The semiconductor industry is a very different place today than in 1995. The geography and the makeup of major manufacturers are undergoing a tectonic shift. In 1995, 86 percent of the industry's wafer capacity was in the G8 countries of Europe, Japan and the United States; the remainder was in Asia-Pacific (South Korea, Taiwan, Southeast Asia and China). Since 1995, more capacity has been added in the Asia-Pacific region than in all the G8 countries put together. As a result, Asia-Pacific's share of worldwide wafer capacity has grown to 33 percent.

The desire to escape the consequences of the industry's chronic boom-and-bust cycles is the main reason for this shift. Also driving manufacturing to Asia-Pacific is the desire of many integrated-device manufacturers (IDMs) to outsource manufacturing to foundries. Since the foundries are overwhelmingly located in Asia-Pacific, that region gains manufacturing share. Another consequence of outsourcing is that IDMs spend relatively less on fabs and capital equipment, and the foundries more, than they did in the past.

The concentration of the industry's manufacturing assets in the Asia-Pacific region, however, is not without risk. Hsinchu, the center of Taiwanese manufacturing, has 15 percent of the world's wafer capacity. Moreover, more than 33 percent of the industry's foundry wafer capacity and 17 percent of the industry's DRAM capacity are concentrated there. In June, two earthquakes, with magnitudes of 6.3 and 6.5, struck offshore from Taiwan. If the quakes had been centered in Hsinchu, the world's entire electronics' supply chain might have been disrupted for months.

Taiwan is not the only place where chip manufacturers are overly concentrated. More than one-third of the world's DRAM wafer capacity is located on the Korean peninsula. The two Koreas could well be the scene of this century's first nuclear showdown as the United States confronts North Korea about its development of nuclear bombs and missiles.

Shanghai is the center of China's rapidly growing chip industry. The SARS outbreak missed Shanghai. But what if it hadn't? What if 10 years from now-when Shanghai could well rival Hsinchu in terms of wafer capacity-a SARS-like outbreak doesn't miss Shanghai?

Overconcentration of manufacturing in one location is a risk factor that can be counteracted by dispersion. To some extent the foundries are already recognizing that need. TSMC and UMC have set up joint ventures in Singapore and plan to move into China. And Shanghai- based SMIC is building its new fabs in Beijing.

The trend should be encouraged. Chip manufacturing, so essential to the functioning of the global economy, should not be held hostage to local disasters waiting to happen.