NEC partnership opens door to Japan for TSMC

Contract chip manufacturer Taiwan Semiconductor Manufacturing Corp. (TSMC) strengthened its foothold in Japan on Wednesday, striking a deal with NEC Corp. under which the Japanese electronics giant will optimize designs of some of its chips for production using TSMC's 0.10-micron manufacturing process.

"It looks like it will be a very good project for both parties," said Ben Lee, principal semiconductor analyst at Gartner Inc. The deal gives TSMC experience with volume production using the 0.10-micron process while NEC avoids having to invest in its own 0.10-micron production facility, he said.

Chip manufacturing technologies are often referred to by the size of the smallest feature which can be etched on a chip, in this case 0.10 microns (millionths of a meter) wide.

For TSMC, the partnership with NEC is also an important chance to win more orders from Japan, Lee said. Because Japanese companies tend to work with partners on a long-term basis, the deal between NEC and TSMC could lead to additional business opportunities for the contract chip maker, he said.

Both TSMC and rival Taiwanese chip maker United Microelectronics Corp. (UMC) have aggressively courted Japanese customers, Lee said. UMC, in particular, has built strong connections with Japanese companies, including a joint-venture wafer foundry with Hitachi Ltd., he said.

"Japanese companies won't invest much for production," Lee said. "They tend to release their semiconductor production to those dedicated foundries, especially TSMC and UMC."

Under the partnership agreement announced Wednesday, NEC will work with TSMC to set design rules and transistor characteristics for LSI (large-scale integrated circuit) chips designed by NEC to optimize the designs for the 0.10-micron production process. The companies are working together as part of a program announced by TSMC in April that is intended to reduce the time it takes to reach volume production of chips. The program aims to coordinate the chip maker's process development efforts with the technology requirements of major customers, including NEC.

TSMC spokesman J.H. Tzeng would not comment on collaboration between the chip maker and other companies regarding the transition to a 0.10-micron process, saying the company does not discuss the activities of its customers.

"NEC is the only one (of our customers) that has made an announcement," Tzeng said. "We certainly believe that there will be others."

While TSMC plans to begin production using its 0.10-micron process during the third quarter of 2002, NEC will start accepting orders for the 0.10-micron version of its LSI chips in early 2003, the company said Wednesday. The chips will be used in applications including consumer electronics, mobile phones and telecommunication equipment.

Like TSMC, rival chip maker UMC plans to begin production using its 0.10-micron process during the second half of 2002. UMC is working closely with IBM Corp. and Infineon Technologies AG to develop its 0.10-micron process, said Alex Hinnawi, a spokesman for UMC. The collaboration is an part of joint development efforts that started with the 0.13-micron process currently entering production, he said.

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