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As the demand towards leading-edge electronics equipment generally softens, the demand towards semiconductors lowers too and during the tough times for the industry mergers and restructures are all but possible, says United Microelectronics Corp.’s chairman emeritus Robert Tsao.

“This year, almost everyone senses pressure, and so I think this will be the year for consolidation and restructuring, including mergers and acquisitions. There will more Taiwan, Japanese, American or even Singapore companies involved in cross-border transactions, across all segments of the chip business,” said Robert Tsao, chairman emeritus of United Microelectronics, in an interview with Forbes.

A lot of semiconductor companies these days collaborate on fabrication process development as well as in fundamental research and development. However, the time has come for an even closer collaboration, in wafer manufacturing, for example, believes the industry expert.

“From wafer manufacturing [to] testing [and] assembly – it will happen everywhere. Basically, the whole electronics industry is an overcapacity stage, and you need restructuring to solve that,” said Mr. Tsao.

There are a lot of talks all over the industry about joint operation of semiconductor facilities. Numerous makers of dynamic random access memory (DRAM) formed joint-ventures to produce chips years ago, but there are not a lot of jointly owned and jointly operated foundries to make considerably more complex devices. For instance, Advanced Micro Devices, the world’s second largest producer of x86 microprocessors which has had capacity constraints for years, said recently it would slow-down the activation of its Fab 38 due to slowing economy and negative seasonality.

“I am not turning on the [fabrication] tools if I do not need to execute them in the manufacturing environment, and so that is why depreciation is a little bit less. We did not feel like we needed to turn them all on as fast as we originally forecasted based upon the economic view and the current realities of the first quarter,” said Dirk Meyer, president and chief operating officer of AMD, during the most recent conference call with analysts.

Years ago AMD already said that it would gladly make chips for its partners using its own capacities that are not used, but in the recent quarters rumours emerged that AMD could jointly own and operate a fab with a partner like Taiwan Semiconductor Manufacturing Company (TSMC) or United Microelectronics Corp. (UMC)

“Mergers and acquisitions usually take two to four quarters to work. The quicker the restructuring, the better the chance there will be a recovery quickly. There is too much overcapacity out there, so probably that would be the time frame we are talking about,” Mr. Tsao noted.

Earlier this year Elpida Memory and UMC agreed to jointly pursue semiconductor foundry opportunities in Japan. Under this agreement, Elpida will provide its 300mm wafer manufacturing capacity while UMC will contribute the IP support and logic production technologies. The joint effort, targeting Japanese foundry customers, will commence at Elpida’s 300mm fab in Hiroshima. The cooperation provides proximity and ease of support for Japan-based foundry customers of UMC and allow Elpida to utilize its manufacturing capacities more efficiently.

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