The rise of Chinese chip makers, like Semiconductor Manufacturing International Corp. (SMIC) and Grace Semiconductor Manufacturing Corp., was expected by some observers to mark the beginning of a shift in the center of contract chip making from Taiwan to China. But that was before IBM Corp. began an aggressive expansion of its own contract chip-making business.
Contract chip makers, commonly called foundries, produce chips for companies, such as Via Technologies Inc. and Nvidia Corp., among many others, that don"t have their own chip fabrication plants (fabs). The business is dominated today by two Taiwanese companies, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC), which together are expected to account for 63 percent of the total foundry market in 2003, according to an estimate by Salomon Smith Barney Inc. TSMC alone will account for 44 percent of the market, it said.
IBM"s push to expand its foundry business comes as the contract chip-making business is changing. The industry is showing signs of segmenting into two layers: one comprised of companies that produce chips in volume using older chip-making technologies and another consisting of companies able to produce high-end chips using cutting-edge processes and materials.