During the earnings call on October 17th, TSMC revealed that electricity prices for its factories in Taiwan have doubled in recent years, making them the highest among all its global operations.

According to a report from CNA, TSMC stated that factors influencing next year’s gross margin include electricity costs, exchange rates, and the adoption of advanced nodes. The increase of overseas factories’s capacity might also reduce the gross margin by approximately 2 to 3 percentage points.

According to the report, TSMC’s Chief Financial Officer Wendell Huang has pointed out that the rise in electricity prices in Taiwan is one of the important factors affecting TSMC’s gross profit margin. He expects that rising electricity costs, coupled with other expense factors, will affect gross profit margin performance next year by at least 1%.

Huang said that now the electricity price of TSMC’s factories in Taiwan is the highest among all its operating factories in the world, and the electricity price adjustments in October this year has increased TSMC’s electricity charges by 14%.

According to the report, Huang mentioned that in the past few years, the electricty price for TSMC in Taiwan has doubled. In 2022, the electricity price increased by 15% and in 2023 by 17%. In the first half of this year, there was an increase of 25%.

Recently, TSMC’s increasing power consumption has sparked concerns regarding Taiwan’s energy supply. Citing a report by S&P, a report by Wccftech highlights that compared with 2023, the foundry giant’s electricity consumption could nearly triple by 2030, accounting for about 24% of the island’s total electricity usage.

According to Wccftech, TSMC’s shift to 3nm chip production is driving S&P’s forecasts for the company’s soaring electricity consumption. On the other hand, the report also cites data from Taiwan’s state-owned electricity provider, TaiPower, to show that the island’s electricity reserve margin continues to fall short of the government’s 15% target.

Other factors that might influence the gross margin next year are also discussed in the earnings call. According to the report, the shift towards more advanced nodes, such as 3nm and 2nm, has significantly impacted the gross margin.

TSMC has transitioned some of its capacity from 5nm to 3nm chip production to meet the strong demand for 3nm chips. The company also plans to begin 2nm production in 2026. All of these factors contribute to increased costs and affect the gross margin.

Huang also noted that fluctuations in the exchange rate could affect the gross margin next year. According to the report, industry insiders predict a roughly 1% change in the USD to NTD exchange rate, which could impact TSMC’s gross margin by approximately 0.4 percentage points.

In addition, during the earnings call, institutional investors expressed concerns about antitrust issues, according to the report. Chairman and CEO C.C. Wei highlighted that TSMC not only manufactures wafers but also engages in advanced packaging, testing, and mask production. Revenue from these additional sectors contributes approximately 10% to the overall revenue.

According to the report, Wei stated that when including advanced packaging, testing, mask production, and other projects, TSMC holds a market share of approximately 30% in the semiconductor wafer industry. He emphasized that the company does not have a monopoly and therefore does not face antitrust issues.

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(Photo credit: TSMC)

After posting record high profit in the third quarter and seeing healthy growth in the next five years, TSMC may now be facing another unexpected challenge, as the U.S. Commerce Department is reportedly probing the foundry giant to determine if it has manufactured smartphone or AI chips for Huawei, according to The Information.

According to sources cited by the report, the investigation is still in its early stages. It is unclear how long it will take the department to gather sufficient information and reach a conclusion.

If the U.S. Commerce Department determines that TSMC violated export regulations in its dealings with Huawei, the company could face fines or harsher consequences, such as temporary restrictions on accessing U.S. technology, according to The Information.

The ongoing investigation is examining whether TSMC has been engaged in the production of AI chips designed by Huawei, according to the report. These AI server chips have gained popularity among Chinese customers as an alternative to NVIDIA’s chips, which they are barred from purchasing due to U.S. export regulations.

Additionally, the inquiry is said to be exploring whether TSMC manufactured smartphone chips for Huawei’s devices as well. The Information notes that Huawei’s Mate 60 series, featuring a processor made in China by SMIC, was a potential target of investigation.

In 2020, the U.S. Commerce Department has significantly broadened Huawei’s blacklisting in an effort to limit the company’s access to foreign semiconductor chip sales, banning it from purchasing chips made with U.S. technology due to national security concerns.

Citing sources with direct knowledge to the matter, The Information notes that the department reached out to TSMC recently to inquire about any indirect sales to Huawei, possibly conducted through intermediary companies under different names. On the other hand, it is reportedly examining whether TSMC performed adequate due diligence, such as know-your-customer checks, before processing orders.

The investigation, for sure, would be politically sensitive due to TSMC’s global significance as a key supplier to U.S.-based tech giants like Apple and NVIDIA, the report points out.

It is worth noting that the Biden administration is scheduled to provide a USD 6.6 billion subsidy to TSMC, supporting the company’s efforts to build its third fab in Arizona, USA, with total investment rising to USD 65 billion.

TSMC Arizona’s first fab is on track to begin production leveraging 4nm technology in first half of 2025. Its second fab will produce 2nm process with next-generation nanosheet transistors in addition to the previously announced 3nm technology, with production beginning in 2028. The third fab will produce chips using 2nm or more advanced processes, according to TSMC.

According to Reuters, TSMC responded on Friday by stating that it was a law abiding company and committed to complying with laws and regulations, including export controls.

“If we have any reason to believe there are potential issues, we will take prompt action to ensure compliance, including conducting investigations and proactively communicating with relevant parties including customers and regulatory authorities as necessary,” noted TSMC, according to the emailed statement cited by Reuters.

Citing a previous report by AnandTech, The Information notes that TSMC has confirmed that it had stopped processing new orders from Huawei in May, 2020.

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(Photo credit: TSMC)

According to a report by ZDNET Korea, SK Hynix has scaled back its less profitable CMOS image sensor (CIS) and foundry businesses while reinforcing a strategy that focuses on high-margin high-bandwidth memory (HBM) and AI memory.

Citing industry sources, ZDNET Korea noted that SK Hynix has reduced its R&D investment in CIS and cut production capacity by more than half compared to last year, with estimated monthly output of 12-inch wafers dropping to fewer than 7,000 units. Additionally, staff from the system-on-chip (SoC) design department, previously responsible for designing memory controllers, are being reassigned to the HBM division.

The report also mentions that SK Hynix has increased its SoC design workforce this year, directing them toward projects aimed at developing next-generation memory solutions with computational capabilities.

SK Hynix’s strategy is to downsize certain business areas and concentrate resources on the more profitable HBM. The company is also focusing on future growth areas such as Compute Express Link (CXL), processing-in-memory (PIM), and AI solid-state drives (AI SSD).

The report quotes a semiconductor industry expert stating that it takes only three months to achieve return on investment (ROI) after establishing an HBM production line. For companies, investing heavily in HBM, which has high demand and profitability, is a logical decision.

TrendForce has noted that HBM’s average selling price is several times higher than that of conventional DRAM, with a price gap around five times greater than DDR5. While contract prices for general DRAM and NAND are expected to fall in the fourth quarter, HBM prices are projected to rise by 8% to 13%.

In fact, the news of reduced CIS R&D and production capacity is not new. Earlier this year, media outlets reported that due to decreasing demand, SK Hynix planned to reduce its CIS production and shift focus to its HBM business.

Additionally, SK Hynix has downsized its foundry business. According to a May report by the Korea Economic Daily, the board of directors of SK Hynix’s foundry subsidiary, SK Hynix System IC (Wuxi) decided to sell a 21.3% stake in its Wuxi plant to the Wuxi Industrial Development Group for an estimated $349.3 million.

(Photo credit: SK Hynix)

The global semiconductor market is nearing the end of its inventory cycle. With the rise of AI-related applications, new energy vehicles, 5G, high-performance computing, and other emerging sectors, industry experts estimate that the global semiconductor industry could reach a valuation of $1 trillion by around 2030.

Recently, new signals have emerged from various regions globally, including China, South Korea, and Japan. Based on the changing data, the growth in different sectors reflects shifts in supply and demand, indicating a widespread recovery trend in the semiconductor industry.

South Korea: Memory Chip Exports Surge by 60.7% YoY

On October 14, local time, data from South Korea’s Ministry of Science and ICT showed that boosted by record semiconductor sales, South Korea’s ICT (Information and Communication Technology) exports in September 2024 increased by 24% year-on-year to 22.36 billion USD(about 160 billion RMB), marking the 11th consecutive month of growth and the second-highest monthly figure on record.

In the semiconductor sector, South Korea’s semiconductor exports amounted to 13.63 billion USD (about 96.5 billion RMB) in September 2024, a historical high, with a 36.3% year-on-year increase.

Notably, memory chip exports surged 60.7% year-on-year to 8.72 billion USD, a nearly 20% increase compared to the previous month. System semiconductor exports rose 5.2% year-on-year to 4.37 billion USD. The Ministry highlighted that the demand for high-bandwidth memory (HBM) and other high-value-added products has fueled significant growth in memory semiconductor exports.

South Korea is home to two of the world’s largest memory manufacturers: Samsung Electronics and SK Hynix. According to TrendForce, Samsung and SK Hynix occupy the top two spots globally in the DRAM and NAND Flash markets, followed by Micron. Hence, South Korea’s semiconductor sector remains a focal point for the industry.

Additionally, the memory market has experienced significant fluctuations this year, with concerns about future trends.

TrendForce data indicated that before the third quarter of 2024, demand for consumer products remained weak, with AI servers driving the primary demand for memory. However, as HBM gains more market share, it is crowding out the capacity for existing DRAM products, leading suppliers to maintain certain pricing levels for contracts. Although server OEMs have maintained momentum in placing orders, smartphone brands are still cautious.

TrendForce forecasts that the growth rate of memory prices will significantly slow in the fourth quarter. Conventional DRAM prices are expected to increase by 0% to 5%, but with HBM accounting for a larger proportion of sales, the overall DRAM price is estimated to rise by 8% to 13%, marking a noticeable slowdown compared to the previous quarter.

China: Integrated Circuit Exports Grow by 22%

According to recent statistics from Chinese customs, China’s total imports and exports reached 32.33 trillion RMB in the first three quarters of 2024, up by 5.3% year-on-year. Of this, exports grew by 6.2% to 18.62 trillion RMB, and imports increased by 4.1% to 13.71 trillion RMB.

In terms of exports, China’s exports of mechanical and electrical products reached 11.03 trillion RMB in the first three quarters, an increase of 8%, accounting for 59.3% of total exports. Notably, high-end equipment exports grew by 43.4%, while exports of integrated circuits, automobiles, and household appliances rose by 22%, 22.5%, and 15.5%, respectively.

In terms of imports, China’s integrated circuit and auto parts imports grew by 13.5% and 4.6%, respectively, in the first three quarters. Consumer goods imports exceeded 1.3 trillion RMB.

Regionally, China’s trade with over 160 countries and regions has grown, indicating steady diversification. Trade with Belt and Road Initiative countries reached 15.21 trillion RMB, growing by 6.3% and accounting for 47.1% of China’s total trade. Trade with RCEP members grew by 4.5%, with ASEAN trade increasing by 9.4%. Meanwhile, trade with the EU and the U.S. grew by 0.9% and 4.2%, respectively.

Japan: Semiconductor Equipment Exports to China Surge by 61.6%

Data released by Japan’s Ministry of Finance shows that in August 2024, Japan’s semiconductor equipment exports to China surged by 61.6%, reaching 179.9 billion yen (around $1.29 billion).

The total weight of equipment exported from Japan to China in August was 6,742 tons, a 41% increase compared to the previous month. Machinery accounted for 23.2% of Japan’s total exports to China, with semiconductor equipment making up 11.9%.

These figures underscore Japan’s critical role in the global semiconductor supply chain.

Additionally, ASML, the Dutch photolithography giant, previously reported that its exports to China grew by 21% quarter-on-quarter in Q2 2024, reaching 2.3 billion euros. Earlier data showed that Asia accounted for 84% of ASML’s 2023 revenue.

(Photo credit: istock)

At its previous earnings call in July, Samsung has announced the ambitious goal that its HBM sales would increase three to five times in 2H24. However, as it is still struggling to pass the verification of 12-Hi HBM3e products, the company’s prospects for returning to glory in the near term seems to be rather dim.

According to a report by Korean media outlet ZDNet, the main issue may lie in the core die of HBM, while the adoption of 1a DRAM is hindering Samsung’s recent efforts to supply HBM3e for NVIDIA.

Notably, an insider cited by the report notes that Samsung’s Vice Chairman Jun Young-hyun, the new Head of Device Solutions (DS) Division, is aware of these issues, so the decision for whether to redesign the 1a DRAM or not may be made soon.

According to the report, Samsung began the mass production of 1a (4th generation) DRAM, which has a linewidth of approximately 14 nm, as early as in the second half of 2021. It is worth noting that the company tries to enhance the product’s competitiveness by actively adopting advanced technologies such as EUV (extreme ultraviolet lithography).

ZDNet notes that Samsung applied five EUV layers to its 1a DRAM, which is significantly more than the one layer used by its major competitor, SK hynix.

However, though EUV is advantageous for reducing linewidths compared to the existing ArF (argon fluoride) lithography process, which is supposed to enhance efficiency and thus lowering manufacturing costs, EUV’s high technical difficulty has negatively affected the stability of the process, according to the report.

As a result, the cost of Samsung’s 1a DRAM has not decreased as initially anticipated, according to the report, with the yield issue occurring reportedly hinders Samsung’s HBM3e verification progress with NVIDIA.

Previous reports indicate that Samsung had conducted an on-site inspection with NVIDIA regarding the 8-layer HBM3e products at its Pyeongtaek campus. While the inspection itself concluded without any issues, concerns have reportedly been raised as the data processing speed (Gbps) of Samsung’s 8-layer HBM3e is about 10% lower compared to its rivals, according to sources cited by ZDNet.

Both SK hynix and Micron utilize 1b DRAM for their HBM3e core dies, the report notes.

Therefore, industry insiders cited by ZDNet reveal that Samsung has been internally discussing the possibility of redesigning some of the circuits in its 1a DRAM.

However, If Samsung does proceed with the redesign, it is expected to take at least six months for the product to be completed, the report suggests, which means the mass production could only begin by the second quarter of next year, and it will be challenging to supply the product in a timely manner.

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(Photo credit: Samsung)