TCS Daily

Silicon Valley East

By James K. Glassman - July 10, 2000 12:00 AM

Recently I talked about investing in companies that make semiconductors - otherwise known as computer chips. Most of the companies I mentioned are American firms, but of course innovation in the digital age isn't confined to the United States. Another way to play the technology boom while investing abroad is to look to the quiet capital of computer manufacturing - Taiwan, a big player in the manufacturing of chips and other components.

Forbes' Andrew Tanzer refers to this tiny island of freedom as "Silicon Valley East." In contrast to the communist Chinese mainland, which we're trying to yank into the free economy, Taiwan has for many years enjoyed limited government, low taxes and free trade. Throw in inexpensive capital, a lot of US-trained engineers and experienced executives from US firms like Intel and VLSI and you have the makings of a great tech boom.

According to Forbes, Taiwan now accounts for 80% of worldwide production of PC motherboards (this is the central nervous system of a PC, tying together various chips for different functions), and two thirds of global silicon wafer production. (Computer chips are built on a silicon wafer.)

Taiwanese companies like Acer manufacture PCs for many American firms, and many U.S. computer chip companies hire Taiwanese firms, known as foundries, to manufacture their chips. Giant Intel makes most of its chips right here in the USA, but many other U.S. firms farm the work out to Taiwan. Taiwanese firms have developed great process technology for making semiconductors and some firms, like Via Technologies, are designing chips as well.

So how can you benefit from Taiwan's tech-driven economy? Well, if you use any digital products you're benefiting already, but as an investor it can be difficult. I've yet to find a mutual fund to get excited about in this area, and many Taiwanese firms don't trade on American exchanges, but that's beginning to change. Look for an increasing number of Taiwanese tech issues in American stock markets in the months and years to come. In the meantime, here are a few Taiwanese tech firms whose shares are available to you right now:

Taiwan Semiconductor Manufacturing Company (ticker symbol: TSM) is a hugely profitable chip foundry. Even though Taiwan Semiconductor doesn't design chips, it has developed unique methods for making them, and this is a business with fairly high barriers to entry for potential competitors. It now costs $2.5 billion to build a state-of-the-art fabrication plant, known as a fab. And TSM does a terrific job of operating its fabs.

Macronix (ticker symbol: MXICY) is not just a chip manufacturer. This company, led by hardened veterans of Silicon Valley, designs its own memory chips. In recent quarters, Macronix has been delivering fast growth in revenue and earnings.

Siliconware Precision Industries (SPILA) recently began trading on the NASDAQ. This company provides semiconductor packaging and testing services for a range of chip companies.

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