TSMC boosts chip production on demand from Apple suppliers

Unexpected demand from Apple suppliers and other customers has prompted TSMC to invest in more chip production capacity

Taiwan Semiconductor Manufacturing Co. is expanding capacity this year following recent unexpected demand from customers including Apple suppliers, it said Wednesday

The move may signal strong 2011 production of the iPad 2 and new smartphones from any number of manufacturers.

The Taiwanese manufacturer's plans for this year indicate that Apple is aggressively pushing its iPad 2 and the next iPhone, analysts believe. In some markets, the release of the iPad 2 may be delayed from April to June, analysts say.

"We estimate that demand for those chips will come up in the second half of the year and then grow in 2012," said Nobunaga Chai, an analyst with DigiTimes Research in Taipei.

Makers of new smartphones are also expected to buy chips from TSMC, Chai said. Those purchases would be used for mobile CPU chips.

TSMC needs to ramp up capacity 19 percent this year and perfect newer manufacturing processes to meet that demand, company spokeswoman Elizabeth Sun said.

"In the last year and a half we've constantly run short of demand," Sun said.

TSMC, with annual capacity of 11.3 million eight-inch wafer equivalents, took a barb from Intel CEO Paul Otellini last week, Sun said. Otellini has been quoted saying that TSMC and California-based Globalfoundries had generated overcapacity to take market share. The cycle of high demand leading to overcapacity is one of the major causes of volatility in semiconductor prices.

However, TSMC's factories are producing more than their designed-for capacity, Sun said: "Obviously we don't think we over-invest."

TSMC is hardly alone. Integrated circuit manufacturer revenue in tech-intensive Taiwan grew about 39 percent between 2009 and 2010, coming to about NT$1.1 trillion last year, the National Science Council said on Wednesday. TSMC reported 42 percent sales growth in 2010.

Gradual recovery in electronics demand from Europe and the U.S. allowed that growth, the council said in a report.

Other major semiconductor makers such as Taiwan's United Microelectronics, have been expanding to keep up with TSMC, Chai said. But semiconductor prices have not risen along with those expansions, as chip designers saddled with large inventories are not aggressively buying, he said.

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