Leading semiconductor companies are making significant strides in global expansion with the announcement of two new fabrication facilities. TSMC is set to greenlight a factory in Germany, while GlobalFoundries plans to establish its first 12-inch wafer plant in Singapore.

TSMC’s Bold Move: Germany’s Green Light

TSMC from its presence in the USA, China (Shanghai and Nanjing), to Japan (Kumamoto City), TSMC’s global manufacturing footprint is expanding. Reuters reported on August 7 that TSMC’s board is inclined to approve the construction of a plant in Dresden, Germany. The German government pledges a substantial 5 billion euros (about $5.49 billion USD) to support the facility. However, the German Ministry of Economy refrains from commenting on the matter.

TSMC has been negotiating with the Saxony German state since 2021 to establish a collaborative FAB plant. In partnership with Bosch, Infineon, and Onsemi, TSMC aims to utilize the Dresden plant primarily for automotive chip production. Pending board approval, this venture could involve financing discussions with Berlin, ultimately requiring European Commission endorsement. TSMC, Intel, and Wolfspeed stand out among chip manufacturers seeking government assistance for European manufacturing ventures.

GlobalFoundries Poised to Build 12-Inch Wafer Plant in Singapore

According to udn.com, GlobalFoundries is set to make a substantial investment in the establishment of a 12-inch wafer fabrication plant in Singapore. The project’s funding could exceed NT$100 billion (approximately $3.2 billion USD). Reports suggest that this Singaporean facility will focus on producing 28-nanometer chips, with a potential completion date as early as 2026.

Industry experts note that GlobalFoundries’ move to set up a 12-inch facility in Singapore implies a significant shift in the competitive landscape. TSMC, UMC, PSMC, and GlobalFoundries – the four major semiconductor foundries – will all possess 12-inch production capabilities. Additionally, each of these companies has international expansion plans for such facilities. Notably, TSMC’s ventures span across the USA and Japan, UMC, and GlobalFoundries are both targeting Singapore, while PSMC’s strategy involves establishing a plant in Japan in collaboration with local partners.

Major Manufacturers Expand Against the Current Downturn

TSMC has been proactive in its expansion strategy, unveiling plans for ten new facilities in the past two years. These include 5 wafer plants and 2 advanced packaging facilities in Taiwan, alongside 3 overseas wafer plants. Despite the industry’s current challenges, TSMC’s expansion momentum remains strong, driven by a heightened focus on global manufacturing diversity.

TSMC is well aware of the potential risks tied to significant expansion efforts. In its latest annual report, the company acknowledges that expanding on a global scale demands substantial resources, highlighting possible challenges like rising costs, workforce shortages, disasters, land scarcity, cyber threats, government support, cultural differences, intellectual property protection, and tax variations.

Expanding during a semiconductor downturn has become a strategic approach for the foundry players. Typically, a fab construction takes 2 to 4 years, with equipment installation lasting 0.5 to 1 year and production ramp-up stretching 1 to 2 years. Looking ahead, semiconductor foundries are gearing up for a fresh wave of capacity release throughout 2024 and 2025.

Despite the industry’s ongoing slump, encouraging signs suggest that the downturn might be reaching its conclusion. Industry experts are cautiously optimistic, anticipating the arrival of the next upswing in the cycle.

(Source: https://mp.weixin.qq.com/s/4Xu_uc58kG85E_6R4Y3qhQ)

Samsung recently announced that they will ahead of TSMC in the foundry market within 5 years. At the same time, Intel also claimed to become the second-largest player in the market before 2030. Currently, both Samsung and TSMC are adapting 3nm process to do the chip manufacturing, with the technology of GAA(Samsung) and FinFET(TSMC) respectively.

Samsung sees GAA technology as a crucial key to surpassing TSMC. Currently, Samsung’s 4nm lags behind TSMC by about 2 years, and its 3nm is about a year behind. However, this situation will change when TSMC turns to 2nm. Industry insider sources indicate that TSMC plans to use GAA technology in 2nm process, and Samsung believes that they can seize the chance to catch up with TSMC since TSMC may have a hard time when turning to 2nm process.

Industry insiders have revealed that AMD has shifted some of its 4nm CPU chip orders from TSMC to Samsung. It is reported that AMD has signed an agreement with Samsung to manufacture some of its mobile SoC by using Samsung’s 4nm node, and Samsung may also manufacture AMD’s Chromebook APU.

The Fight in the Foundry Market is On

According to TrendForce, the top 10 global foundry players in 4Q22 with TSMC account for 58.5% of market share by revenue, far ahead of Samsung’s 15.8%. Industry insiders suggest that Samsung still has a long way to go to catch up with TSMC. Some sources say that TSMC’s 2nm process will be mass-produced as scheduled in 2025, while Samsung’s plans are still to be observed.

Intel is also striving for the top spot in the wafer foundry market. Since the beginning of 2021, Intel has implemented a series of measures in its foundry business after announcing its “IDM 2.0” strategy. Last July, Intel stated that it will manufacture chips for MediaTek, and the first batch of products will be produced within the next 18 to 24 months using more mature manufacturing technology (Intel 16). In addition, Intel said that Qualcomm and Nvidia are also interested in having them manufacture their chips. To regain its leading edge in chip manufacturing, Intel has unveiled its 5 process technology stages to be launched in the next few years, including 10nm, 7nm, 4nm, 3nm, and 20A.

And TSMC has no competitive relationship with their clients by not doing the wafer design, apparently, this is also a significant advantage for TSMC and other foundry manufacturers. In recent years, more companies have recognized the importance and highly profitable nature of foundry manufacturing, leading to the independent establishment of foundry manufacturing operations. Samsung and Intel have also followed this trend, as foundry manufacturing can optimize production technology and provide major companies with more opportunities for trial and error.

According to TrendForce’s latest investigation, Chinese foundries have already suspended plans to expand production capacity for advanced processes after the US government began restricting the exportation of equipment and technical support for processes related to non-planar architectures. TrendForce believes that a further tightening of the restrictions on lithography equipment will mainly affect mature processes, especially the 28nm. Chinese foundries might proceed more slowly in adding new production capacity or raising output for the 28nm process due to the prolonged reviews on their equipment purchases.

TrendForce semiconductor analyst, Joanne Chiao, said that Chinese semiconductor companies have already suspended the development of chips featuring the GAA architecture (i.e., nodes that are generally ≤3nm) after the US government began restricting the exportation of EDA tools and related technical support. If we talk about the FinFET architecture that Chinese foundries are able to produce for now, it is possible to achieve the faster computing speed of the more advanced chips by combining multiple lower-end chips. However, it might also be very challenging to raise the production yield rate of a solution that integrates multiple chips, not to mention that the power consumption of such solution might be very high as well.

Seeing the US export control, for now, US government has not imposed restrictions on the exportation of technical support for processes related to planar architectures. On the other hand, Chinese foundries might halt their advanced chip (14nm) production at any time if they encounter an equipment malfunction or another problem that requires technical support from US equipment providers.

At last, Chiao emphasized that the US sanction has definitely accelerated the development of an “all-China” semiconductor manufacturing supply chain. Nevertheless, the world’s top eight semiconductor equipment providers all come from Japan or the US. From the perspective of the foundry industry, it will be hard for China to realize a wholly or mostly native semiconductor supply chain within the foreseeable future.

The market started worrying about the oversupply in semiconductor 2023, when the demand will start growing again depends on two factors: the situation of the macroeconomy and the inventory status.

Since foundries’ capacity utilization rates started drop in 3Q22, chip supply as a whole has decreased significantly. This, in turn, has helped limit inventory growth across the supply chain. However, the global economy is still at risk of a mild recession, so consumers may allocate more of their spending to daily necessities. They may also spend more on tourism due to easing of the pandemic. This could lead to weak sales for consumer electronic products.

Not to mention that most consumers already purchased the electronic products that they need for working or studying at home during the pandemic. Assuming that the overall inventory level of the supply chain will return to a healthier level, TrendForce believes that chip demand will begin to rebound to a certain extent in 2Q23. Then, the demand growth will become more obvious from 3Q23 onward. Nevertheless, this demand growth may not be too strong due to uncertainties in the global economy.

If we observe the situation from the perspective of the foundry industry, smartphones represent the largest application segment in terms of wafer consumption. The smartphone supply chain started inventory correction earlier, so demand rebound might be more obvious initially for smartphone-related chips compared with chips used in other consumer devices. On the other hand, with different benchmarks, the demand for HPC chips will show more significant growth compared with the demand for smartphone chips.

On December 6, TSMC held a ceremony for the first tool-in of its new Arizona fab. This event came after the foundry giant had publicized a series of overseas expansion projects. Within Taiwan, TSMC’s recent announcements have caused a stir in public opinion. Concerns have been raised about the possibility of a hollowing out of the island’s semiconductor industry due to a mass exodus of professionals involved in chip manufacturing.

TSMC’s Overseas Expansion Plan

TSMC actually embarked on the path to internationalize its business operations much earlier in 2015, when it made the announcement to build a fab in Nanjing, Mainland China. At that time, the chief reason behind this expansion project was that Huawei had become the second most important client next to Apple. Also, TSMC planned to have its 16nm node serve as the main manufacturing technology of the Nanjing fab. This decision was in line with the semiconductor technology export rules enforced by Taiwan’s Ministry of Economic Affairs. Specifically, domestic chipmakers are only allowed to deploy “n-1” technologies at overseas manufacturing sites. Despite being in compliance with all domestic laws and regulations, TSMC still attracted a lot of controversies with establishing a base of operation in Mainland China, and there were speculations that more advanced semiconductor technologies will be leaving Taiwan with the “westward expansion”.

Fast-forward to present day, China is not the only one that is focusing on the development of a homegrown semiconductor industry. After witnessing the impact of the COVID-19 pandemic on the global supply chain, many other countries are reconsidering the importance of semiconductor supply in their own industries. From the US to Japan and European countries, governments have begun to offer various subsidies and market-based incentives in order to entice major semiconductor manufacturers such as TSMC to build fabs in their territories.

A detailed survey of TSMC’s overseas expansion activities from 2015 onwards finds that the construction of the Nanjing fab commenced in 2016 a year after the announcement of the project. The fab then celebrated the formal start of mass production with a ceremony in 2018. Two years later, in 2020, TSMC revealed the plan to build a 12-inch wafer fab that deploys advanced nodes in Arizona. Moving into 2021, the foundry giant unveiled two more expansion projects in Japan. The plan to open a “3D IC material R&D center” in Tsukuba (Ibaraki Prefecture) was announced first. Later in October of that same year, TSMC said it will set up a fab in Kumamoto.

Where Will TSMC Go After US?

Regarding the locations of TSMC’s fabs worldwide, TrendForce’s latest research reveals that for 12-inch wafer foundry, TSMC has four fabs in Taiwan, including including two upcoming greenfield projects respectively located in Hsinchu and Kaohsiung. Outside Taiwan, TSMC has one operational 12-inch wafer fabs in Mainland China and two more under construction in the US and Japan. Besides these existing and planned fabs, a close eye is also being kept on TSMC’s possible expansion into the EU states. Germany has long been rumored to be TSMC’s candidate for setting up a fab in Europe. However, Ireland has a lot of potential as well since Intel previously announced its intention to expand its existing manufacturing operation in this country. Currently, TSMC is internally assessing the feasibility of landing a project in Ireland.

Taiwan Still Has Advantages in Talents, Business Culture, and Complete Industry Ecosystem

Going back to the issue of whether TSMC’s overseas expansion activities will negatively affect Taiwan’s semiconductor industry by causing an outward migration of related professionals or a weakening of the industry’s competitive advantage. According to TrendForce analyst Joanne Chiao, the deglobalization trend is gradually emerging in the supply-demand dynamics of the semiconductor market. Based on the latest data, the geographical distribution of TSMC’s production capacity (that is calculated in thousands of 12-inch wafer equivalents per month) for 2022 is estimated as follows: 93% in Taiwan, about 6% in Mainland China, and 1% in the US. The short-term effects of TSMC’s overseas projects will thus be very limited as the majority share of the foundry’s production capacity is going to stay in Taiwan.

As for the effects on the competitiveness of the domestic semiconductor industry in the long run, Chiao believes that deglobalization will lead to a general rise in operating costs for foundries worldwide. This means that every foundry will be facing increasing pressure related to pricing regardless of where they put their fabs. On the other hand, Taiwan’s importance as the world’s main chip production base will diminish somewhat over time because of the deglobalization trend.

Nevertheless, the foundry industry depends on tight relations with clients as well as highly synchronized and meticulous services among all participants across the supply chain. This is where Taiwan shines because the island is home to a complete ecosystem for the foundry industry. All participants in this ecosystem advance together when it comes to upgrading technological capabilities or overcoming technological bottlenecks. Apart from these advantages, a system of management has been well established on the island for the various aspects of fab operation. As foundries keep their fabs running 24/7, they are constantly tested in manpower scheduling. Therefore, they have to rely on locally cultivated talents and local experience that have taken decades to amass. In other words, fabs in Taiwan are performing at the highest level because of the local business and work culture.

（Image credit: TSMC Linkedin）