Moore’s law won’t hold up: chip-maker

SAN JOSE: Even as the semiconductor industry recovers from its worst-ever downturn, chip makers still face volatile swings in demand, slowing innovation and the prospect of massive new output from China, the world's largest contract microchip maker said.

Morris Chang, the chairman and chief executive of Taiwan Semiconductor Manufacturing Co., said that among the industry's challenges was the expense of new chip breakthroughs, predicting that "Moore's Law" would not hold up in the face of the prohibitive cost of building new chip factories, known as fabs.

Named after Intel co-founder Gordon Moore, the now-famous observation holds that the number of transistors that can be packed into an integrated circuit will double every couple of years as the cost halves due to innovation.

"Very few companies can afford $3 billion to build a fab, and after it's built, very few companies need it," Chang told a conference held by the U.S.-Taiwan Business Council. "Moore's Law will have to slow down. It will probably be basically twice as slow." As a maker of chips for other companies, TSMC stands to benefit as manufacturing capacity is consolidated into fewer factories.

Chang also warned that the electronics industry is becoming saturated with semiconductors, with microchips accounting for about 20 percent of the value of electronics equipment on average, a level that has held for the past few years.

"The saturation of semiconductor content in electronics equipment is the principal reason for the slower growth of semiconductors in the future," he said.

Chip makers had been able to grow faster than the consumer end-markets because the percentage of the dollar value of chips within electronics was growing. In the meantime, chip makers are seeking out new production locales with inexpensive, skilled labor.

CHINA SEEN AS RISING CHIPMAKER

China is widely expected to follow the footsteps of Taiwan in becoming a semiconductor manufacturing powerhouse, and Chang said a growth in manufacturing capacity in China could lead to a supply glut in 2005, leading chip makers into recession.

Even so, Chang predicted the coming downturn would be nowhere near as severe as the collapse in demand that took hold in 2001.

Beijing has encouraged chip producers to set up shop in the country, but Chang said China will need managers and sales staff as much as it needs electrical engineers.

TSMC is hamstrung by Taiwanese government regulations preventing the export of advanced technology to China, Chang said, adding that he hoped those restrictions could be lifted.

"I think the restrictions the Taiwan government has imposed have to be lifted first, and I am optimistic that these restrictions will be lifted in a matter of a few years," he said. "After that, I think that China will go on the same journey that Taiwan started almost 20 years ago. Of course China will do it at an accelerated pace."

Last week, TSMC fueled expectations for a recovery in Taiwan's microchip industry when it reported strong August sales. The company said sales last month rose 35.2 percent from last August to US$537 million. The company also said shipments in its third quarter would grow slightly more than it had expected from the previous quarter.

The company's largest customer is Nvidia Corp., which designs graphics chips used in Microsoft Corp.'s video game console.

© Reuters