According to Taiwan’s Economic Daily, the consumer market is experiencing starkly low demand, causing IC design firms primarily relying on mature processes, such as those in driver ICs, power management ICs, CMOS image sensors (CIS), and microcontrollers (MCUs), to adopt a notably cautious approach in placing orders. Some manufacturers are hesitating to place orders due to persistently high inventory levels.

The industry consensus is that IC design companies are expected to increase their orders in mature processes, with the earliest effects possibly emerging by 2024, implying that the mature process market conditions might not improve significantly until the end of this year.

The consumer market entered a period of economic downturn in the latter half of last year, which in turn affected industries such as PCs, smartphones, and networking. This not only led to a surge in inventory levels for IC design firms but also significantly curtailed the momentum for chip tape-out. Looking ahead to the second half of this year, while inventory levels across various sectors have largely returned to normal, chip tape-out for Q3 have notably declined compared to Q2.

In particular, demand for high-speed I/O in the PC sector and Board Management Controller for data centers remains notably weak. The supply chain indicates that PC demand for the second quarter, driven by advanced stocking, has dampened the typical peak season effect for the latter half of the year. This trend is evident across desktop PCs, laptops, and Chromebooks.”

As for the smartphone sector, after various research institutions revised down this year’s smartphone market size, the supply chain’s chip tape-out momentum has cooled down significantly. Only Qualcomm has increased its tape-out momentum to semiconductor foundries in the first half of the year, while MediaTek continues to adhere to a conservative strategy as of now.

(Photo credit: SMIC)

According to Taiwan’s Commercial Times, TSMC continues to face challenges from ongoing price undercutting and competitive bidding in mature semiconductor manufacturing processes. Concerns arise about the company’s ability to offset these challenges with AI-related orders. Reports from the market suggest that on July 20th, TSMC revised down its fiscal forecast for the year for the second time, slashing its annual revenue target (in USD) from an anticipated decline of 1% to 6% to a significant reduction of 10%. However, given the persistent sluggish economic conditions of late, there is speculation of a potential third adjustment that could lead to a year-on-year revenue decline of 12%.

In the current investment landscape, artificial intelligence has become a focal point this year. Additionally, the strong demand for CoWoS packaging has contributed to a positive outlook for TSMC. However, it’s important to note that AI’s contribution to TSMC’s overall revenue is not substantial.

Using the popular H100 model from NVIDIA as an example, it only impacts TSMC’s performance in the N4 manufacturing process. This limited contribution falls short of countering the downward trend in consumer product demand utilizing the N3 and N7 manufacturing processes.

Market Speculations Emerge About TSMC’s Performance and Challenges

Market sources indicate that TSMC’s performance in mature processes (7nm and above) accounted for 47% of its output in the second quarter. While prices managed to hold steady in the first half of the year, ongoing softness in end-user demand has prompted Chinese manufacturers to engage in aggressive expansion, price reduction, and competition for orders, which inevitably impacts TSMC. There are even reports circulating about a potential loosening of 7nm production capacity.

In response, TSMC stated that its perspective and outlook on market demand align with the contents of its July press conference. As of now, no new updates are available. Furthermore, TSMC refrains from commenting on market speculations or shifts in customer business dynamics.

(Photo credit: TSMC)

In recent market speculations, TSMC is rumored to have reduced its 8-inch wafer manufacturing quotes by as much as 30%, with subsequent reports suggesting that South Korean wafer foundries are following suit in lowering 8-inch wafer production prices.

According to TrendForce’s channel check, TSMC’s current strategy for 8-inch processes involves bundling spot deal negotiations with one-time pricing or offering discounts and rebates on initial NRE fees, without implementing an across-the-board price cut.

However, observations from the order books indicate a genuine decline in demand for 8-inch products. Presently, customers have started revising their orders through the first quarter of 2024. The possibility of TSMC reducing prices for 8-inch wafers cannot be ruled out.

Similarly, the industry has also seen reports of South Korean wafer foundries Samsung and Dongbu HiTek considering price reductions for their 8-inch wafer plants. TrendForce indicates that the price adjustments in South Korea’s 8-inch wafer foundries follow a similar pattern of spot deal reductions, primarily centered around one-time negotiations. Customers with long-term agreement already have lower prices, without any instances of price reduction.

Both 12-inch and 8-inch wafer fabrication utilization rates have shown less-than-expected recovery, leading TrendForce to estimate a year-on-year decrease of around 13% in the overall semiconductor foundry revenue for 2023.

(Photo credit: TSMC)

According to a report by Taiwan’s Commercial Times, global smartphone brands are set to introduce a series of flagship-level new products. Following the introduction of Apple’s A17 chip using TSMC’s 3-nanometer process, Qualcomm’s next-generation processor Snapdragon 8 Gen 3 and MediaTek’s Dimensity 9300 are expected to be unveiled in October. These chips will be manufactured using TSMC’s N4P process, with plans to further transition to the N3E process next year.

Industry source have indicated that TSMC’s 3-nanometer yield is gradually improving, coupled with the return of N4P orders, providing a counterbalance against the impact of sluggish end market demand.

Commercial Times’ report highlights that TSMC previously expressed strong demand for its N3 process, projecting substantial growth in the second half of the year. The N3 process will support high-performance computing (HPC) and smartphone platforms, with an anticipated contribution of 4-6% to the company’s revenue in 2023. Additionally, N3E has already been verified and received its first batch of customer product design approvals, with mass production expected to commence in the fourth quarter. TSMC aims to achieve a monthly production capacity of 100,000 wafers in its 3-nanometer process by the end of the year to cater to Apple’s demands.

According to Bloomberg’s recent exposure of Apple’s projected M3 processor product roadmap set for release this fall, the basic M3 processor consists of 4 high-performance and 4 energy-efficient cores, paired with 10 GPU cores. M3 Pro comes in two versions: a basic version equipped with 12 cores (6 high-performance and 6 energy-efficient) and 18 GPU cores, and a higher-tier version with 14 CPU cores and 20 GPU cores.

M3 Max also offers two versions, featuring a fully-equipped 16-core CPU. The main difference between the basic and higher-tier versions lies in the GPU cores—32 for the former and a whopping 40 for the latter. The most powerful variant, M3 Ultra, essentially doubles the configuration of M3 Max, boasting 32 CPU cores paired with either 64 or 80 GPU cores. Industry experts widely regard TSMC as the primary beneficiary of these developments.

(Photo credit: TSMC)

Intel Corporation today announced that it has mutually agreed with Tower Semiconductor to terminate its previously disclosed agreement  to acquire Tower due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement, dated Feb. 15, 2022. In accordance with the terms of the merger agreement and in connection with its termination, Intel will pay a termination fee of $353 million to Tower.

In response to this development, TrendForce provides the following analysis:

As previously mentioned by TrendForce, Intel’s active entry into the semiconductor foundry market has presented challenges. These include:

Diversification of Manufacturing Expertise: Intel, historically focused on manufacturing CPUs, GPUs, FPGAs, and peripheral I/O chips, lacks the specialized fabrication processes possessed by other foundries. The success of acquiring Tower to expand its product line and market presence remains crucial.

Operational Segmentation: Apart from financial divisions, the division of physical facilities and actual production capacity must be strategically managed. Successfully emulating models like AMD/GlobalFoundries or Samsung LSI/Samsung Foundry, where there is a clear distinction between foundry and client, is essential. Simultaneously, Intel faces challenges in preventing orders from its significant client, the Intel Design Department, from flowing outward.

The official termination of the Tower acquisition plan introduces greater uncertainties and challenges for Intel in the competitive foundry market. In an industry marked by heightened competition, having dominance in specialized process technologies and diversified production lines is pivotal for sustaining profitability amid industry downturns. Without the assistance of Tower’s established specialized processes, Intel’s strategic approach and technology development in the foundry business will be worth monitoring.

(Photo credit: Intel)