TSMC rushes to build chip factories to meet surging demand

Strong demand at the technology industry bellwether suggests gadget demand is on the rise

Taiwan Semiconductor Manufacturing (TSMC) has sped up construction of new chip factories as demand for chips used in PCs and other gadgets surges.

The world's largest contract chip maker held a ceremony Tuesday to mark the completion of a new building, called Phase 5, which is part of its Fab 12, in Hsinchu, Taiwan.

"Phase 5 is expected to begin volume production in the third quarter of this year to satisfy urgent recent increases in customer demand," TSMC said in a statement. The company will also start construction of a new building, Phase 4 of Fab 14 in Tainan, Taiwan, "to meet customer needs" as soon as the important Lunar New Year holiday is over, TSMC said. The holiday ends Feb. 19 in Taiwan, and the facility should be complete by the end of this year.

TSMC's customers include global chip companies such as Texas Instruments, Qualcomm and Nvidia, which farm out production of some chips to TSMC.

The aggressive building plans and statement on rising demand indicate the recovery in the global technology industry continues to strengthen. TSMC is considered a technology industry bellwether for its size and the range of devices for which it makes chips.

Demand for a range of gadgets appears to be behind the surge in chip demand, particularly PCs, analysts say.

PC demand was stronger than expected in the fourth quarter of last year. It remains stronger than normal this quarter due to brisk demand for laptop PCs with new Intel chips inside, and demand related to the Lunar New Year holiday, wrote Jenny Lai, analyst at CLSA Asia-Pacific Markets in Taipei, in a report published Tuesday.

She increased her forecast for PC shipments to grow 14 percent year-on-year in 2010, up 4 percentage points over her previous forecast.

Last year, global PC shipments rose 2.3 percent to 294.2 million units, according to preliminary figures from market researcher IDC.

Analysts expect TSMC to spend heavily on new chip factories this year due to the need to catch up to customer demand as well as the need to compete against newcomer GlobalFoundries, a joint venture between AMD and Abu Dhabi's Advanced Technology Investment Co. (ATIC), which has already announced big spending plans.

TSMC will likely announce spending plans in excess of US$4 billion this year, up from $2.7 billion last year, said Randy Abrams, chip analyst at investment bank Credit-Suisse, in a report on Monday.

The new building, Phase 5, will mass produce chips with features as small as 28 nanometers across in the fourth quarter of this year, and will also serve as the research base for development of 22nm and more advanced technologies, TSMC said in the statement.

Developing smaller chip manufacturing technology is crucial to meeting user demand for ever smaller devices that can do more, such as smartphones with multiple functions like computing, video and music playing. Smaller etching technologies are also important to improve the speed and efficiency of chips. The more transistors on a chip, the more powerful it is.

TSMC said the Phase 5 building incorporated a number of energy conservation and pollution control concepts in its design, including water conservation and rainwater reclamation, recirculation and reuse of exhaust heat and the use of LED (light emitting diode) lighting.

"Our goal is to reach zero emissions of greenhouse gases," the company said.

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