry.

Chip industry revenue overall will grow by 5% to 10% per year over the next decade, and the contract chip manufacturing sector will continue to outpace the industry average, said Morris Chang, chairman and founder of TSMC, speaking at a conference in Taipei.

Last year, global industry revenue increased 8.9% over 2005 to a record high $247.7 billion, according to the Semiconductor Industry Association (SIA), a global trade group.

It's a bold prediction for what appears to be a maturing company, with $9.7 billion in sales last year and tough competition. The fastest phase of TSMC's growth came in the first decade and a half of its life, peaking about the same time as the dotcom bubble, and market leaders almost always lose market share to competitors as their industry expands.

TSMC manufactures chips that are designed by other companies, a business model it pioneered. Prior to the Taiwanese company's founding, small chip design firms had to ask Intel and other big chip makers to make their chips, and these companies would only comply if their factories weren't already full. The smaller companies had no choice. Setting up their own chip factory would have cost around $1 billion each, a huge hurdle for a new company. Today, such plants cost $3.5 billion.

Chang founded TSMC to take over the manufacturing side of the business, giving small chip designers a chance by ensuring they had reliable production and didn't have to pay the hefty price tag of a new chip factory just to get into the business. The result has been steady growth for the foundry industry and the chip design companies they service.

Last year, the chip design industry accounted for 20% of global chip revenue, or $49.7 billion, according to the Fabless Semiconductor Association. Mobile phone chip developer Qualcomm and graphics chip designer Nvidia are two examples of chip designers that have been wildly successful, despite not owning their own factories.

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