Contract chip manufacturers in Taiwan and China are leading growth in the foundry industry and will continue to do so through almost the end of this decade, industry researcher In-Stat said Wednesday.Investments in leading-edge chip plants have given Taiwan the largest concentration of 12-inch (300-millimeter) chip factories anywhere in the world, said In-Stat, a unit of Reed Business Information.The researcher credits strong spending for growth in Asia, where chip plant and production line purchases among contract chip makers rose more than 150 percent in 2004, before declining 23 percent last year. The gush of new spending arose from pent-up demand created by a global technology industry downturn in 2001 and 2002, according to the industry researcher.Taiwan is already home to the world\u2019s two largest contract chip makers, or foundries, Taiwan Semiconductor Manufacturing (TSMC) and United Microelectronics (UMC). Both companies operate 12-inch factories in Taiwan and have pledged billions of dollars in new spending this year. TSMC plans to spend US$2.66 billion and $2.8 billion on new production lines this year, while UMC has set plans for $1 billion. The two companies account for\u00a0more than\u00a050 percent of all foundry capacity in Asia, a title they\u2019re expected to keep through 2009, according to In-Stat.China has been seeding its fledgling foundry industry with incentives in the hopes it will someday rival Taiwan\u2019s."Capacity in China will also grow rapidly over the next several years," said In-Stat analyst Prakash Vaswani. "Price advantages and emerging domestic fabless companies will allow China\u2019s local foundries to survive."The world\u2019s most populous nation already boasts the third-largest foundry chip maker in the world, Semiconductor Manufacturing International (SMIC), which overtook Singapore\u2019s Chartered Semiconductor Manufacturing in 2004."The gap between SMIC and Chartered will only continue widening," In-Stat said in a report. Although very young, SMIC has risen to prominence quickly, while Chartered, a veteran industry player, continues to struggle for growth, Vaswani said in a telephone interview.But one factor working to Chartered\u2019s advantage is its technology and outsourcing relationship with IBM to jointly work on production technology and take excess orders off IBM\u2019s hands. Chartered may even start producing microprocessors for Advanced Micro Devices by the middle of the year due to the partnership, which would fill its factories with high-profit chips from a high-profile company.Gaining ground in the high end could help offset losing orders to Chinese foundries for Chartered.Still, Vaswani sees tough times ahead for the Singapore company."They need to do something beyond what they\u2019re doing right now," he said.A major trend benefiting foundry chip makers is additional outsourcing by traditional chip developers that also manufacture chips, such as Texas Instruments and Intel. Fabless companies\u2014chip design houses that don\u2019t own production facilities\u2014are also growing, providing grist for TSMC and UMC.Global revenue by fabless chip designers rose to $40 billion last year, up 10 percent from 2004, according to the Fabless Semiconductor Association, an industry group.-Dan Nystedt, IDG News ServiceFor related news coverage, read Korean Fair Trade Commission Questions Qualcomm and Toshiba, Sandisk to Build New Memory Plant.Check out our CIO News Alerts and Tech Informer pages for more updated news coverage.