Ahead of Intel’s upcoming Q3 financial announcement on October 31st, the market has speculated that it may suffer another quarter of revenue decline, while the company might reportedly incur a loss over USD 3 billion this year.

However, the struggling giant might have made a significant misstep as early as three years ago, when Pat Gelsinger took over as Intel’s CEO, and soon damaged the relationship with TSMC by offending the foundry leader, according to an in-depth report by Reuters.

Sweet Deal Canceled upon Bold Remarks

According to the report, Intel used to enjoy a favorable arrangement with TSMC, as the latter was producing chips that Intel could not manufacture in-house. Citing several people familiar with the deal, TSMC was offering Intel substantial discounts.

However, rather than carefully fostering the relationship, Gelsinger made controversial statements, one after another, and strained ties with TSMC by highlighting Taiwan’s delicate situation with China, the report notes.

According to Reuters, TSMC decided to revoke Intel’s discount as a counterattack. Citing sources familiar with the situation, instead of offering approximately 40% off on the $23,000, 3nm wafers used to manufacture Intel’s chips, TSMC now asked Intel to pay the full price. The move significantly shrink Intel’s margins.

To recap, Reuters states that in May 2021, just months after Gelsinger took the throne of Intel’s CEO, he highlighted the ongoing US-China conflict and warned that the industry shouldn’t become too reliant on TSMC. “You don’t want all of your eggs in the basket of a Taiwan fab,” he said, implying that companies need to look for other supplier alternatives.

TSMC certainly does not like the comments. According to a previous report by Wccftech, TSMC founder Morris Chang responded by saying that he was taken aback by Gelsinger’s rudeness towards TSMC when they met back in 2015.

Later that December, Gelsinger further advocated for U.S. investment in domestic chipmakers, stating at a tech conference that Taiwan is not a stable place, according to Reuters.

When asked by Reuters about this previously undisclosed incident, Intel stated that TSMC remains an important partner and that they maintain a “healthy business relationship today.” TSMC also told Reuters that Intel is a valued customer.

Still Lagging behind as 18A Challenges Remain

TSMC founder Morris Chang used to say that Gelsinger’s previous remarks were made from an emotional standpoint, which failed to clarify how Intel intends to surpass TSMC technologically in the years ahead. Now, Intel’s push to reclaim its manufacturing edge through a new chip-production process, known as 18A, has encountered delays and technical hurdles, with some potential clients hesitating to adopt it.

According a previous report by Reuters, Broadcom’s initial tests with Intel’s 18A (1.8nm-class) process did not meet expectations, creating additional pressure on the semiconductor giant’s efforts to catch up with TSMC in the foundry sector.

The report noted that Broadcom tested Intel’s 18A by producing wafers with typical design patterns. However, its engineers and executives were said to be disappointed with the results, regarding the process as “not ready for high-volume production.”

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(Photo credit: Intel)

The AI boom has boosted the semiconductor industry, increasing the demand for advanced packaging production capacity. According to a report in Economic Daily News, TSMC is rumored to be considering the acquisition of another Innolux plant, particularly its 7th plant in the Southern Taiwan Science Park. However, on October 29, Innolux stated that there are currently no plans to sell the entire plant.

In August this year, TSMC purchased Innolux’s 4th plant in Tainan for NTD 17.14 billion, naming it AP8. It is rumored that TSMC intends to buy another of Innolux’s plants, specifically considering the acquisition of its 7th plant, which is adjacent to the 4th plant that TSMC previously acquired.

However, the report indicated that the management at Innolux holds differing opinions on the sale of its 7th plant and has been unable to reach a consensus.

Innolux’s 7th plant features a 7.5-generation production line primarily dedicated to manufacturing TV panels, and various energy-saving, water-saving, and waste reduction measures were implemented, as mentioned by the report.

As for the plant that TSMC previously acquired from Innolux, the AP8, according to a report by China Times, is expected to start production in the second half of 2025. More importantly, the fab will not only provide foundry services but also the eagerly needed capacity for advanced 3D Chip on Wafer on Substrate (CoWoS) IC packaging services, as the report noted.

The move will be critical for TSMC to meet the surging demand for the advanced packaging capacity for AI servers, according to the report. Its future capacity will reportedly be nine times that of AP6, TSMC’s advanced packaging fab in Zhunan, as the report from China Times noted.

Regarding the current situation of Innolux, its Q3 financial report showed disappointing results. According to a report from Commercial Times, the company recently announced its financial performance for the third quarter of 2024. Due to a decline in TV panel revenue, Innolux recorded a net loss.

According to its press release, consolidated revenue for the third quarter was NTD 55.473 billion, a quarter-on-quarter decrease of 2.4%, while the gross profit margin fell to 9%. The company posted a net operating loss of NTD 790 million, with net profit of approximately NTD 494 million, resulting in a net profit per share of about NTD 0.05.

In 3Q24, the company shipped 6.08 million square meters of total panel, a decrease of 9.3% quarter-on-quarter.

According to its press release, looking ahead to the fourth quarter of 2024, Innolux noted that the timing has entered the traditional off-season for panels. However, China’s new subsidy policy may boost the demand for TV sets. While TV panel prices are expected to remain stable, demand for IT panels is anticipated to slow down.

According to the Commercial Times report, Innolux projects that shipments of large-size panels will decrease by 5% to 9% in the fourth quarter, with the average unit price of shipments declining by less than 5%. In contrast, shipments of small and medium-sized panels are expected to grow by 15% to 19%.

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• [News] TSMC’s Newly Acquired AP8 Facility in Southern Taiwan Rumored to Start Production in 2H25
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(Photo credit: TSMC)

According to a report from Economic Daily News, while the industry is still focusing on the launch of Apple’s new products featuring self-developed M4 chips, Apple is reportedly making significant investments in the development of its next-generation M5 chips, to strengthen its position in the AI PC competition with more powerful ARM architecture processors.

Notably, the report highlighted that Apple will continue to adopt TSMC’s 3nm process, increasing orders for TSMC’s advanced processes. According to the report, it is expected that the next-generation M5 chip will be launched as early as the second half of next year to the end of the year.

In the current wave of AI PC competition, tech giants in the x86 camp, such as Intel and AMD, have launched new processors to vie for market share. Meanwhile, Apple, the market leader in the Arm camp, is accelerating its efforts to expand its presence and continue to develop next-generation self-developed chips, as indicated by the report.

According to the report, citing industry sources, Apple’s upcoming M5 chip is expected to deliver enhanced AI performance and computing power, potentially triggering a new wave of iPhone purchases. The report indicated that this will generate substantial chip foundry orders for TSMC. Plus, it will also benefit Apple’s end-product partners, such as Foxconn and Quanta.

Regarding Apple’s decision not to use TSMC’s 2nm process for the M5, the report, citing industry sources, noted that this is primarily due to the high costs. However, compared to the M4, the M5 features significant advancements, as it will utilize TSMC’s 3D chip-stacking technology, known as SoIC. This approach allows for better thermal management and reduced leakage compared to traditional 2D designs, as the report pointed out.

Apart from using TSMC’s 3nm process for chip development, the report noted, citing industry sources, that Apple has actively placed orders for TSMC’s 2nm process and the first batch of production capacity of the A16 process.

According to the report, The 2nm process is expected to be introduced as early as next year in the APs for Apple’s iPhone 17 Pro and 17 Pro Max models. As for the rumored ultra-thin iPhone 17 Air model, its AP may continue to use the 3nm process family.

Regarding clients for the 2nm process, the report noted, citing comments from TSMC’s chairman C.C. Wei during a previous earnings call, that inquiries for the 2nm process are outpacing those for the 3nm process. Additionally, the A16 process is considered highly attractive for AI server applications.

Wei noted that high-performance computing (HPC) applications are increasingly moving toward chiplet designs; however, this shift will not impact the adoption of the 2nm process. According to the report, current customer demand for the 2nm process exceeds that of the 3nm process, and production capacity is expected to be higher, as the report indicated.

According to an industrial source cited by MoneyDJ, TSMC started the mass production of 3nm in 2022, while the 2nm is expected to enter volume production in 2025, indicating that the generation cycle for a node has been expanded to three years.

Thus, supported by TSMC’s major clients, the contribution from 3nm will continue to rise next year and remain a key revenue driver in 2026, while the 2nm process is expected to replicate or even surpass the success of 3nm, MoneyDJ notes. According to previous market speculations, tech giants such as Apple, NVIDIA and AMD are believed to be the first batch of TSMC’s 2nm customers.

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• [News] TSMC Says 2nm More Sought after than 3nm; A16 Attractive for AI Server Clients
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(Photo credit: Apple)

Taiwan’s semiconductor manufacturing is making strides in advanced process and packaging expansion. TSMC’s new 2nm fab in Kaohsiung will hold a tool-in ceremony this November, followed by equipment installations in December. Meanwhile, ASE’s Siliconware Precision Industries is set to expand advanced packaging capacity in the Erlin Science Park.

According to the Liberty Times, TSMC’s first 2nm fab in Kaohsiung’s Nanzih District is nearing completion. Industry sources indicate that TSMC has scheduled a low-profile tool-in ceremony with equipment suppliers on November 26, led by COO Y.P. Chyn, with equipment installations to begin on December 1. The Nanzih site is expected to serve as TSMC’s primary base for 2nm production.

The report also highlights the rapid progress at TSMC’s Nanzih facility. The P1 fab is nearing completion, with the office tower and P2 fab structure already in place, while groundbreaking for a third fab (P3) occurred this month. Industry insiders note that a fourth and fifth fab (P4 and P5) have received environmental approvals and could serve as wafer production sites for TSMC’s A16 process under the 2nm generation.

Key equipment suppliers, including Lam Research, ASML, and Tokyo Electron, have begun establishing presences in Kaohsiung to support this next-generation fab.

In related developments, ASE Technology announced on October 28 that its subsidiary Siliconware Precision Industries will invest NTD 419 million to secure land-use rights in the Erlin Science Park. According to a report from the Commercial Times, industry sources indicate this acquisition is primarily to expand CoWoS (Chip-on-Wafer-on-Substrate) advanced packaging capacity.

TSMC CEO C.C. Wei noted earlier in its third quarter earnings call that CoWoS advanced packaging capacity remains constrained. TSMC has committed to doubling CoWoS capacity by year-end and will continue expanding in 2025 to better align supply with demand. However, due to ongoing capacity limitations, the Commercial Times reported that TSMC stated the capacity shortfall had led them to expand outsourcing to OASTs, seeking support from industry partners.

(Photo credit: TSMC)

TSMC has recently been implicated in a controversy surrounding Huawei’s Ascend 910B chip, which was reportedly manufactured by TSMC. According to Reuters, Huawei placed its chip orders through a proxy, Chinese firm Sophgo.

Although Sophgo quickly issued a statement on its website denying any connection with Huawei, TechNews cited industry sources suggesting that Huawei has exploited proxy firms like Sophgo to bypass U.S. sanctions. These sources say the chips are ordered by a third party, shipped back to China, then split and advanced-packaged to create AI processors.

In the same report, an anonymous semiconductor industry insider revealed that the 910B chip was previously paired with HBM2E memory but was found this time in a variant containing TSMC’s 7nm HPC chip. Huawei reportedly uses proxy companies to obtain TSMC-manufactured chips, bringing them back to China for IC splitting and advanced heterogeneous packaging into AI chips.

This time, the proxy was none other than Sophgo, the firm revealed in Reuters’ initial report. In response, Sophgo emphasized on its website that it has no direct or indirect business dealings with Huawei and that it complies with U.S. export control regulations.

However, according to a TMTPOST report, public records show that the legal representative for Xiamen Sophgo Technologies Co., Ltd., is Zhao Hong’ai, with around 30% ownership. After multiple layers of shareholder tracing, Bitmain co-founder Micree Zhan is revealed to still own over 20% of Sophgo.

Bitmain, Sophgo’s parent company, reportedly had ties with Huawei in its early years and hired former Huawei employees as legal representatives and executive directors when Sophgo first launched, indicating close connections between the two companies.

TechNews reports that Huawei’s use of proxies to secure advanced semiconductor processes through major foundries has been an open secret in the industry. Huawei’s drive to develop these chips is part of its AI ambitions.

Although Huawei’s Ascend series currently cannot compete with NVIDIA in computing power, it is understood that advanced packaging using heterogeneous integration offers greater flexibility in wafer manufacturing orders. This approach also allows Huawei to more easily outsource wafer production through proxies, bypassing U.S. restrictions and achieving significant gains in AI chip performance.

(Photo credit: Huawei)