TSMC: The final word has not been spoken yet

A leading-edge wafer fab in Arizona could reshuffle the entire semiconductor supply chain.

A few weeks ago, there was no question of seeing a 5nm lithography node Taiwan Semiconductor Manufacturing Co. (TSMC) plant in the United States. Yet the rumor quickly swelled and the news spread. TSMC, the world’s largest contract semiconductor foundry, has announced that it is investing $12 billion to build a factory in Arizona that will be capable at the start of 2024 of producing the most technologically advanced chips at the 5nm node. This comes amid tensions between China and the US and this nagging trade war that was only slowed down by the worst health crisis of the last 50 years, COVID-19. It’s a surprise but, at a time when concerns are elsewhere and China is weakened by the crisis and criticized everywhere, it is not illogical. The current situation has just sped up a strategic move that has been under cover for some years now. TSMC’s move combines with the US decision of cutting Huawei off from any American technology, including chips manufactured abroad with US equipment, and will reshuffle the supply chain. At Yole Développement (Yole), we see Semiconductor Manufacturing International Corporation (SMIC) as a potential final winner.

TSMC, leader in advanced semiconductor technology

Let’s briefly recap. TSMC is a crucial strategic company worldwide because it is the only one capable of producing the most advanced chips. We find these chips in our everyday lives, in our smartphones, at home in our smart speakers, or our cars, as well as in sensitive segments such as data centers, defense, medical or industry. This company, which supplies the entire planet, also has a special position. It is based in Taiwan. China sees this as a Chinese province. The USA and a large part of the rest of the world see it as independent. Its strategic position is therefore coupled with a geographical and political situation that commands the same admiration as a tightrope walker walking over an Arizonian canyon. But how can it do business during and after this geopolitical and economic conflict, further reinforced by the COVID-19 health crisis?

TSMC, the epicenter of an interdependence game

For these chips, TSMC’s main customers are Huawei through Huawei’s semiconductor subsidiary HiSilicon on the Chinese side and Apple, Qualcomm, AMD and NVIDIA on the American side. There are billions of dollars on each side and the choice of one partner or the other would have significant consequences in terms of revenues and politics. For a few years, Taiwan’s policy was to sit on the fence. However, the actions of President Trump and his unpredictability, notably marked by the sanctions on Huawei and the prohibition to supply American material to companies trading under the Chinese flag, have moved the lines. It is important to remember that China has just reached high performance technology with SMIC at the 14nm node. The US, with GlobalFoundries at 14nm and Intel with a 10nm process, equivalent to first generation 7nm technology, is already a little better armed. But the Americans need the Chinese, who finance their deficit, allow them to produce with fewer environmental constraints outside their territory, and enable huge margins for US companies. Imposing tariffs strengthens the emergence of Chinese competition and reduces the turnover of many US companies.

This is a strange and complex equation. To therefore satisfy President Trump and keep business on both sides, TSMC and Taiwan have resolved to accept the injunction to build in the US to eliminate its national security concerns and with them the international supply chain. It is important to stress that 5nm chips will be produced in 2020. By 2024 it will be more of a transfer of old technology. Plus, 20,000 wafers a month is very low volume, meaning that it will cover the critical applications that have national security concerns, but not the consumer market.

New business relationships will emerge

Nothing is definite, and it will not be surprising to see agreements between US, Taiwan and China. TSMC is doing around $6 billion business per year with Huawei, and it seems difficult to turn down that money. However, if it happens, SMIC will be the beneficiary as China will accelerate the move to autonomy at the highest nodes and SMIC will get Huawei’s orders. Intel has been invited to the discussion, and will probably benefit through a fabless strategy from TSMC’s new factory serving defense and aerospace national markets. On another hand, it seems that Samsung would be the loser from these agreements as it was not participating on any of these strategies, whether in China nor in US. Not yet as they are launching their 5nm production now for NVIDIA and their own chips, Exynos.

This period is tense. Tensions are felt everywhere, politically through aggressive diplomatic channels, economically through crude sanctions. The health crisis, exacerbating these tensions, will probably be followed by an unprecedented economic crisis, even if it is mitigated thanks to financial efforts by most countries. The lack of cash will be felt and securing business has become essential. In the end, TSMC took advantage of this situation to achieve what it could not do in a more peaceful or healthier time.

Author

As a Software & Market Analyst, Yohann Tschudi, PhD is a member of the Semiconductor & Software division at Yole Développement (Yole). Yohann is daily working with his team, to identify, understand and analyze the role of the software and computing parts within any semiconductor products, from the machine code to the highest level of algorithms. After his thesis at CERN (Geneva, Switzerland), Yohann developed a dedicated software for fluid mechanics and thermodynamics applications. Afterwards, he served during 2 years at the University of Miami (FL, United-States) as an AI scientist. Yohann has a PhD in High Energy Physics and a master degree in Physical Sciences from Claude Bernard University (Lyon, France).

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Source: http://www.yole.fr

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