Following previous controversies of supplying 7nm chips to Huawei through proxies, TSMC has reportedly notified all its AI chip customers in China by formal emails that starting next week (November 11), it would halt shipments of all the 7nm and more advanced chips to its AI/GPU clients there, according to Chinese media outlet ijiwei.

While this decision may temporarily reduce TSMC’s business in China, in the long run, TSMC could gain more opportunities in the U.S. market by complying with American regulations, the report says.

According to ijiwei’s analysis, TSMC’s move, which highlights the foundry giant’s delicate position in the global semiconductor supply chain amid the heating chip war between the world’s two superpowers, could become a watershed moment in the future of technology development, with long-lasting impacts.

According to the ijiwei report, with the newly elected Trump claiming that TSMC should pay a “protection fee,” the company’s latest move seems to be an effort to align itself with the U.S. Department of Commerce. The two parties, together, have created a stringent review system to completely block advanced process from China’s reach, the report notes.

According to another media outlet SEMICONVoice, the U.S. Department of Commerce has reportedly instructed TSMC to make the move, as production could only proceed after being reviewed and approved by the U.S. Department of Commerce’s BIS (Bureau of Industry and Security) and receiving a license. This would effectively tighten the availability of advanced 7nm and below processes for all Chinese AI chips, GPUs, and autonomous driving ADAS systems, the report notes.

According to the latest report by Bloomberg and Reuters, TSMC has almost finalized binding agreements for multi-billion dollar grants and loans to back its U.S. factories, which may allow it to receive the funding from the Biden administration soon.

TSMC’s package, announced in April, includes USD 6.6 billion in grants and up to USD 5 billion in loans to aid the construction of three semiconductor factories in Arizona.

On the other hand, TSMC’s decision would be a major blow to China’s AI ambition, as AI and GPU companies in China will no longer have access to TSMC’s advanced process, which could lead to higher costs and longer time-to-market, and significantly impact their product performance and market competitiveness, the ijiwei report states.

A supply chain reshuffle is likely to follow, as Chinese chip design companies may need to seek alternative foundries, according to the report.

China’s SMIC, currently the world’s third largest foundry, is said to successfully produce 5nm chips using DUV lithography instead of EUV. However, as previously reported by the Financial Times, industry sources have indicated that SMIC’s prices for 5nm and 7nm processes are 40% to 50% higher than TSMC’s, while the yield less than one-third of TSMC’s.

According to TrendForce, as of the second quarter of 2024, SMIC maintains a solid 5.7% market share, securing its position in third place, after TSMC (62.3%) and Samsung (11.5%).

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• [News] TSMC Reportedly Halts Shipments to Chinese Firm Sophgo After Chip Found in Huawei Processor

(Photo credit: TSMC)

Taiwan’s semiconductor factories operate around the clock, consuming significant amounts of electricity. Taiwan Power Company has raised industrial electricity rates twice this year, and the financial impact is now starting to appear in corporate earnings.

According to Economic Daily News, TSMC Chairman C.C. Wei highlighted in the recent earnings call that Taiwan’s electricity rates have become the highest among regions with wafer fabs. TSMC warned that rising power costs and inflation could reduce its. gross margin by one percentage point. GlobalWafers, a major supplier of semiconductor wafers, also reported lower-than-expected gross margins for Q3, acknowledging energy costs as a key factor.

Wei stated that Taiwan’s electricity rates increased by 14% in October, following hikes of 15% in 2022 and 17% in 2023, with a further 25% increase anticipated in 2024. While TSMC’s third-quarter gross margin surpassed expectations at 57.8%, driven by high capacity utilization, the company projects margins could edge toward 58% this quarter. However, Wei cautioned that surging electricity costs and the costly transition from 5nm to 3nm technology are likely to dampen these gains.

The Economic Daily News report noted that GlobalWafers posted a 30% Q3 gross margin, falling short of market forecasts. Chairman Doris Hsu attributed the shortfall to four main factors: rising electricity costs worldwide, increased depreciation due to investments in multiple plants, declining silicon carbide prices, and changes in product mix, which lowered revenue and margins.

Hsu pointed out that energy is the second-largest production cost for GlobalWafers, comprising 8–9% of total expenses. At the company’s Texas facility, the unit cost of electricity is roughly one-third of Taiwan’s rate. If energy costs remain low and exchange rates are favorable, the gross margin for U.S. plants could slightly exceed that of Asian plants, excluding depreciation differences due to the longer operational history of Asian facilities.

Taiwan Power recently raised industrial rates again in October and announced a carbon fee for 2026. Hsu estimated that a carbon fee of NT$300 per ton could impact Taiwan’s production costs, reducing gross margins by 0.5 to 0.7 percentage points on a consolidated basis.

Establishing production facilities in North America offers logistics advantages by bringing production closer to clients and reducing shipping costs. Hsu explained that transporting a 300mm (12-inch) wafer from Japan to Europe currently costs ¥300, set to rise to ¥550 in November. Shipping to the U.S. would cost even more, but distribution from Texas would significantly reduce these expenses. GlobalWafers’ Texas facility is expected to complete construction by the end of 2024, with mass production slated for late Q1 2025.

TSMC’s first North American wafer fab is expected to begin production in Q1 2025, with two additional fabs set to meet customer demand by 2028 and 2030. Focused on operational efficiency, TSMC aims to leverage AI tools to boost productivity, with each 1% improvement projected to add $1 billion to profits.

(Photo credit: TSMC)

Leading foundries have been making significant moves, reshaping the semiconductor industry landscape. Vanguard International Semiconductor Corporationrecently announced its entry into the 12-inch wafer foundry business, marking the beginning of a new phase in its strategic transformation for the next 30 years, with silicon carbide (SiC) also included in its development plan.

Meanwhile, India’s first 12-inch wafer plant has begun operations, with the Indian government approving five semiconductor plant construction projects valued at approximately USD18 billion. Additionally, TSMC’s world-first 2nm wafer plant is set for completion by the end of this month. Industry sources indicate that AI-related demand is expected to surge, further boosting TSMC’s profitability.

Vanguard International Semiconductor Corporation Enters 12-Inch Wafer Foundry Market, Aiming for TWD 100 Billion in Annual Revenue in Five Years

On November 2, Vanguard Chairman Mr. Leuh Fang announced that the company officially entered the 12-inch wafer foundry sector and is building a new plant. Both the company and stakeholders have high hopes for the plan, aiming for annual revenue to grow from TWD 50 billion to TWD 100 billion in five years once the new plant reaches full capacity. Fang emphasized that Vanguard announced a USD 7.8 billion investment in collaboration with NXP Semiconductor to build a 12-inch wafer fab, with TSMC providing all necessary critical technology and resources.

On June 5, Vanguard and NXP jointly announced plans to construct a 12-inch wafer fab in Singapore with a total investment of USD 7.8 billion. The fab will employ 130nm to 40nm technology and produce mixed-signal, power management, and analog products for automotive, industrial, consumer electronics, and mobile device markets.

India’s First 12-Inch Wafer Plant Begins Operations

On November 1, Powerchip Semiconductor Manufacturing Corporation (PSMC) announced the official launch of its joint project with Tata Electronics to construct India’s first 12-inch wafer fab. PSMC has received the first payment for Fab IP from Tata, and the construction project will proceed actively. Meanwhile, high-capacity interposer chips, validated by customers, will also begin mass production and delivery.

This 12-inch fab, with a total investment of USD 11 billion, will focus on power management ICs, panel driver chips, microcontrollers, and high-speed computing logic chips. It is projected to have a monthly capacity of 50,000 wafers, primarily serving automotive, computing, data storage, wireless communication, and AI applications. The plant is scheduled for completion and mass production by 2026.

World’s First 2nm Wafer Plant Nears Completion by End of Month

According to recent supply chain news, TSMC’s Kaohsiung P1 site for its first 2nm wafer fab is nearing completion, with a ceremony planned for November 26 and equipment installation set to begin on December 1.

TSMC’s 2nm production will take place at its Hsinchu Science Park (HSP) Baoshan F20 fab and Kaohsiung Nanzi F22 fab. The Baoshan fab is expected to complete a mini production line by the end of the year, targeting volume production by Q4 2025 with a monthly capacity of around 30,000 wafers. Commercial production at the Kaohsiung F22 fab will commence in Q1 2026, also with a monthly capacity of 30,000 wafers.

TSMC’s Chairman and CEO C.C. Wei have highlighted unprecedented demand for the 2nm process. Current planned capacity for the 2nm process has already surpassed that of the previous 3nm generation, underscoring the strong market demand for advanced process technology. Reportedly, TSMC has validated its 2nm product roadmap with customers, with process quotes exceeding USD 30,000 per wafer.

(Photo credit: Vanguard)

According to a report from Economic Daily News, Trump’s return to the White House  ushers in a “Trump 2.0” era, potentially posing new challenges for TSMC, as Trump previously threatened to charge a “protection fee” due to TSMC’s stronghold on U.S. chip production. The report highlighted that, according to industry assessments, TSMC faces a high likelihood of tax increases.

The report, citing industry sources, outlined four potential scenarios for TSMC under a “Trump 2.0” administration: 1) increased taxes and removal of subsidies, the least favorable for TSMC; 2) increased taxes with conditional subsidies, which might require TSMC to expand its U.S. investments or accelerate the setup of advanced manufacturing processes in the U.S.; 3) no tax increase but removal of subsidies; and 4) no change in taxes or subsidies, the most favorable but least likely scenario.

According to the report, given Trump’s “America First” stance, maintaining the status quo is unlikely. The report pointed out, Trump is likely to choose between raising taxes and adjusting the CHIPS Act subsidies, or implement both simultaneously, to “deal with” TSMC.

The report highlighted that, at present, increased taxes seem more likely, which TSMC might counter by raising prices for its customers. However, if the Trump administration were to make increased U.S. investments a condition for subsidies, TSMC would face challenges with higher capital expenditures and rising manufacturing costs.

However, the report noted that, while the CHIPS Act’s overall direction will impact TSMC, local policies could also play a significant role due to the division of responsibilities between federal and state governments in the U.S.

On the other hand, regarding TSMC’s domestic competitor in the U.S., the report suggests that under Trump’s “America First” policy, struggling Intel could experience a revival. The government may increase subsidies for Intel and seek support from other U.S. companies or large investors, potentially including acquisitions of some Intel divisions by major players like AMD or Marvell, bringing in additional financial support.

According to the report, citing industry sources, if Trump pursues “protection fees” and prioritizes U.S. manufacturing, it could accelerate the semiconductor industry’s shift away from globalization, reflecting TSMC founder Morris Chang’s prediction that “globalization is dead” amid rising geopolitical tensions.

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• [News] With Trump’s Odds of Winning Rising, Concerns Arise on Potential Adjustments in Chip Subsidies
• [News] TSMC Receives USD 6.6 Billion for Chipmaking from the US Government, Commits to Constructing Third Fab

(Photo credit: TSMC)

With Donald Trump’s victory in the U.S. presidential election, the whole semiconductor industry, especially those Asian-based tech giants making strides in overseas expansion, are concerned about the development of the U.S. CHIPS and Science Act.

According to the latest reports by Bloomberg and Business Korea, while TSMC has finalized binding agreements for multi-billion dollar grants and loans to back its U.S. factories, Samsung and SK hynix are both concerned that potential reductions in semiconductor subsidies could result from policy amendments.

Regarding who may be receive the funding from the Biden administration soon, another report by Reuters names TSMC, GlobalFoundries and at least one other chipmaker as the lucky ones.

The Reuters report further explains that the U.S. Commerce Department recently informed Congress that at least three companies are near receiving their final awards. Under the CHIPS Act, the Commerce Secretary is required to notify the relevant committees at least 15 days before finalizing any deal over USD 10 million, according to Reuters.

TSMC More Assured as Binding Agreements Reportedly Finalized

According to Bloomberg, the CHIPS Act allocated USD 39 billion in grants, along with additional billions in loans and 25% tax credits, aimed at revitalizing U.S. semiconductor manufacturing after years of production moving to Asia. At this moment, over 20 companies are in line to receive government funding, which suggests that it is highly probable that some of the funding will be finalized under Donald Trump’s leadership when he takes office in January, 2025.

Following Trump’s previous remarks that the CHIPS and Science Act is “so bad” and House Speaker Mike Johnson’s suggestion that Republicans may try to repeal the Act if they win Congress, industry officials are eager to finalize matters quickly, both to ensure that funds begin flowing to projects meeting established benchmarks, according to Bloomberg.

TSMC’s package, announced in April, includes USD 6.6 billion in grants and up to USD 5 billion in loans to aid the construction of three semiconductor factories in Arizona, with the total capital expenditure for the site amounting to more than USD 65 billion, according to its press release.

The deal, initially announced as tentative agreements earlier this year, comes as the Biden administration pushes to disburse funds before the end of its term in January, according to Bloomberg. Though it remains uncertain when the agreements will be officially signed and the incentives revealed, the award amounts are rumored to align with the preliminary agreements.

Samsung and SK hynix More Concerned about Direct Losses if Subsidies Are Not Granted

On the other hand, South Korean memory giants Samsung and SK hynix are more concerned that whether semiconductor subsidies may be reduced due to potential cuts to the U.S. CHIPS and Science Act.

Both companies are set to receive subsidies—around USD 6.4 billion in direct funding for Samsung and USD 3.87 billion for SK hynix—on the condition that they establish semiconductor manufacturing plants in the U.S.

However, an industry official cited by Business Korea stated that while the scale of the subsidies has been confirmed, the timing of the payments remains uncertain, which is worrisome. If the subsidies are not granted, it will result in direct losses.

Samsung had planned to invest USD 44 billion to build two semiconductor plants and an advanced packaging R&D center in Taylor, Texas. However, due to its current struggles, it has reportedly delayed construction and orders for the second foundry plant in Taylor.

Furthermore, concerns are also rising about the potential negative impact on semiconductor exports due to the U.S. government’s policies toward China. According to the Business Korea report, a reduction in Chinese finished product exports to the U.S. would likely cause a decline in sales for Korean companies that export intermediate goods, such as semiconductor equipment.

Not all news is bad news, though. An industry observer cited by Business Korea notes that although China is still unable to produce advanced process DRAM, they are quickly closing the gap in general semiconductor production. If Chinese memory companies face tighter regulations, it could lead to indirect advantages for their South Korean counterparts.

Read more

• [News] With Trump’s Odds of Winning Rising, Concerns Arise on Potential Adjustments in Chip Subsidies
• [News] TSMC’s First Plant in Arizona Achieves Early Chip Production Yields Higher than Taiwan’s

(Photo credit: TSMC)