With Trump’s inauguration in January, “Made in America” is expected to dominate, driving an urgent push for semiconductor packaging and equipment companies to relocate to North America. Coupled with TSMC’s Arizona plant set to start mass production early next year, the Commercial Times reports that industry insiders foresee a surge in investments across the North American semiconductor supply chain.

TSMC’s Arizona fab is in the final stages of preparing for 4nm production, with a projected monthly capacity of 20,000 to 30,000 wafers. The company previously signed an MOU with Amkor Technology, a partnership widely seen as supporting advanced and back-end packaging efforts.

On November 8, however, leading packaging and testing company ASE also announced plans to set up a facility in Mexico, aiming to offer advanced packaging services for TSMC’s U.S.-produced chips.

Industry sources cited by Commercial Times speculate that ASE’s Mexico plant, once complete, could compete with Amkor for TSMC’s packaging and testing orders from the Arizona fab. Following the packaging process, the chips could be delivered directly to U.S.-based OEM/ODM partners, including Foxconn, Wistron, and Inventec, for final product assembly, completing the “Made in America” manufacturing chain.

The report also highlights TSMC’s stronghold on advanced packaging technologies such as 3D Fabric and SoIC, required for 2nm production, as well as SoW (system-on-wafer) technology. To meet customer demands, TSMC may need to establish in-house advanced packaging capabilities in the U.S. for even more advanced processes.

TSMC’s advanced packaging line is already highly automated, with optimized production flows reduced from over 300 steps to just over 200, and its gross margin is approaching the company average. The Commercial Times quotes industry experts who suggest that setting up advanced packaging capacity in the U.S. should be straightforward for TSMC, given its extensive experience in wafer fab construction, making it a matter of time.

(Photo credit: TSMC)

Following previous controversies of supplying 7nm chips to Huawei through proxies, TSMC is rumored to be requested by the U.S. Department of Commerce to suspend shipments of all its 7nm or more advanced chips to the AI/GPU clients in China, starting from today (November 11), according to the reports by the Financial Times and Reuters.

Though the information has yet to be confirmed, neither does TSMC make a clear statement to its clients, market sources seems to increase the credibility of the matter. A report by TechNews, therefore, compiles the development and the possible impact of the incident, providing further insights into the current situation. Please read below for the report’s analysis on four key aspects:

Why Now?

According to Reuters, the Department of Commerce sent an “informed” letter to TSMC to make the request, enabling the U.S. to bypass lengthy rule-making procedures and swiftly impose new licensing requirements on specific companies. The action comes shortly after TSMC told the Department that one of its chips had been found in a Huawei AI processor.

The move, in some way, reportedly indicates growing concerns from both Republican and Democratic lawmakers about the effectiveness of export controls on China as well as the U.S. authority’s enforcement of these regulations.

Earlier in July, the Biden administration reportedly drafted new rules targeting chipmaking equipment exports and aimed to add around 120 Chinese companies to the restricted entity list. However, despite initial plans for an August release, the rules have not yet been issued, according to Reuters.

Current Scenario of TSMC and Its Clients in China

However, things aren’t as bad as they seem, as sources tend to indicate that TSMC is not truly halting supply of 7nm and below advanced processes to China, but is instead required to conduct individual project reviews for each customer wishing to place orders. Production will only proceed after obtaining the necessary permits, according to TechNews.

According to another report by TechNowvoice, the main focus of the current restrictions would be on AI chips, which means products such as GPUs will be closely monitored. On the other hand, mobile and automotive chips may be excluded from the restrictions.

The TechNowvoice report further suggests that within the AI chip category, those responsible for training will be the key target of the restrictions, while chips used for AI inference may have a chance of passing the review.

Criteria for Export Restrictions

According to TechNowvoice, market speculations indicate that there are four criteria for evaluation, including transistor count (exceeding 300 billion), chip size (exceeding 300mm²), HBM incorporation, and whether the chip leverages CoWoS packaging.

Given these standards, it will be increasingly difficult for AI chips based on current mainstream architectures to pass the review and obtain approval from the U.S. Department of Commerce, the report indicates.

The report further suggests that the move will likely impact the four major cloud computing companies in China, including Huawei, Baidu, Tencent, and Alibaba. While Huawei has already been included in the blacklist, the other three companies, which have been collaborating with TSMC on AI chip development, may also require further reviews in the future.

What Would the Impact Be?

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.

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

According to the latest research report by TrendForce, if the policy takes effect, it could impact TSMC’s revenue performance and utilization rates of its 7nm and below advanced process capacity, while also affecting the future development of China’s AI industry.

For the first three quarters of 2024, TSMC’s revenue distribution shows that advanced nodes accounted for 67% of its total revenue—a key revenue source. However, TrendForce highlights that the major clients for TSMC’s 7/6n, 5/4nm, and 3nm processes are primarily from the U.S., Europe, and Taiwan. Consequently, even if regulatory actions impact business some Chinese clients may be lost, TrendForce expects other customers to offset this loss, limiting the potential effect on advanced process utilization rates.

TSMC’s revenue from China has remained steady at 11% to 13% for the full year of 2023 and the first three quarters of 2024. If regulatory scrutiny of TSMC’s advanced processes intensifies, or if certain Chinese clients are added to the Entity List—particularly affecting Chinese AI-related IC design companies, IP providers, third-party design services, or other businesses that depend on TSMC’s advanced processes for project initiation, tape-outs, and mass production—TSMC could face a revenue impact of approximately 5% to 8%.

However, strong global demand for AI chips and TSMC’s planned price increases for advanced process clients are expected to help mitigate some of this impact, according to TrendForce.

Read more

• [News] TSMC Reportedly to Halt 7nm and Below Chip Shipments to China’s AI Firms Next Week
• [News] TSMC Reportedly Halts Shipments to Chinese Firm Sophgo After Chip Found in Huawei Processor

(Photo credit: TSMC)

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%).

Read more

• [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)

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.

Read more

• [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)