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Letter from the President

Over the past 3 years, the US-Taiwan Business Council has produced a weekly summary of semiconductor news from Taiwan, China, and the US. This service has been free-of-charge and broadly distributed.

The Council is currently expanding into a suite of products that will extensively cover the semiconductor industry as it relates to Taiwan, China, and the United States. These products will include two weekly eBulletins, a quarterly analysis report, an annual analysis report, and an ongoing series of events that will include a large meeting in San Jose, California on September 15 and 16, 2003. An executive summary of the third quarter 2002 analysis report is included below.

These services, however, will now be available to members only. If you are a member and wish to receive the full suite of products, please forward us your contact information. For our non-members, I hope you will consider membership in our organization as we continue to provide new solutions and services. Our 27 years of unmatched access and experience in the Taiwan market position us perfectly to empower companies in this rapidly developing and increasingly integrated U.S., Taiwan, and China market.

Rupert Hammond Chambers
President
US-Taiwan Business Council

Executive Summary
Semiconductor Report - Quarter 3, 2002
October 1, 2002

The past three months have seen major changes in Taiwan's chip industry. TSMC came of age in July, the government finalized regulations regarding chip investment to China in August, and the industry slump in September forced companies to rethink investment on new plants and equipment. The most important of these events in the long term was the government's list of regulations for chip investment to China, because it finally paved the way for local chipmakers to move into action on plans that have spent months fermenting. It will have long-term implications for the entire chip industry and for Taiwan in particular.

With the rules finally out, companies have begun to announce deals. The largest chipmaker in Taiwan, Taiwan Semiconductor Manufacturing Co (TSMC), has already announced it will build a plant in the Songjiang Industrial Park, near Shanghai. Others are expected to follow suit in the coming months.

The chip industry 'double dip' has also made a major impact in Taiwan. Hard times have elicited a tough response from firms who are paring back on equipment and new plant spending this year. Those that do require new gear are taking advantage of discounts on an avalanche of second-hand equipment from Japan and elsewhere. Although these trends bode ill for semiconductor equipment makers in the US, there are some very real opportunities in 12-inch equipment sales as well as products that can be used by the TFT-LCD panel industry. This year, Taiwan is slated to surpass Japan for the first time ever as the second largest buyer of chip equipment in the world after the United States.

The focus of this report will be on China - the myths and opportunities and how it could transform itself over the next few years into a real contender with help from Taiwan. With Taiwanese foundries leading the charge into China's US$13 billion (NT$454.91 billion) a year and growing chip market, the future bodes well for both economies. The growth of China's chip sector will have major consequences for the US semiconductor industry as well, particularly on sales of chip equipment. European firms have gained a march on their US counterparts in this area, and it will be interesting to see how the US government responds.

Table of Contents
Letter from the President 1
About the US-Taiwan Business Council 3
Semiconductor Analysis 5
Introduction 5
State of the Industry 5
TSMC comes of Age 6
Taiwan's chip industry heads for China 9
The China Market 9
Taiwan's impact on China 11
Equipment Makers steal into China 13
Chip Equipment sales Falter in Taiwan 14
Opportunities in 12-inch plants and TFT-LCD panels 14
TFT-LCD Panel Makers 14
Conclusions 14
Taiwan Semiconductor Industry/Government Contact Information 17
Biographies of Taiwan Government Contacts 27
United States Semiconductor Industry/Government Contact Information 37
Biographies of US Government Contacts 45
Suggestions of Sources for Taiwan Semiconductor Industry Information 59
Semiconductor Headlines: Second Quarter, 2002 61
Appendix: Trends in Trade and Investment 71

This report is available to our members starting October, 2002. To purchase a copy of this report (US$50 for non-members), use this order form.

If you have any questions about the report, please contact Judson Payne, the Council's Director of Corporate Affairs. You can also call us at (703) 465-2930, or email us at Council@us-taiwan.org.

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