Taiwan's IC Industry: Review of Q1 and Outlook for 2007

Taiwan's IC Industry: Review of Q1 and Outlook for 2007

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ITRI IEK-ITIS Project

1. 2007 Q1 Industry Overview

According to statistics released by the Industrial Economics and Knowledge Center (IEK) of the Industrial Technology Research Institute (ITRI), the production value of Taiwan's IC industry (including design, manufacturing, packaging and testing) was NT$339.5 billion in the first quarter of 2007. This represented a drop of 11.4% over the previous quarter (Q4 2006), but an increase of 10.6% relative to the first quarter of 2006 (the same period of the previous year). The design sector accounted for NT$84 billion (down 9.3% from Q4 2006, up 15.4% from Q1 2006), manufacturing for NT$182.5 billion (down 14.6% from Q4 2006, up 11.6% from Q1 2006), packaging for NT$50 billion (down 6.5% from Q4 2006, up 2.0% from Q1 2006), and testing for NT$23 billion (down 2.1% from Q4 2006, up 6.0% from Q1 2006). The following is a survey of the performance of Taiwan's IC design, manufacturing, packaging, and testing industries during the first quarter of 2007.

A. IC Design

In LCD-related IC design, revenue growth slowed due to the influence of flat screen product shipments during the first quarter; shipments of optical storage chipsets and DVD player chips remained steady. Shipments of low-grade mobile phones from China and India increased steadily, boosting mobile phone IC manufacturers' revenue. In the area of information product chipsets, Intel's and AMD's increasing focus on the embedded market, as well as NVIDIA's and ATI's reliance on their dominating graphics technology to lock up market share, has constricted the market for Taiwan's PC chipsets. In summary, the IC design sector had a production value of NT$84 billion during the first quarter of 2007; this figure was down 9.3% from the fourth quarter of 2006, but up 15.4% from the first quarter of 2006.

B. IC Manufacturing

Among Taiwan's two leading IC foundries, TSMC had revenue of NT$63.3 billion during the first quarter of 2007--a drop of 14% relative to the previous quarter--while UMC had revenue of NT$23 billion--which was similarly down by 12% over the previous quarter. These drops can mainly be attributed to customers' inventory adjustments. Spot prices of mainstream 512Mb DDR2 DRAM quickly fell from US$5 to below US$3 during the first quarter, and are now very close to manufacturers' production cost, which has also affected revenue performance. IC manufacturers had a production value of NT$182.5 billion during the first quarter of 2007; this represented a drop of 14.6% from the fourth quarter of 2006, but growth of 11.6 from the first quarter of that year.

C. IC Packaging and Testing

Seasonal factors and unfavorable market conditions caused the packaging and testing industry fall into a slump during the first quarter. Continued demand for packaging and testing of LCD driver ICs, memory cards, computer chipsets, chips for 3G mobile phones, and other communications and graphics chips will drive grow in the future, however. In summary, the IC packaging industry had production value of NT$50 billion during the first quarter of 2007, down 6.5% from the final quarter of 2006, but up 2.0% from the first quarter of that year. The testing industry had production value of NT$23 billion during the first quarter, which was down by 2.1% from the fourth quarter, but up 6.0% from the first quarter of 2006.

2. Outlook for the Second Quarter and all of 2007

In the design sector, demand will be driven by systems companies' continued introduction of popular new products like the Nintendo Wii, the Sony PS3 and the Apple iPhone. Taiwan's IC design industry is also expected to benefit from the ongoing effects of Microsoft's Vista, demand sparked by falling digital TV prices, and other business opportunities created by popular products. The IC industry is projected to have a production value of NT$87 billion during the second quarter, and achieve 3.6% growth relative to the first quarter. Production value for all of 2007 is projected to be NT$361.5 billion, which represents growth of 11.8% over 2006.

In the manufacturing sector, continued inventory adjustments by foundry customers will lead to a steadily increasing proportion of 90nm and 65nm advanced process product shipments. It is expected that Taiwan's IC foundries will have a second-quarter production value of NT$102.9 billion, a rise of 12.6% from the first quarter. The price of DRAM has fallen steadily, and is seen as bottoming out during Q2. This will drag down manufacturers' revenues and profits. The IC manufacturing industry as a whole is projected to have a production value of NT$172.9 billion during the second quarter, a 5.3% drop relative to Q1. The industry's production value for all of 2007 is projected to be NT$833.4 billion, growing 8.7% from 2006.

In the packaging and testing sector, demand for packaging and testing of chips used in PCs, mobile phones and digital consumer electronics products and peripherals may grow. Microsoft's Vista is expected to sustain growth in PC-related markets. The 2008 Beijing Olympics should also provide opportunities for the consumer electronics industry. Demand for mid-range and low end products in India and other emerging markets will continue. The production value of the packaging and testing industry is expected to reach NT$76.5 billion in the second quarter of 2007, an increase of 4.8% over the first quarter. Production value for all of 2007 is projected to be NT$341.3 billion, an increase of 12.6% relative to 2006.