TSM Taiwan Semiconductor Manufacturing Co Ltd

Taiwan Semiconductor Manufacturing Co., plans to build a $3 billion advanced chip plant in China, as the world's largest chip maker by revenue bets that cost advantages outweigh any potential competitive threat.

The move to build a fabrication plant in the eastern Chinese city of Nanjing comes as Taiwan debates the role of the mainland for its chip makers, a flagship industry for the island. Taiwan's government restricts its chip makers' manufacturing activities in China due to concerns that its larger neighbor will eventually gain the know-how to build a competing chip industry of its own.

Already, China has moved to bulk up its chip industry, which it sees as essential to moving up the value chain of products it makes as well as securing a safe domestic source of components. Its chip makers have moved to consolidate and to look for deals abroad.

Still, Taiwanese chip makers have advocated for freer cross-strait investment for their industry, arguing it is necessary for them to stay cost competitive against Chinese rivals. TSMC's proposed factory was expected after Taiwan loosened regulations this year.

TSMC is one of several major semiconductor companies that have announced new investments in China this year. But while some international chip makers have struck joint ventures with Chinese companies, TSMC's new plant will be wholly owned, as the company seeks to maintain its technology edge over its Chinese counterparts.

TSMC said Monday it had submitted an application to Taiwan's Ministry of Economic Affairs to build a wholly owned manufacturing facility for 12-inch wafers and a design-service center in Nanjing. Thin slices of silicon, or wafers, are a key part of chip manufacturing, with wafers of larger diameter better but harder to make.

Taiwan announced over the summer it would allow its companies to open this specific kind of chip factory in China. The company expects production to start in the second half of 2018.

The entire project's investment is valued at $3 billion, but the actual capital investment will be less than that, TSMC said.

TSMC already has a less-advanced eight-inch wafer plant in China.

Qualcomm Corp. announced in June it would form a joint venture with TSMC's main Chinese rival Semiconductor Manufacturing International Corp. to help it make more advanced chips.

Intel Corp. said in October it would spend as much as $5.5 billion to convert its semiconductor fabrication plant in Dalian, China, to make "leading-edge" memory chips.

Experts say that despite the growing ties between foreign and Chinese chip makers, China's capabilities still remain well behind the rest of the industry.

Write to Eva Dou at eva.dou@wsj.com and Chester Yung at chester.yung@wsj.com

(END) Dow Jones Newswires

December 07, 2015 11:15 ET (16:15 GMT)

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