TSMC


2022-04-25

Localization of Chip Manufacturing Rising. Taiwan to Control 48% of Global Foundry Capacity in 2022, Says TrendForce

According to TrendForce, Taiwan is crucial to the global semiconductor supply chain, accounting for a 26% market share of semiconductor revenue in 2021, ranking second in the world. Its IC design and packaging & testing industries also account for a 27% and 20% global market share, ranking second and first in the world, respectively. Firmly in the pole position, Taiwan accounts for 64% of the foundry market. In addition to TSMC possessing the most advanced process technology at this stage, foundries including UMC, Vanguard, and PSMC also have their own process advantages. Under the looming shadow of chip shortages caused by the pandemic and geopolitical turmoil in the past two years, various governments have quickly awakened to the fact that localization of chip manufacturing is necessary to avoid being cut off from chip acquisition due to logistics difficulties or cross-border shipment bans. Taiwanese companies have ridden this wave to become partners that governments around the world are eager to invite to set up factories in various locales.

Currently, 8-inch and 12-inch foundries are dominated by 24 fabs in Taiwan, followed by China, South Korea, and the United States. Looking at new factories plans post 2021, Taiwan still accounts for the largest number of new fabs, including six new plants in progress, followed in activity by China and the United States, with plans for four and three new fabs, respectively. Due to the advantages and uniqueness of Taiwanese fabs in terms of advanced processes and certain special processes, they accepted invitations to set up plants in various countries, unlike non-Taiwanese foundries who largely still build fabs locally. Therefore, Taiwanese manufacturers have successively announced factory expansions at locations including the United States, China, Japan, and Singapore in addition to Taiwan in consideration of local client needs and technical cooperation.

The focus of Taiwan’s key technologies and production expansion remains in Taiwan, accounting for 44% of global wafer production capacity by 2025

In 2022, Taiwan will account for approximately 48% of global 12-inch equivalent wafer foundry production capacity. Only looking at 12-inch wafer production capacity with more than 50% market share, the market share of advanced processes below 16nm (inclusive) will be as high as 61%. However, as Taiwanese manufacturers expand their production globally, TrendForce estimates that the market share held by Taiwan’s local foundry capacity will drop slightly to 44% in 2025, of which the market share of 12-inch wafer capacity will fall to 47% and advanced manufacturing processes to approximately 58%. However, Taiwanese foundries’ recent production expansion plans remain focused on Taiwan including TSMC’s most advanced N3 and N2 nodes, while companies such as UMC, Vanguard, and PSMC retain several new factory projects in Hsinchu, Miaoli, and Tainan.

TrendForce believes, since Taiwanese foundries have announced plans to build fabs in China, the United States, Japan, and Singapore, and foundries in numerous countries are also actively expanding production, Taiwan’s market share of foundry capacity will drop slightly in 2025. However, semiconductor enclaves do not come together quickly. The integrity of a supply chain relies on the synergy among upstream (raw materials, equipment, and wafers), midstream (IP design services, IC design, manufacturing, and packaging and testing), and downstream (brands and distributors) sectors. Taiwan has advantages in talent, geographical convenience and industrial enclaves. Therefore, Taiwanese foundries still tend to focus on Taiwan for R&D and production expansion. Looking at the existing blueprint for production expansion, Taiwan will still control 44% of the world’s foundry capacity by 2025 and as much as 58% of the world’s capacity for advanced processes, continuing its dominance of the global semiconductor industry.

2022-04-21

Opportunity and Risk for Taiwan’s Supply Chains

(AmCham Taiwan|Associate Editor: Julia Bergström) As more countries look to diversify their supply chains, Taiwan has a chance to strengthen its position in the global economy. But is its infrastructure robust enough to support expanded business?

Over the past few years, the U.S. and Taiwan have intensified their efforts to reduce reliance on China in their supply chains as a way to increase resilience. First came the U.S.-China trade dispute, in which American companies were encouraged to leave or decrease operations in China, followed by the Tsai Ing-wen administration’s reshoring initiative to bring investment from China back to Taiwan.

At the onset of the global pandemic, the flow of critical products halted, global supply chains were disrupted, and supply chain resilience became a priority for all industries. Then, just as commerce began to bounce back, Russia launched an attack on Ukraine, giving rise to new worries of geopolitically induced shortages and inflationary effects.

Meanwhile, China is pushing to indigenize its supply chains, most notably with its Made in China 2025 plan, which aims to upgrade Chinese industries’ manufacturing capabilities into more technology-intensive powerhouses and achieve independence from foreign suppliers.

Although the U.S. and Taiwan are not decoupling from China, they have significantly changed the flow of goods and investments, says Rupert Hammond-Chambers, managing director of BowerGroupAsia, a consultancy.

“Instead of 10 dollars flowing into China, you’re seeing five going to China and the other five to the Southeast Asia region, or even Taiwan,” he says. However, there is no certainty that Taiwan will gain some of China’s lost business. Rather, achieving that goal will require significant policy changes and government efforts.

For Taiwan, strengthening its role in global supply chains is more than an effort to ensure economic stability – it also has political and security implications. Hammond-Chambers sees Taiwan’s role in the semiconductor industry in particular as a “geostrategic lever that focuses other countries on the importance of Taiwan and peace and security in the Taiwan Strait.”

Taiwan accounts for over 60% of the global chip foundry market, and the island plays a pivotal role in many high-tech industries, a trend expected to continue despite pushes from the U.S. and EU to revitalize their semiconductor industries.

In fact, says Joanne Chiao, senior analyst at Taiwanese market research firm TrendForce, her organization “expects Taiwan’s market share [in the chip foundry sector] will further increase to 66% in 2022,” as some of the newly added capacity will enter mass production by the end of 2022.

Although Taiwan leads in semiconductors, domestic expansion has its limits. During a discussion on Taiwan’s role in global supply chains organized by Washington, D.C.-based public policy organization The Brookings Institution, Taiwan Semiconductor Manufacturing Co. (TSMC) Vice President of Global Government Affairs Peter Cleveland noted that the company operates “at such a massive scale that it’s mind-blowing to people. [Production] takes over 4 million gallons of water per day, the power requirements are enormous, and STEM talent is critical.”

Cleveland said he sees geographic dispersion as an advantage for the company, and the expansion of Taiwan semiconductor operations in the U.S. as a way to strengthen supply chains while alleviating chip manufacturing’s strain on Taiwan’s resources. TSMC is constructing a US$12 billion fab in Phoenix, Arizona, which is scheduled to start producing chips in 2024. It is also building a plant in Japan and is in early discussions regarding a possible fab in Germany.


Apart from expanding manufacturing abroad, Taiwan also needs to implement policies that strengthen its infrastructure, according to BowerGroupAsia’s Hammond-Chambers. Of what has been termed the island’s “five shortages” (land, power, water, labor, and talent), he refers to labor, talent, and electricity as the most critical areas for government scrutiny of existing policies.

“The energy policy of Taiwan is just not working at the moment,” he says, adding that “there’s no time to waste” when it comes to improving the power grid. “It’s a strategic issue, military issue, social issue, and economic issue – it ticks every single major box.”

Jason Hsu, a former Taiwan legislator and currently senior research fellow at the Harvard Kennedy School, stressed at the Brookings seminar that the shortage of semiconductor talent is already noticeable in both the U.S. and Taiwan. The island’s recent establishment of a Semiconductor Research Institute is a step in the right direction, but not enough to fill the gap, he said.

“There needs to be a comprehensive program that links U.S. and Taiwan talent development and ensures that Taiwan can continue to develop its manufacturing capability and talent,” with innovation shared between the U.S. and Taiwan, Hsu noted.

Taiwan has relaxed immigration laws to attract foreign talent, particularly from Southeast Asia, and developed work and study programs for university students, said Minister Without Portfolio John Deng during the Brookings event.

But considering that the island is on track to become a super-aged society, Taiwan could and should implement a much more robust and open immigration policy that attracts more people to make up for the shrinking labor pool. The island’s decreasing population could pose an existential threat to Taiwan if not managed, says Hammond-Chambers.

Meanwhile, Taiwan could take advantage of what some scholars have dubbed “brain circulation” to strengthen economic ties with the U.S., according to Michael Nelson, senior fellow in the Carnegie Endowment For International Peace’s Technology and International Affairs Program.

“A lot of people from Taiwan have studied overseas, and some of them bring that knowledge back to Taiwan and start companies or teach the next generation,” he says, citing the founders of TSMC and the Industrial Technology Research Institute (ITRI) as two examples. “But a lot of them are still working overseas, and they’re part of this diaspora that forms a built-in advantage for Taiwan.”

Cloud opportunities

As the world undergoes the Fourth Industrial Revolution, digital supply chain technologies such as artificial intelligence (AI), algorithms, and machine learning can be used to analyze and learn from big data, which powers intelligent automation and provides supply chain managers with real-time insights that can assist quick responses to disruptions.

“When we think about how to boost our competitiveness, it doesn’t all have to be about manufacturing,” said Meriya Solis, Director of the Center for East Asia Policy Studies at Brookings. “We need to be mindful of the fact that we’re moving toward a digital economy.”

But while smart tools will mitigate human error, they pose a supply chain risk if they are not backed up by robust cybersecurity systems. Carnegie’s Nelson says that improving cybersecurity and investing in the Cloud of Things – integrated Internet of Things and Cloud Computing technology – would not only benefit biotech and other high-tech industries, but also create more robust supply chains for traditional industries. “It could help us do a better job of tracking fishing ports, ensuring the quality of food, and making sure cold chains are not broken,” he says.

The current global software infrastructure, notes Nelson, is built on a precarious system. Commercial software products tend to rely on complex open-source software repositories, and vulnerability in a single aspect of these repositories could compromise every commercial product that uses it.

Following an increase in cyberattacks, Taiwan’s government declared cybersecurity to be a national security issue in 2018 and proceeded to implement its Cyber Security Management Act in January 2019. The law stipulates obligations for providers of critical infrastructure, including water, energy, ICT production, and financial and healthcare services. The U.S. and Taiwan held their first joint Cyber Offensive and Defense Exercise (CODE), hosted by the American Institute in Taiwan (AIT) and the Executive Yuan’s Department of Cyber Security, in 2019.

In the past, Chinese tech seemed like it was on a steady path to market domination. But due to a high incidence of poorly written Chinese software and concerns that state actors could impel companies to embed security backdoors into their products, trust in its software is now generally low among global users. Nelson sees a lucrative opportunity for Taiwan to increase its involvement in data supply chains by establishing itself as a trusted source for more secure and better-tested software.

“Through the hardware sector and the semiconductor industry, you have all these links to all the major players,” he says. “By leveraging those links and showing that Taiwan can ensure that the software running on the chips they built is doing the job it’s advertised to do, Taiwan can help integrate different pieces of software from different companies and gain a reputation for being a trusted integrator.”

But to establish such a competitive advantage, Taiwan’s government will need to implement mechanisms that encourage local IT companies to uncover security vulnerabilities and adopt quality verification tools.

“Nobody thinks Taiwan is going to become the only source of systems software, but it can be a hub that works with different players and shows emerging markets in particular how technologies can be better designed,” says Nelson. “And it’s not just in healthcare, the high-tech sector, banking, and e-government applications – it’s also in agriculture, food production, and retail.”

Nelson says that rather than providing a long list of detailed requirements, the government should form a cybersecurity framework that focuses on goals and milestones without stipulating how they should be achieved. “You want to focus on the results, not the mechanism.”

China threat misconception

Supply chain cooperation between the U.S. and Taiwan is vital for the economic security of both, and collaboration has only strengthened with the increased attention to the importance of ICT products and semiconductor chips. The commitment of both sides to cooperate on related issues was reasserted in late 2021 when Taiwan and the U.S. established the Technology Trade and Investment Collaboration (TTIC), a new bilateral cooperation framework meant to develop commercial programs and strengthen critical technology supply chains.

TTIC is the latest addition to the two parties’ already established communication channels on economic issues, which also consist of the Trade and Investment Framework Agreement (TIFA) and the U.S.-Taiwan Economic Prosperity Partnership Dialogue. It is seen as a way for the U.S. to strengthen its role in the semiconductor industry and reiterate the importance of the bilateral U.S.-Taiwan commercial and investment relationship.

Such collaborative activity might not be enough, however. Convincing more American companies to include Taiwan in their supply chains will require creating greater confidence in Taiwan’s production stability and its government’s capability in data management and protection, says Nelson. Companies will also need assurance that they will not be affected by geopolitical maneuvering.

“If companies worry that their supply chain is going to be disrupted for geopolitical reasons, then they’re less inclined to work with companies in those countries.”

Recognizing these concerns, Minister Deng emphasized Taiwan’s trustworthiness and reliability during his opening statement at the U.S.-Taiwan supply chain seminar. Deng declared to the audience that Taiwan is a safe and reliable partner, and that it “actively maintains supply chain security” and has “never coerced any other countries with economic means.”

But to assure businesses that Taiwan will remain a stable partner, the island will need to assuage fears of potential military conflict. Hammond-Chambers notes that although many experts agree that China is unlikely to launch a military attack on Taiwan in the near future, media and think tank preoccupation with possible future scenarios could trickle into boardrooms and influence business decisions.

“They see what’s happening in Ukraine, and it’s easy for people to jump to conclusions about Taiwan,” he says. “Future global supply chains are likely to evolve into a red [Chinese] supply chain and alternate supply chains that include Southeast Asia on a grander scale. Whether companies’ attempts to ‘China-proof’ their businesses will result in an exclusion of Taiwan remains to be seen.”

(Source: https://topics.amcham.com.tw/2022/04/opportunity-and-risk-for-taiwans-supply-chains/

2022-03-14

Top 10 Foundries Post Record 4Q21 Performance for 10th Consecutive Quarter at US$29.55B, Says TrendForce

The output value of the world’s top 10 foundries in 4Q21 reached US$29.55 billion, or 8.3% growth QoQ, according to TrendForce’s research. This is due to the interaction of two major factors. One is limited growth in overall production capacity. At present, the shortage of certain components for TVs and laptops has eased but there are other peripheral materials derived from mature process such as PMIC, Wi-Fi, and MCU that are still in short supply, precipitating continued fully loaded foundry capacity. Second is rising average selling price (ASP). In the fourth quarter, more expensive wafers were produced in succession led by TSMC and foundries continued to adjust their product mix to increase ASP. In terms of changes in this quarter’s top 10 ranking, Nexchip overtook incumbent DB Hitek to clinch 10th place.

TrendForce believes that the output value of the world’s top ten foundries will maintain a growth trend in 1Q22 but appreciation in ASP will still be the primary driver of said growth. However, since there are fewer first quarter working days in the Greater China Area due to the Lunar New Year holiday and this is the time when some foundries schedule an annual maintenance period, 1Q22 growth rate will be down slightly compared to 4Q21.

Top 5 foundries account for nearly 90% of global market share, Samsung recovers share with advanced processes

Looking at the top five industry players, TSMC’s 4Q21 revenue reached US$15.75 billion, a QoQ increase of 5.8%. Although 5nm revenue spiked thanks to the new iPhone, 7/6nm revenue dropped due to a weak Chinese smartphone market, becoming the only TSMC node in decline in 4Q21, and inducing a contraction in TSMC revenue growth in 4Q21, though TSMC still accounts for more than 50% of global market share. As one of TSMC’s few competitors in advanced processes below 7nm, Samsung strengthened 4Q21 revenue to US$5.54 billion, a quarterly increase of 15.3% owing to the gradual completion of new advanced 5/4nm process capacity and the mass production of new flagship products from major client Qualcomm. Although Samsung’s foundry business has posted record revenue, the slower ramp-up of advanced process capacity continues to erode overall profitability. Therefore, TrendForce believes that improving advanced process capacity and yield in 1Q22 is one of Samsung’s top priorities.

Constrained by limited growth in new production capacity and the fact that the new wave of wafers contracted at the latest pricing has yet to be produced, UMC’s revenue stalled slightly in 4Q21, to US$2.12 billion, up 5.8% QoQ. GlobalFoundries benefited from the release of new production capacity, product mix optimization, and new long-term agreement (LTA) pricing, pushing up ASP performance. Revenue in 4Q22 hit US$1.85 billion, up 8.6% QoQ. SMIC posted 4Q21 revenue of US$1.58 billion, 11.6% QoQ, due to mounting demand for products such as HV, MCU, Ultra Low Power Logic, and Specialty Memory as well as factors such as product mix adjustment and appreciating ASP.

Surpassing DB Hitek, Nexchip officially breaks into the top 10 in 4Q21

The foundries ranked 6th to 9th are HuaHong Group, PSMC, Vanguard International Semiconductor (VIS), and Tower Semiconductor (Tower), respectively. Each has benefiting from factors such as a utilization rate uniformly at full capacity, release of new production capacity, and adjustment of ASP and product mix, sustaining the growth of revenue performance. It is worth mentioning, the acquisition of Tower by Intel netted Intel mature process technologies and a customer base and expanded the diversity and production capacity of its foundry business. However, before this transaction is officially completed, Tower is still considered an independent entity in terms of the accounting process. TrendForce states, after Intel’s foundry business is properly integrated with Tower, Intel will officially enter the ranking of top ten foundries.

Coming in 10th on the top 10 foundry ranking is Nexchip with revenue of US$352 million and a quarterly growth rate of 44.2%, the fastest growth rate among the top ten, and officially surpassed DB Hitek. According to TrendForce investigations, the primary reason Nexchip was able to break into the top 10 in 4Q21 was the company’s diligent production expansion. Nexchip also plans to develop more advanced processes such as the 55/40/28nm nodes and multiple product lines including TDDI, CIS, and MCU, to compensate for its current single product line and limited customer base. Since Nexchip is currently ramping-up operations quickly, its growth performance in 2022 should not be underestimated.

2022-03-03

[Russia-Ukraine] Latest Impact of Russia-Ukraine War on Semiconductor Industry

Regarding rising tensions stemming from the Russian-Ukrainian war, TrendForce indicates that Russia is not one of the Taiwanese foundry industry’s primary markets. Hence, while sanctions against Russia continue to pile up, their impact on Taiwanese foundries will likely remain limited, though the war may potentially result in a decline in sales of end-devices, thereby indirectly reducing manufacturers’ component demand and, subsequently, wafer inputs at foundries.

TrendForce indicates that the smartphone industry will be noticeably affected by the ongoing war. Take the ranking of smartphone brands by market share in Russia and Ukraine last year, for instance; the top three brands sold included Samsung, Xiaomi, and Apple, which had a combined annual sale of about 45 million units for 2021. Since the inception of the armed conflict, there have been continued fluctuations in currency exchange rates, with the Ruble plummeting in value, and this devaluation has been noticeably reflected in retail sales of iPhones. More specifically, the retail price for the iPhone 13 Pro 128 GB has risen by almost 50% in Russia. Such price hikes pertaining to electronic items will likely prompt consumers to reallocate a rising portion of their spending to other daily necessities instead. Therefore, the two countries’ demand for chips is expected to rapidly shrink, in turn leading IC design companies to reduce their wafer input at foundries.

With foundries terminating their supply to Russia, will Chinese companies subsequently benefit from redirected orders?

Although Russia is not a major market for the Taiwanese foundry industry, certain Elbrus-branded chips, used in military and networking applications, are manufactured by TSMC. Notably, the Washington Post indicated that TSMC is no longer manufacturing and shipping Elbrus products, while there have also been rumors suggesting Chinese semiconductor companies may reap benefits in response. TrendForce, however, believes that, even though Chinese foundries are able to provide the 1Xnm and more mature process nodes necessary for Elbrus chip production, the requisite redesign and verification processes will likely take at least one year. As such, Russia will have a difficult time immediately redirecting orders for Elbrus chips to Chinese foundries, and the Chinese semiconductor industry will not be able to take advantage of these orders in the short-term.

Escalating warfare places significant stress on transportation, logistics, and supply chains

In light of the ongoing conflict, various parties have been imposing diverse sanctions on Russia, and the shipping industry has, in turn, sustained both direct and indirect ramifications pertaining to their businesses’ stability and safety. Logistic disruptions and skyrocketing prices, for instance, represent some of the issues that have emerged post-conflict and placed undue stress on the global supply chains. As a hotbed of semiconductor production, then, Taiwan would naturally be assumed to have domestic semiconductor companies stockpile component inventories. However, according to TrendForce’s investigations, not only do most of these companies currently possess healthy inventory levels, but Russia and Ukraine also do not represent the sole sources of semiconductor materials for Taiwan, since Taiwanese companies have been sourcing materials from China as well. Hence, the Russian-Ukrainian war has caused neither noticeable stock-up activities nor production bottlenecks for Taiwanese semiconductor companies.

(Image credit: shutterstock)

2022-02-16

Intel Kills Two Birds with One Stone as Tower Acquisition Strengthens Mature Process Platforms and Regional Production Capabilities, Says TrendForce

Intel officially confirmed on February 15 that it will acquire Israeli foundry Tower Semiconductor for nearly US$6 billion, and the deal will likely contribute to the growth of Intel’s foundry business if it reaches a successful conclusion, according to TrendForce’s latest investigations. Tower was 9th place in the global ranking of foundries by revenue for 4Q21 and operates a total of seven production sites across Israel, the US, and Japan. Tower’s foundry capacity in 12-inch wafer equivalents accounts for about 3% of the global total. The majority share of Tower’s foundry capacity is for 8-inch wafers, and Tower’s share of the global 8-inch wafer foundry capacity is around 6.2%. Regarding manufacturing process platforms, Tower offers nodes ranging from 0.8µm to 65nm. It has a diverse range of specialty process technologies for manufacturing products in relatively small quantities. Products that Tower has been contracted to manufacture are mostly RF-SOI components, PMICs, CMOS sensors, discretes, etc. As such, the Tower acquisition is expected to help Intel expand its presence in the smartphone, industrial equipment, and automotive electronics markets.

Although Intel undertook a series of business strategies to compete with TSMC and Samsung, IFS (Intel Foundry Services) has historically manufactured with platform technologies for processors such as CPUs and GPUs. Furthermore, competition still persists between Intel and certain foundry clients that require advanced processes below the 10nm node, such as AMD and Nvidia, which have long histories of developing server products, PC CPUs, GPUs, or other HPC-related chips. Intel’s preexisting competitive relationship with these companies may become a barrier to IFS’ future expansion because IFS will be relatively unlikely to attract them as customers.

Taking the aforementioned factors into account, TrendForce believes that the Tower acquisition will likely expand IFS’ business presence in the foundry industry through two considerations. First of all, the acquisition will help Intel both diversify its mature process technologies and expand its clientele. Thanks to advancements in communication technologies and an increase in demand for new energy vehicles, there has been a recent surge in demand for RF-SOI components and PMICs. Tower’s long-term focus on the diverse mature process technologies used to manufacture these products means it also possesses a long-term collaborative relationship with clients in such markets. By acquiring Tower, Intel is therefore able to address IFS’ limited foundry capabilities and limited clientele. The second consideration pertains to the indigenization of semiconductor manufacturing and supply allocations, which have become increasingly important issues in light of current geopolitical situations. As Tower operates fabs in Asia, EMEA, and North America, the acquisition is in line with Intel’s current strategic aim to reduce the disproportionate concentration of the foundry industry’s supply chain in Asia. As well, Intel holds long-term investments and operates fabs in both the US and Israel, so the Tower acquisition will give Intel more flexibility in allocating production capacities, thereby further mitigating risks of potential supply chain disruptions arising from geopolitical conflicts.

In addition to the aforementioned synergy derived from acquiring Tower, it should also be pointed out that Intel is set to welcome an upcoming partnership with Nuvoton. Tower’s three Japan-based fabs were previously operated under TowerJazz Panasonic Semiconductor, a joint venture created by Tower and Panasonic in 2014, with Tower and Panasonic each possessing 51% and 49% ownership, respectively. After Nuvoton acquired PSCS (Panasonic Semiconductor Solutions Co.) in 2020, Panasonic’s 49% ownership of the three fabs was subsequently transferred to Nuvoton. Following Intel’s Tower acquisition, Intel will now possess the 51% majority ownership of the fabs and jointly operate their production lines for industrial MCUs, automotive MCUs, and PMICs along with Nuvoton. Notably, these production lines also span the range of CIS, MCU, and MOSFET technologies previously developed by Panasonic.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

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