The integrated circuit (IC) industry in Taiwan has been rapidly growing since the 1970s when the Taiwanese government started to promote this industry. In recent years, thanks to the technology transfer from foreign manufacturers, the research done in Taiwan and the establishment of large-scale IC companies, Taiwan has become one of leaders in the world's IC industry. In 2006, the output value of Taiwan's IC industry totaled NT$ 1393.3 billion, accounting for 7.3% of the world's semiconductor industry revenues. In the same year, the output value of Taiwan's wafer OEM industry reached 69.2% of the world's capacity, and those of the IC packaging and testing industries also amounted to 45.7% and 62.5% respectively of the world's annual production-all ranking the first in the world. In contrast, the output value of the IC design industry contributed 22.1% of the sector and ranked the world's second largest. Hi-tech industries are highly competitive and are always changing. The development of Taiwan's IC industry has received a lot of attention in terms of its competitive position among the top 100 semiconductor companies in the world. To remain competitive in the IC industry and keep developing given the worldwide poor economic conditions, Taiwan needs to keep improving its production efficiency. Thus, in this study the researcher attempts to explore the issue of production efficiency of Taiwan's IC design industry. This study used the database from Taiwan Economic Journal (TEJ) and obtained the panel data of 75 Taiwanese IC design companies between 2001 and 2006. Battese and Coelli's (1995) Stochastic Frontier Approach (SFA), a parametric econometric approach, was employed to estimate IC design companies' production efficiency. This study also analyzed and explained factors that may have impact on production efficiency. Furthermore, this study also investigated how differences of production efficiency are affected by whether or not to introduce foreign technologies and by the quantities of patents. The results of the empirical analyses are as follows: 1. The SFA coefficient shows a positive nonlinear relationship between production and labor, capital, investment and research expenditure. 2. The age (AGE) of Taiwan's IC design companies has a positive impact on technical inefficiency. The square value of age (AA) appears to have a negative impact on technical inefficiency. The introduction of foreign technologies appears to have a positive impact on technical inefficiency. 3. The mean production efficiency of Taiwan's 75 sampled IC design companies between 2001 and 2006 is 0.7288. This would suggest that the remaining 27.12% is for improvement. The production efficiency between 2001 and 2006 were apparently rising, which indicates that their production efficiency became better and better. 4. The production efficiency of the sampled companies with introduction of foreign technologies is 0.6865. The production efficiency of the sampled companies without introduction of foreign technologies is 0.7359. This shows that production efficiency was better for companies without introduction of foreign technologies.