In response to the high demand for AI chips, TSMC has once again initiated a large-scale expansion in northern, central, and southern Taiwan. This expansion includes the first tool-in and the construction of 2-nanometer fabs and advanced packaging plants.

Industry sources cited by the Liberty Time News have suggested that investing in eight to ten facilities may be necessary for the next-generation 1-nanometer technology in Taiwan.

Hot Demand for AI Chips Sparks Ongoing Installation and Production

As per the report citing industry sources, last year, TSMC’s pace of building factories in Taiwan slowed down due to the downturn in the semiconductor industry. However, with the industry’s recovery this year and the high demand for AI chips, expansion efforts in the north, central, and southern regions have become more active.

In April, first tool-in will be commenced at the Baoshan 2-nanometer plant (Fab 20) in the Hsinchu Science Park. Additionally, the 2-nanometer plant (Fab 22) in Kaohsiung is under construction, with plans for a third plant underway. TSMC’s 2-nanometer process is scheduled for mass production in 2025.

AI chips, emphasizing computational power, universally adopt advanced processes. The surge in demand for AI chips is driving the need for advanced packaging technologies like CoWoS.

Currently facing overwhelming demand, TSMC is expanding its advanced packaging facilities in Zhunan, Central and Southern Taiwan Science Park, with plans to start tool-in and join production lines this year. The advanced packaging facility in Chiayi is also commencing construction this year.

Generation of One-Nanometer Fabrication Plants: 8-10 Facilities Needed

According to the report from Liberty Time News citing sources, Intel’s construction of fab typically takes about five to six years. On the other hand, TSMC’s construction and first tool-in in Taiwan are estimated to be completed within two years.

With a monthly installation capacity of 200 units per month for a two-nanometer plant, TSMC reportedly plans to advance to 1.4-nanometer and 1-nanometer advanced processes after the two-nanometer.

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(Photo credit: TSMC)

According to a report by TechNews citing an article from the international column Project Syndicate, Burn Lin, former R&D Vice President of TSMC, Chintay Shih, former President of the Industrial Technology Research Institute, and Chang-Tai Hsieh, an Academia Sinica member and economics professor at the University of Chicago Booth School of Business, collaborated on an article titled “How America’s CHIPS Act Hurts Taiwan.”

In the article, they collectively elucidated how US semiconductor subsidies weaken TSMC’s strength, rendering the entire semiconductor industry more vulnerable. Additionally, they expressed concern that if China were to blockade or invade Taiwan, the supply chain would become compromised.

The US CHIPS and Science Act, aiming to address this issue with a USD 52 billion subsidy, seeks to encourage semiconductor manufacturers to relocate to the United States. However, according to the report addressing on the design of the bill, its objectives may not be achievable and could even weaken Taiwan’s most crucial industry, posing a threat to Taiwan’s security.

Concerns Arise Over Chip Act Threatening Taiwan’s Security

Currently, the semiconductor industry is dominated by specialized companies distributed globally. TSMC specializes in contract manufacturing, focusing primarily on high-end chips. Other important companies include AMD, NVIDIA, Qualcomm, ASML, Tokyo Electron, and Arm.

Specialization in the industry offers two major benefits.

Firstly, each part of the global supply chain can concentrate on its core expertise and advance further, benefiting other supply chains. Secondly, the production capacity of each link in the global supply chain increases, enhancing resilience against demand shocks.

The cost of specialization is that the industry becomes vulnerable to supply shocks. This issue is not unique to Taiwan; all segments of the supply chain face potential bottlenecks.

However, unlike other segments, Taiwan is reportedly confronted with territorial claims from China. Therefore, the United States and Japan have offered substantial subsidies for TSMC’s relocation. TSMC is constructing new factories in Kumamoto, Japan, and Phoenix, Arizona, in the United States.

Currently, Fab 1 in Kumamoto has been completed according to plan, and many of TSMC’s suppliers have also set up shop there. However, the Arizona plant is substantially behind schedule, and fewer TSMC suppliers have followed suit to establish operations in the United States.

Moreover, TSMC’s experience at its Portland plant in Washington state over the past 25 years has raised doubts about the prospects of the Arizona plant. TSMC struggled to find competitive workers there; even with identical training and equipment, production costs in the U.S. were still 50% higher than in Taiwan. Therefore, TSMC chose not to expand its Portland plant further.

Still, the fundamental issue lies in the fact that while American workers are skilled in chip design technology, they lack the skills required for chip manufacturing, which is crucial in this field.

The article further mentions that TSMC’s Phoenix plant will continue to struggle because there is a shortage of American workers with the skills necessary for semiconductor manufacturing.

As warned by TSMC’s founder, Morris Chang, in 2022, seeking economic security by relocating semiconductor manufacturing to the United States is an expensive exercise in futility. Furthermore, while the USD 52 billion subsidy from the United States may seem substantial, it is insufficient to establish a self-sufficient semiconductor ecosystem in Phoenix.

Additionally, the article points out that Taiwan’s industrial planners have deliberately chosen a niche market built upon existing manufacturing advantages, without attempting to replicate the model of the leading Intel at that time, due to the scarcity of Taiwanese workers with the necessary design skills. Similarly, Japan’s subsidies for TSMC are likely to succeed because Japan already possesses an ample supply of skilled manufacturing workers.

The article also highlights three major risks brought about by the US chip act at the end:

Firstly, if TSMC shifts its focus and loses its investment in innovation, the biggest losses will be incurred by its customers and suppliers, most of which are American companies.

Moreover, it may hinder AI development, as this field largely relies on TSMC-manufactured advanced chips. Consequently, TSMC may reduce its investment in production capacity in Taiwan, reducing the entire semiconductor industry’s ability to withstand demand shocks.

Lastly, TSMC may lose its way and risk being replaced by other companies, losing its leadership position in the field of advanced semiconductor manufacturing.

Well-Intentioned US Chip Act with Poor Design May Ultimately Harm Taiwan’s Economy

The commentary suggests that despite the well-intentioned nature of the US chip act, its design is flawed. Instead of establishing a sustainable semiconductor manufacturing cluster in the United States, it may result in long-term damage to TSMC and ultimately harm Taiwan’s economy.

A better approach for the United States, per the report, would be to protect its own economic security while strengthening Taiwan’s, committing to defend Taiwan, and building production capacity in countries like Japan. This strategy may be more prudent in the long run.

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• [News] Latest Overview on TSMC’s Global Expansion Initiatives
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(Photo credit: TSMC)

2020 was undoubtedly a milestone year in the development of TSMC, the leading semiconductor foundry. According to a report from TechNews, TSMC’s global expansion has reached locations in China, the United States, Japan, and Germany, solidifying its goal of being a “long-term and trustworthy provider of technology and capacity.”

On February 24th, TSMC will hold an opening ceremony for the Kumamoto plant, which is scheduled to commence production by the end of the year. With the opening of the Kumamoto plant, let’s review TSMC’s global expansion plan:

Arizona, United States

In May 2020, TSMC officially announced the selection of Arizona, United States, as the location for constructing an advanced process fab.

Initially planned to invest USD 12 billion, the facility aims to build a N5 process fab with a monthly capacity of 20,000 wafers. Construction was scheduled to commence in 2021, with mass production slated to begin by the end of 2024, creating approximately 1,600 job opportunities in the local area. Subsequently, in 2022, TSMC announced plans to start N4 advanced process production at the Arizona fab to meet market demands.

In December 2022, the second phase of construction began at the fab in Arizona, United States. It is expected to commence production using N3 process technology by 2026. The total investment for both phases amounts to approximately USD 40 billion, creating 4,500 jobs opportunities at TSMC.

Upon completion of both phases, the combined annual capacity will exceed 600,000 wafers, with the market value of end products estimated to exceed USD 40 billion. This project ranks as one of the largest foreign direct investment projects in US history.

However, due to the delay in the first phase’s production timeline from the end of 2024 to the first half of 2025, the production schedule for the second phase will also be postponed to start after 2027.

Kumamoto, Japan

In October 2021, TSMC, in collaboration with its customer Sony Group’s wholly-owned subsidiary, Sony Semiconductor Solutions, announced the establishment of a subsidiary called Japan Advanced Semiconductor Manufacturing (JASM) in Kumamoto, Japan. Sony Semiconductor Solutions plans to invest approximately USD 500 million to acquire up to 20% of the shares of JASM.

Following this, Denso, a major Japanese automotive components manufacturer, also announced its investment in JASM. TSMC further increased its investment in the Kumamoto plant, raising the investment amount to nearly JPY 1 trillion.

It plans to introduce 12/16-nanometer processes in addition to the originally planned 22/28-nanometer processes, with a monthly capacity reaching 55,000 wafers. This project has received commitments of support from the Japanese government, with an expected subsidy of approximately JPY 476 billion.

It was previously rumored that one of the shareholders of JASM, Sony Semiconductor, was urged by its customer, Apple, to expedite the production of image sensors (CIS) at the Kumamoto plant. Consequently, trial production began even before the opening of the Kumamoto plant. However, TSMC responded that the production timeline remains according to plan and is scheduled to commence before the end of 2024.

Recently, TSMC announced a new project in collaboration with its Japanese partners Sony Semiconductor, Denso Corporation, and Toyota Motor Corporation to invest in JASM and construct a second fab, scheduled to commence operations by the end of 2027.

TSMC stated that in response to customer demand, construction of the second JASM fab in Japan is slated to begin by the end of 2024. The expansion of production capacity is also expected to optimize the overall cost structure and supply chain efficiency of JASM.

In the future, the two fabs under JASM will enable a total monthly production capacity of over 100,000 12-inch wafers, providing 40-nanometer, 22/28-nanometer, 12/16-nanometer, and 6/7-nanometer processes for automotive, industrial, consumer, and high-performance computing (HPC) applications.

Capacity planning may be adjusted according to customer demand, with the Kumamoto plant directly creating a total of over 3,400 high-tech job opportunities. Through the investment, TSMC, Sony Semiconductor, Denso Corporation, and Toyota Motor Corporation hold approximately 86.5%, 6.0%, 5.5%, and 2.0% of the JASM shares, respectively.

Dresden, Germany

In August 2023, TSMC, along with Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors N.V., jointly announced plans to invest in the European Semiconductor Manufacturing Company (ESMC) located in Dresden, Germany, to provide advanced semiconductor manufacturing services.

TSMC stated that the ESMC represents a significant step forward in the construction of a 12-inch fab to support the future capacity demands in the rapidly growing automotive and industrial markets. The final investment decision is subject to confirmation of government subsidies.

This project is developed within the framework of the European Chips Act. Following approval by regulatory authorities and meeting other conditions, TSMC will hold a 70% stake in the joint venture, while Bosch, Infineon, and NXP will each hold a 10% stake. The fab will be operated by TSMC.

TSMC emphasized that the fab planned for this project is expected to utilize TSMC’s 28/22-nanometer Complementary Metal-Oxide-Semiconductor (CMOS) technology and 16/12-nanometer FinFET processes, with a monthly capacity of approximately 40,000 12-inch wafers.

Through advanced FinFET technology, the aim is to further strengthen the semiconductor manufacturing ecosystem in Europe and create approximately 2,000 direct high-tech job opportunities. ESMC aims to commence construction of the fab in the second half of 2024, with production slated to begin by the end of 2027.

Continuing Advancements in Advanced Processes in Taiwan

In addition to its overseas expansions, TSMC continues to advance its most cutting-edge processes and advanced packaging technologies in Taiwan.

Given the strong demand for N3 process technology over the years, TSMC is expanding the N3 process capacity at its Tainan Science Park. Additionally, in preparation for the commencement of mass production of N2 process technology in 2025, TSMC plans to establish multi-stage N2 process technology capacity in the science parks of Hsinchu and Kaohsiung.

In Hsinchu’s Baoshan area, the first phase has been completed, and TSMC’s Global R&D Center has been in use since 2023. Baoshan Phase Two will serve as the base for TSMC’s N2 process technology.

Additionally, TSMC plans to construct two 2-nanometer advanced process fabs in Kaohsiung. The related land pollution remediation projects are expected to be completed by the end of 2024.

Finally, regarding the urban planning amendment for the expansion of the Central Taiwan Science Park Phase II, which concerns TSMC’s layout for constructing 2-nanometer fabs, TSMC also indicated that the review progress by the Taichung Science Park Administration is proceeding as scheduled.

This development will allow the land in the Central Taiwan Science Park to be handed over to TSMC for use as early as 2024, enabling subsequent commencement of the construction of the fabs.

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(Photo credit: Intel)

Despite the ongoing intensity of the US-China tech war, Apple has been gradually leaning towards a more diversified supply chain, especially in the production of its latest head-worn device, Vision Pro. As per a report from Commercial Times, upon examination, it is revealed that the major supplier in chip manufacturing for this device is Texas Instruments (TI).

However, other components, such as the NOR Flash memory, originate from Chinese manufacturer GigaDevice, with the assembling being shifted from Taiwan-based facilities, previously relied upon, to Luxshare Precision.

On February 7th, following an in-depth teardown of internal components by the repair website iFixit, it was discovered that within the Vision Pro main unit, speakers, and external power supply, there are not only Apple’s self-developed processor chips but also multiple Apple-designed power management chips. It’s noteworthy that TI serves as the primary chip supplier in the Vision Pro.

Yet, surprisingly, there are NOR Flash from the Chinese memory manufacturer GigaDevice. As the US-China tech war continues to escalate, Apple’s use of memory from a Chinese manufacturer raises concerns in the market about whether it may cross the red line set by the US government.

In fact, in recent years, Apple’s products such as the iPhone, MacBook, iPad, Apple Watch, and AirPods have leaned towards Chinese suppliers like Luxshare, Wingtech, BYD, and GoerTek in the assembling sector, while Taiwanese suppliers like Foxconn, Quanta, Pegatron, and Compal, which Apple used to heavily rely on, are gradually fading out of the supply chain.

The assembly for Vision Pro has also shifted from Pegatron to Luxshare. While Taiwanese suppliers are gradually reducing their reliance on Apple, they are simultaneously diversifying into emerging fields such as artificial intelligence, electric vehicles, and smart healthcare.

On the other hand, despite the strong sales of Vision Pro since its launch in the United States in mid-January, reports surfaced of a wave of returns within just two weeks. The most cited reasons by consumers include discomfort when wearing, eye fatigue, and unsatisfactory software experiences, prompting buyers to opt for returns within the 14-day return window.

Some early adopters also expressed that the current productivity and entertainment experiences offered by Vision Pro do not justify its high price point. Additionally, they find its interactive features insufficiently convenient for tasks such as programming, design, and presentation editing.

TrendForce has previously reported that one of the main issues impacting the Vision Pro is its hefty price tag. The $3499 price point, although seemingly steep, is expected to resonate with the market, especially given the promise of ample applications, a quality user experience, and Apple’s established brand loyalty.

Additionally, should Apple introduce a more budget-friendly version as speculated, the premium pricing of the Vision Pro could serve to accentuate the value proposition of the more economical model, potentially driving consumer interest towards it.

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The U.S. Department of Commerce has initiated the “National Advanced Packaging Manufacturing Program (NAPMP) ,” with materials and substrates being the first subsidized areas. Due to the close collaboration between IC testing and IC substrates, it is not ruled out that the IC substrate industry could be the next recipient of subsidies under the U.S. chip legislation.

However, according to Commercial Times’ report, there is a lack of interest among Taiwanese PCB manufacturers in establishing facilities in the U.S., and there are three main reasons for this. 

Firstly, the PCB industry thrives on economies of scale, and the production costs in the U.S. are too high. Taiwanese manufacturers have recently responded to the China Plus One Strategy by establishing facilities in Southeast Asia, making it unlikely for them to set up operations in the U.S.

Secondly, the U.S. is not particularly welcoming to polluting industries, making pure substrate manufacturers more likely candidates. 

Thirdly, domestic PCB manufacturers in the U.S. are also relocating their production lines. If seeking a partnership is necessary, Japanese manufacturers may present a more viable option.

As for potential subsidy recipients, industry experts speculate that one of the more likely beneficiaries could be TTM Technologies, a major PCB manufacturer in the United States. TTM announced in 2023 the establishment of a new facility in the state of New York dedicated to producing HDI PCBs, primarily for military applications in line with U.S. strategic requirements.

The United States plans to invest USD 3 billion in three main areas: an advanced packaging piloting facility, workforce training programs, and funding for projects. The funding is derived from the CHIPS and Science Act, and detailed information on the subsidy program is expected to be announced in early 2024.

In response to this news, the Taiwan Printed Circuit Association pointed out that the conditions for subsidies under the CHIPS and Science Act are stringent. In the past year, the semiconductor supply chain-related companies, led by foundry outsourcing, have started to establish a production presence in the U.S. This includes not only foundries such as TSMC, Samsung, and Intel but also packaging and testing facilities like Amkor and ASE Group.

The association highlighted that IC substrates are part of the semiconductor supply chain, but the more immediate impact is on packaging and testing facilities. If global packaging and testing facilities also take concrete actions to establish operations in the U.S. following the “whole chip” production mindset, the pressure on IC substrate manufacturing will undoubtedly increase. It is not ruled out that the IC substrate industry could be the next focus of the U.S. government’s attention.

While the production scale of IC substrates (or the overall PCB) in the U.S. may not be significant, once categorized as a strategic material, even small-scale production becomes meaningful.

In other words, establishing operations in the U.S. is not solely about scale but rather about companies having the “capability” to produce locally. Reportedly, the industry should pay attention to the future developments in U.S. policy in this regard.

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(Photo credit: iStock)