Mainland contract chipmakers could benefit as capacity is reached at the facilities of their rivals in Taiwan and elsewhere, forcing the rejection of orders. Going into the fourth quarter of last year, Taiwan's United Microelectronics Corp (UMC) expected its fab utilisation rate would exceed 90 per cent. Some reports suggest the world's second-biggest maker of chips on a contract basis is already running at full capacity. Fabs at Taiwan Semiconductor Manufacturing, the world's biggest contract chipmaker, are also estimated to be running at full capacity. According to market researcher Gartner, worldwide foundry utilisation rates are nearing 90 per cent and approaching full capacity - up from a low of just above 40 per cent in the third quarter of 2001. With the top foundries running at full steam as the semiconductor cycle enters its peak, orders could trickle down to second-tier players on the mainland. According to iSuppli, the mainland is expected to account for 9 per cent of worldwide wafer capacity by 2007, up from 4 per cent last year. The first beneficiaries of the spillover in orders could be mainland companies that have formed partnerships with overseas counterparts. For example, Jazz Semiconductor is hoping to rely on Advanced Semiconductor Manufacturing Corp (ASMC) and Shanghai Huahong NEC Electronics as its 200mm fab in California fills up. This would allow it access to additional foundry capacity without making costly investments in plants. In documents filed with United States regulators last week as a part of its Nasdaq listing, Jazz said ASMC began manufacturing chips using the company's process technology in the fourth quarter of last year. Jazz, which specialises in radio frequency chips, did not say what types of semiconductors ASMC would be making. ASMC has agreed to provide Jazz with at least 5,000 wafers of capacity a month between September last year and March, rising to 10,000 monthly between April and December, though Jazz is under no minimum purchase obligation. Huahong has agreed to supply Jazz with up to 8,000 wafers a month in capacity from October, rising to 10,000 in January next year. Should the mainland manufacturer show that it can succeed in applying the American company's 0.18-micron process technology by the end of September, Jazz would be required to buy at least US$30.2 million in wafers from Huahong between October and the end of next year. Jazz said it owned about 11 per cent of Huahong, a share it acquired last year for US$10 million and a transfer of technology. It paid $1.5 million last month and $4.25 million is due in November this year and at the same time next year. 'Our strategic relationships in China position us to penetrate the large and growing domestic demand for semiconductors in China,' Jazz said. UMC described as 'speculation' reports it had transferred some orders from Xilinx and Infineon Technologies to He Jian Technology in Suzhou province. According to the reports, Infineon started volume production at He Jian at the end of last year, while Xilinx will do the same in the first half. UMC spokesman Alex Hinnawi said the company had a 'close relationship with He Jian' but he would not elaborate on the nature of their co-operation. 'If our customers needed support [on the mainland] we would help them... we would help introduce them to He Jian.' Mr Hinnawi added that UMC could divert orders to its affiliates in Japan and Singapore should it encounter production bottlenecks. It would come as no surprise, however, if UMC began to hand over excess orders to He Jian. The Taiwanese company has been very secretive about its relationship with the mainland foundry. UMC has denied it covertly set up He Jian in November 2001, skirting Taiwanese rules at the time which prohibited investment in mainland chip operations. Still, He Jian is run mostly by former UMC managers and the Taiwanese company in the past has said it would do nothing to discourage staff from quitting their jobs to work at the mainland chipmaker. In addition, He Jian is believed to have bought used 200mm chip-making equipment from UMC. Another mainland foundry that could benefit from increased orders is CSMC-Tech, in which Singapore's Chartered Semiconductor holds an 11.5 per cent stake. Last year, Chartered took the stake in exchange for customer referrals and technology. Also, Chartered has formed a co-operation agreement with Semiconductor Manufacturing International Corp of Shanghai.