The resignation of Chang and other TSMC representatives cuts the official corporate ties to Vanguard's largest single shareholder. Vanguard was formed as a spinoff of TSMC in 1994 as a separate DRAM manufacturing arm of the world's leading pure-play semiconductor foundry.

Vanguard is widely believed to be gearing up to strike out on its own and transition from its DRAM roots to adopt its own pure-play foundry model, which presumably could place it in direct competition with its former parent.

Yet the umbilical cord won't be completely cut, as TSMC will simply stay at "arm's length," said Vanguard spokesman Jay Tsai.

Indeed, TSMC is still expected to send orders for trailing-edge technology to Vanguard, in particular for devices such as LCD drivers that use an older 0.35-micron high-voltage process. And TSMC will still maintain its 28% stake in Vanguard and probably help out with R&D expenses, the companies said.

Vanguard is in the midst of change because it has never succeeded in its founding goal of becoming a major DRAM player. Since its initial public offering in 1998, the company turned a profit only in 2000, the high watermark for the entire semiconductor industry.

Vanguard's largest problem, according to observers, is that it is still DRAM dependent and subject to the violent ebb and flow of that market. Vanguard runs two 8in.-wafer fabs, churning out about 40,000 wafers a month, and the company's lack of scale and leading-edge technology (it makes DRAM using 0.18-micron tools) are expected to thwart any attempt to become a DRAM force.

To that end, Vanguard's management has been leaning away from commodity DRAM, which made up about 55% of sales in the first quarter of 2003, in favor of niche DRAM, flash, and logic ICs such as LCD controllers and CMOS sensors.

However, its success in gaining LCD driver IC orders is generally attributed to spillover from TSMC. And there are plenty of other big players in the niche DRAM and flash businesses, so neither of these products spells immediate success for an independent Vanguard, according to observers.

If fact, if it is to compete in a fashion against TSMC, Vanguard may have a stronger mandate now to take its former parent head-on in the area of trailing-edge foundry manufacturing. Because Vanguard's older lines are likely fully depreciated, or close to it, the company could try to undercut TSMC and fellow foundry services provider United Microelectronics Corp. by offering more attractive pricing.

Observers noted, however, that TSMC and UMC each has legacy manufacturing technology that shares the same low-cost structure as Vanguard's, and that both companies intend to drive their costs lower still by moving those lines to China.

If there is concern about a price war, Vanguard is trying to allay it. "We want healthy competition, but we wouldn't do anything to hurt TSMC," Tsai said. Still, legacy technology is the only area where Vanguard is seen as a potential player. And the competition is going to get fiercer as several Malaysian and Chinese foundries ramp up their production. Vanguard will likely face the greatest competition from China, where close proximity to the country's booming electronics market is viewed as a key competitive advantage.

An early indicator of Vanguard's ability to grow on its own will be its marketing strategy, said Chris Hsieh, a Taipei-based semiconductor analyst at ING Baring Securities Ltd. "Making and pushing DRAM into the market is relatively easy," Hsieh said. "Now they will have to set up a special force to serve different foundry businesses and they don't have a lot of experience in this area."

Vanguard's Tsai said the company is doing just that. "We know this is important and are ready for a buildup," he said.

By: DocMemory
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