US Commerce Secretary Gina Raimondo has announced on February 5th that the Commerce Department would distribute substantial subsidies to chipmakers investing in the US within the next two months. The subsidy recipients are expected to include companies like TSMC and Intel.

As per a report from Reuters, Raimondo discussed the progress of subsidies under the US CHIPS and Science Act. “We’re in the process of really complicated, challenging negotiations with these companies. In the next six to eight weeks, you will see several more announcements. That’s what we’re striving for,” she stated.

Raimondo did not specify which chipmakers she is negotiating with, but she mentioned in an interview cited by Reuters,”These are highly complex, first-of-their-kind facilities. The kind of facilities that TSMC, Samsung, Intel are proposing to do in the United States — these are new-generation investments — size, scale complexity that’s never been done before in this country.”

Last month, as per Bloomberg cited industry sources in a report, plans for the United States to announce substantial chip subsidies by the end of March are revealed, targeting companies such as TSMC and Intel. The US CHIPS and Science Act reportedly includes a USD 39 billion manufacturing subsidy, providing 15% of the total cost for each independent project. Each fab can receive up to USD 3 billion in subsidies, along with loans, loan guarantees, and tax exemptions.

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• [News] TSMC Reportedly Announcing Kumamoto Plant 2 in Japan, while U.S. Subsidies Expected by End of March
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(Photo credit: TSMC)

China’s leading semiconductor foundry, SMIC International, announced its fourth-quarter financial results on February 6th. While the quarter’s revenue exceeded expectations, a significant drop in gross margin led to a sharp decrease in net profit by less than 50% to below USD 1 billion last year.

SMIC issued a warning, further revising down the gross margin for the first quarter of this year to around 10%, with single-digit figures at the lower end.

During the fourth quarter, SMIC International saw a revenue increase of over 3.5% to more than USD 1.678 billion, marking the only quarter of revenue growth last year. Net profit plummeted by 54.7% to nearly USD 175 million.

The gross margin of 16.4% was almost halved compared to the same period in 2022 and experienced a significant decline from the previous three quarters, reaching its lowest point of the year.

In the full year of 2023, SMIC International experienced a revenue decline of over 13% to USD 6.3 billion, with a net profit decrease of 50.4% to USD 900 million. The gross margin was approximately halved to 19.3%.

Regarding the decline in net profit, SMIC cited various factors including the industry downturn, weak market demand, high industry inventory, and fierce competition among peers, all contributing to reduced capacity utilization and decreased wafer shipment for the group.

Additionally, the group experienced a period of high investment during the financial reporting period, leading to increased depreciation compared to the previous year.

Looking ahead to the first quarter of this year, SMIC estimates a quarter-on-quarter revenue growth of up to 2%. For the first-quarter gross margin guidance, SMIC has provided a range of 9% to 11%, indicating a decrease of approximately 33% to 45% from the low point of 16.4% in the fourth quarter of last year.

SMIC also anticipates that, under the assumption of no significant changes, this year’s revenue growth will not be lower than the average of comparable peers, showing a mid-single-digit increase compared to last year. The capital expenditure scale is expected to remain roughly flat compared to last year.

The significant downward revision in gross margin guidance has drawn attention to SMIC’s strategic moves. According to a report by the Financial Times, SMIC is intensifying its collaboration with Huawei by establishing a new production line in Shanghai dedicated to producing chips for Huawei’s future flagship smartphones, focusing on the 5-nanometer process.

However, industry sources cited by the report have also indicated that SMIC’s prices for 5-nanometer and 7-nanometer processes are 40% to 50% higher than TSMC’s, and the yield less than one-third of TSMC’s.

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• [News] Over 350 China’s Semiconductor Industry Projects Thriving in 2023

(Photo credit: SMIC)

According to the latest spot prices for memory from TrendForce, due to the Chinese New Year holiday, the spot market is experiencing a limited number of released quotes and very few transactions for DRAM. The trading momentum in the NAND Flash spot market has also not shown any improvement. Details are as follows:

DRAM Spot Market:

Chinese OEMs are winding down their operations due to the upcoming Lunar New Year holiday. As a result, the spot market is experiencing a limited number of released quotes and very few transactions. Sellers’ quotes continue to drive the spot price rally, but there is not much actual demand. Although DRAM suppliers are withholding the amount of products going into the spot market, this has a limited effect in terms of sustaining the rally. The average spot price of mainstream chips (i.e., DDR4 1Gx8 2666MT/s) rose by 0.52% from US$1.922 last week to US$1.932 this week.

NAND Flash Spot Market:

Transaction momentum is not yet revitalized from the spot market, with market activities carrying on from that of last week under the absence of buy orders for retail NAND Flash products. Module houses are currently hoping that promotions from Chinese New Year would amplify order dynamics, which are seemingly quite difficult for the time being. The 512Gb TLC wafer spot stayed flat this week at US$3.437.

TSMC officially gives the green light to the second fab in Kumamoto, Japan! On January 6th, TSMC, Sony Semiconductor Solutions Corporation (SSS), DENSO Corporation (DENSO), and Toyota Motor Corporation (Toyota) jointly announced further investment in TSMC’s Japanese subsidiary, Japan Advanced Semiconductor Manufacturing, Inc. (JASM).

The collaboration is expected to construct JASM’s second fab in Japan, dedicated to the 6/7-nanometer advanced process. The new facility is expected to commence operations by the end of 2027, with a total investment exceeding USD 20 billion, strongly supported by the Japanese government.

TSMC has stated that in this investment venture with JASM, TSMC, SSS, DENSO, and Toyota hold approximately 86.5%, 6.0%, 5.5%, and 2.0% of JASM shares, respectively. Toyota Motor Corporation is a new major shareholder following this capital increase, indicating its potential involvement in automotive electronics initiatives.

TSMC has further indicated that the construction of JASM’s second fab in Japan is set to commence at the end of 2024. The expansion in production capacity is expected to optimize overall cost structure and supply chain efficiency.

With two fabs in Kumamoto, TSMC anticipates in the press release that JASM’s total monthly production capacity will exceed 100,000 12-inch wafers, offering process technologies ranging from 40nm, 22/28nm, 12/16nm, to 6/7nm for automotive, industrial, consumer, and high-performance computing (HPC) applications. Capacity planning may be further adjusted based on customer demand.

For JASM’s first fab, it is planned to commence production by the end of the year. The initial facility, costing USD 8.6 billion, received subsidies of JPY 478 billion (approximately USD 3.23 billion) from the Japanese government.

The primary process of the first fab are 22/28nm and 12/16nm, with a monthly production capacity of around 50,000 12-inch wafers. Located in Kikuyo-cho, Kikuyo-gun, Kumamoto Prefecture, Kyushu, construction of the facility was announced in November 2021, ground was broken in April 2022, and construction was completed within two years.

JASM’s first fab is set to open on February 24, 2024, with mass production scheduled by the end of the year. The facility is a joint venture between Taiwan and Japan, with TSMC holding the majority of shares, Sony Semiconductor Manufacturing Corporation (SSMC) of Japan holding approximately 20%, and Toyota Group’s DENSO holding about 10%.

Read more

• [News] TSMC Reportedly Announcing Kumamoto Plant 2 in Japan, while U.S. Subsidies Expected by End of March
• [News] Multiple Fabs in Japan to Commence Production Post-2024 Boosting Industry

Porsche’s Chief Financial Officer Lutz Meschke has stated in a media interview following the conclusion of the Macan EV unveiling on January 25, 2024, that Europe’s initial plan to ban the sale of new fuel cars by 2035 may be postponed, as reported by Bloomberg.

TrendForce’s Insights:

• Prolonging the Battle and Gradually Narrowing the Gap with Chinese Automakers through Trade Barriers

In March 2023, the European Union passed a ban on the sale of new petrol and diesel cars starting from 2035.

Due to opposition from Germany and Italy, after coordination, the European Union agreed not to ban models using synthetic fuels. Range anxiety of electric vehicles continue to affect the willingness of end consumers to purchase cars, becoming the biggest obstacle to the growth of electric vehicle sales.

Coupled with China’s electric vehicle market, which accounts for over 50% of global BEV sales, nurturing Chinese automakers led by BYD, who continuously lead in the technical level of the the battery system, the electric drive system, and the electronic control system compared to Europe, America, and Japan.

Not long ago, Tesla CEO Elon Musk stated that without trade barriers, Chinese automakers would destroy the vast majority of their competitors. Whether this statement is exaggerated or not, trade barriers currently serve as the most effective means for Europe and the United States to prevent the continued growth and expansion of Chinese automakers, as exemplified by the United States’ IRA legislation and the European Union’s anti-subsidy investigations.

Delaying the implementation of the ban on the sale of new fuel cars can synergize with trade barriers, allowing consumers to maintain distance from Chinese-made electric vehicles. This approach provides breathing space for European automakers and US and Japanese automakers in the fuel car market.

With the Dual Strategy of Western and Japanese Automakers, Taiwanese Manufacturers Need Greater Flexibility in Planning

Assuming the postponement of the ban on the sale of new fuel cars, automakers in Europe, the United States, and Japan may simultaneously pursue synthetic fuel technology based on traditional fuel car frameworks while continuing to develop electric vehicle technology.

However, this dual approach, which does not favor one technology over the other, is likely to affect the allocation of resources for electric vehicles. During the era of internal combustion engine vehicles, dominated by Western, Japanese automakers, and Tier 1 suppliers due to various constraints such as patents and technological barriers, it has been challenging for Taiwan to access system-level supply opportunities.

In the era of electric vehicles, Fukuta Elec & Mach Co.’s all-in-one electric drive and control system has entered Mazda’s range-extended electric vehicle supply chain, while Foxconn has launched an electric vehicle manufacturing platform to vie for opportunities in complete vehicle manufacturing from carmakers. Consequently, Taiwan is gradually moving from Tier 3 and Tier 2 to Tier 1.

If automakers in Europe, the United States, and Japan adopt a dual strategy, Taiwanese manufacturers’ opportunities in the electric vehicle field may face reduction or fiercer competition.

Apart from continuously strengthening relevant technologies in the electric vehicle domain, Taiwanese manufacturers also need to enhance the commonality and modularity of their product lines to adapt to the ever-changing industrial regulations under geopolitical shifts.

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(Photo credit: Pixabay)