As the Japanese government injects substantial funds to revitalize its semiconductor industry, the dynamics of the Japanese semiconductor industry have been a global focus. TrendForce, during this year’s SEMICON Japan, organized its first overseas industry-focused information seminar, delving into the global semiconductor, optoelectronics, and electric vehicle industries, with a particular focus on the dynamics and strategies of the Japanese market and companies. The event attracted over a hundred participants from Japanese technology industry.

The seminar, opened by TrendForce CEO Kevin Lin, under the theme of “the era of challenges,” served as a commentary on the future development of the technology industry in the coming years. Lin pointed out that global technological industries, influenced by geopolitical factors, are experiencing a trend of supply chain restructuring. He also highlighted China’s expansion in the semiconductor, electric vehicle, and downstream supply chains, reshaping the global supply chain landscape—an aspect requiring global attention.

During the seminar, TrendForce’s Senior Research Vice President, Ken Kuo, presented an analysis of the global memory and AI server market. He noted that after a year and a half of adjustments, prices in the DRAM and NAND markets started to rise across the board in the fourth quarter, driven primarily by robust growth in AI. This trend is expected to continue into the next year.

Beyond AI servers, the introduction of technologies such as Microsoft’s Copilot, as well as AI PCs and AI smartphones, is poised to be a growth driver next year. In terms of AI chip shipments, NVIDIA is projected to maintain its dominance, with an estimated 1.5 million units shipped this year and an anticipated 100% growth next year.

The semiconductor foundry market is expected to recover in 2024.

The recovery of the semiconductor market in 2024 was a major focus for participants. TrendForce’s analyst Joanne Chiao mentioned that as supply chain inventory pressures gradually ease, the semiconductor foundry industry is expected to experience a recovery in 2024, driven by TSMC’s advanced processes and inventory replenishment momentum, with a projected growth of 7%.

In light of geopolitics, , semiconductor foundry supply chains are undergoing restructuring. In 2023, Taiwan is expected to account for approximately 46% of global semiconductor foundry capacity, followed by China at 26%, South Korea at 12%, the United States at 6%, and Japan at 2%. With the drive from subsidy policies in China and the United States to increase local production capacity, by 2027, Taiwan and South Korea’s production capacity shares are expected to converge to 41% and 10%, respectively.

Meanwhile, Japan is actively implementing subsidy policies to support local company Rapidus and attract Taiwan’s TSMC and PSMC to establish facilities, aiming to secure a place in the semiconductor foundry market.

The introduction of Apple Watch with Micro LED is expected in 2026, with estimated display costs 2.5-3 times higher than OLED.

TrendForce’s Senior Research Vice President, Eric Chiou, analyzed Apple’s progress in adopting new display technologies during the display technology session. He mentioned that the next-generation Apple Watch panel would use Micro LED as the display technology, with a size larger than the current Apple Watch Ultra at 2.12 inches.

The product will have two key suppliers: German LED giant ams OSRAM, which will exclusively supply Micro LED chips smaller than 10x10um, and South Korean panel manufacturer LG Display, responsible for the chip mass transfer engineering in addition to providing LTPO glass backplates.

Chiou pointed out that the adoption of small-sized chips inherently helps compress costs. Considering Apple’s strong bargaining power in the supply chain, he estimated that when the product is launched in 2026, the cost of the Micro LED display panel could be controlled below $120, equivalent to 2.5 to 3 times the current price of OLED panels—a reasonable range for a new technology.

Moreover, with Apple’s outstanding ability to integrate new technologies and specifications, there is an expectation of achieving million-unit-level shipments in the first year of launch, injecting abundant vitality into the demand for Micro LED chips and the overall industry’s development.

China’s EV expansion brings impact to the global automotive industry.

In 2023, China became the world’s primary exporter of automobiles, prompting the global automotive industry to recognize that competition with Chinese automakers will extend from the domestic market to the global market. TrendForce analyst Caroline Chen highlighted in her speech that the most significant threat to international automakers is China’s advantage in EV( including BEV, PHV, FCV).

She emphasized that due to China’s early development of EVs, it has established a complete supply chain, particularly in the proactive development of power battery production capacity and upstream materials. EVs account for over a quarter of China’s passenger car exports.

On the other hands, with a nearly 60% market share in the Southeast Asian market, Chinese automakers gradually threaten Japanese automakers’ long-term dominance in the Southeast Asian automotive market.

She believes that as Chinese automakers expand into the international market, Japanese automakers should not only accelerate the development of new energy vehicles but also leverage their long-accumulated brand value and well-established maintenance systems as core competitive advantages. Additionally, maintaining leadership positions in semiconductor and chemical materials is a strategy for sustained investment to consolidate their influence in the automotive industry.

After a month of negotiations, the German government successfully resolved the budget deadlock today. Officials have confirmed that subsidies for the construction of TSMC’s and Intel’s fabs will remain unchanged. They stress that these investments will benefit the entire country.

As reported by CNA, on November 15th, the German Federal Constitutional Court declared the federal government’s redirection of the Covid pandemic emergency budget to the “Climate and Transformation Fund” unconstitutional. This fund includes subsidies for TSMC and Intel, raising concerns about potential deviations from Germany’s commitments and introducing uncertainties to the construction plans.

After a month of intense negotiations among Germany’s three ruling parties, they reached an agreement before the Christmas holiday, putting an end to the budget deadlock. Michael Kellner, Parliamentary State Secretary at the Federal Ministry for Economic Affairs, confirmed on December 13th local time that subsidies for the construction of TSMC’s and Intel’s fabs remain unchanged.

TSMC is planning to establish its first European production base in Dresden, the capital of the German state Saxony, with an investment exceeding EUR 10 billion. The German government has committed to a EUR 5 billion subsidy. Meanwhile, Intel aims to invest EUR 30 billion in Magdeburg and is expected to receive a EUR 9.9 billion subsidy.

In an interview with DPA on December 13th, Kellner emphasized that these investments will ensure future economic strength, benefiting the entire country.

The federal government’s confirmation of providing subsidies for fab construction brought relief to local leaders. Martin Dulig, Economic Minister of Saxony, noted that as time dragged on, trust was at risk of diminishing. He expressed great satisfaction with the federal government’s decision today.

Dulig underscored that for Saxony and Europe, TSMC’s fab establishment can reduce dependence on Asia and the United States, benefiting the local industry chain and small and medium-sized enterprises. This holds significant strategic importance.

“It is both good and important that the federal government has reached an agreement,” Bertram Kawlath, the vice president of the VDMA, an industry association of mechanical engineers in Germany, said in a statement. “The weeks of uncertainty are now over, clearing the way for important investments,” he said.

(Image: TSMC)

Rumors suggest TSMC will set up a new fab that deploys 2nm and more advances processes in the Central Taiwan Science Park (CTSP) Phase 2, Taichung City, Taiwan. The city mayor Shiow-Yen Lu has confirmed TSMC’s entry into Phase 2, designating all allocated land exclusively for TSMC 2nd Fab in CTSP. According to the local government, the new fab is expected to house “processes advances than 2nm,” expressing the hope that TSMC will bring its latest technology to Taichung City.

The latest news about TSMC’s new plant has emerged. CNA reported that during the regular session of the Taichung City Council on December 12th, the mayor responded to councilors regarding the progress of Taichung’s efforts to attract TSMC’s new plant. Mayor stated that the city government has secured the deal, confirming that TSMC will establish itself in the CTSP Phase 2.

Mayor Lu explained that due to the immense scale of TSMC’s Taichung 2nd Fab, the Ministry of Economic Affairs in Taiwan is assisting as well. While CTSP Phase 1 accommodates numerous companies, almost all the land in Phase 2 is allocated for TSMC’s Taichung 2nd Fab.

In response, TSMC expressed gratitude for the support from the Taichung city government and pledged to continue cooperating with the relevant procedures. Regarding whether Phase 2 of CTSP will adopt technology for 2nm and more advances process, TSMC did not provide further clarification.

TSMC has also responded to earlier reports about Samsung offering discounts so as to be more effective in competing with TSMC for 2nm orders. During a joint interview before the Taiwan Executive Yuan’s Science & Technology Meeting on December 13th, TSMC Chairman Mark Liu stated that TSMC’s customers prioritize technological quality. As for the outlook for the coming year, Liu expressed hope for a very healthy year.

▲ TSMC’s Current Layout of Global Production Capacity
Edited by TrendForce, November, 2023

(Image: TSMC)

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• [News] Samsung’s Discount Strategy Challenges TSMC as the Battle for 2nm Orders Heats Up
• [News] The Alliance among Apple, TSMC, and Amkor May Pose Challenges to Samsung’s Advanced Packaging Strategy

Both TSMC and Samsung plan to start production on the 2nm process in 2025, triggering an early battle for related orders. According to sources reported by the Financial Times (FT), Qualcomm intends to shift production of its next-generation high-end mobile chips from TSMC to Samsung’s 2nm process. Samsung, offering substantial discounts, is aggressively pursuing orders from major players like NVIDIA, posing a challenge to TSMC’s dominance.

According to reports citing insider information, TSMC has showcased its 2nm prototype test results to major clients like Apple and NVIDIA. Additionally, sources indicate that Samsung is not only planning to introduce its 2nm prototype but is also offering discounted prices, attracting interest from prominent clients, including NVIDIA.

The report highlights that Qualcomm is planning to use Samsung’s “SF2” (2nm) process for the next generation of high-end smartphone chips. Samsung, as the first company to globally mass-produce 3nm (SF3) chips last year, is also the pioneer in adopting the new Gate-All-Around (GAA) transistor architecture.

Samsung indicated that, “We have fully deployed and can mass-produce SF2 in 2025. Since we are the first company to enter and transform the GAA architecture, we hope that the progress from SF3 to SF2 will be relatively smooth.”

However, insiders have disclosed that Samsung’s yield for the most basic 3nm chips is only 60%, significantly below customer expectations. Moreover, when producing chips with complexity equivalent to Apple’s A17 Pro or NVIDIA graphics processing units (GPUs), the yield may further decrease.

Global giants such as Qualcomm and NVIDIA follow a diversified wafer foundry strategy, but they still rely heavily on TSMC for now. Previously, NVIDIA’s Chief Financial Officer, Colette Kress, hinted during the UBS Global Technology Conference that NVIDIA may consider Intel for the production of its next-generation chips, potentially breaking away from the exclusive partnership with TSMC for AI chips.

Now, Qualcomm is also exploring collaboration with Samsung for the 2nm process, intensifying the pressure on TSMC to address potential order losses from two major clients in advanced semiconductor manufacturing.

TSMC, on the other hand, informed the Financial Times that the development progress of its 2nm process is proceeding smoothly, and it is scheduled for production in 2025. When launched, it will represent the industry’s most advanced semiconductor technology in terms of density and energy efficiency.

In a previous investor conference, TSMC stated that there is significant customer interest and engagement in 2nm for high-speed computing and smartphone applications. It is expected that 2nm, when introduced in 2025, will be the most advanced semiconductor technology in the industry, comparable or even superior to 3nm at the same stage.

TSMC plans to launch the 2nm backside power rail solution in the second half of 2025, with mass production scheduled for 2026.

Besides TSMC and Samsung actively advancing towards 2nm and more advanced processes, Intel has also joined the competition. The Financial Times characterizes this race for the 2nm process as “shaping the future of a USD 500 billion industry.”

Intel is progressing along its previously set 5 process nodes in a four-year trajectory. The Intel 4 process is ready for mass production, and the Intel 3 process is planned for launch later this year. Intel CEO, Pat Gelsinger, has previously showcased the Intel 20A wafer, which is expected to enter the pre-production phase in the first half of next year. The Intel 18A process is scheduled for mass production in the second half of 2024.

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• [News] Intense Competition in Advancing Processes at the 2nm by Samsung, Intel, and TSMC

(Photo credit: Samsung)

The shortage of advanced packaging production capacity is anticipated to end earlier than expected. Industry suggests that Samsung’s inclusion in providing HBM3 production capacity has led to an increased supply of memory essential for advanced packaging. Coupled with TSMC’s strategy of enhancing advanced packaging production capacity through equipment modifications and partial outsourcing, and the adjustments made by some CSP in designs and placing orders, the bottleneck in advanced packaging capacity is poised to open up as early as the first quarter of the upcoming year, surpassing industry predictions by one quarter to half a year, according to the UDN News.

TSMC refrains from commenting on market speculations, while Samsung has already issued a press release signaling the expansion of HBM3 product sales to meet the growing demand for the new interface, concurrently boosting the share of advanced processes.

Industry indicates that the previous global shortage of AI chips primarily resulted from inadequate advanced packaging capacity. Now the shortage in advanced packaging capacity is expected to end sooner, it implies a positive shift in the supply of AI chips.

Samsung, alongside Micron and SK Hynix, is a key partner for TSMC in advanced packaging. In a recent press release, Samsung underscores its close collaboration with TSMC in previous generations and the current high-bandwidth memory (HBM) technology, supporting the compatibility of the CoWoS process and the interconnectivity of HBM. Having joined the TSMC OIP 3DFabric Alliance in 2022, Samsung is set to broaden its scope of work and provide solutions for future generations of HBM.

Previously, the industry points out that the earlier shortage of AI chips stemmed from three main factors: insufficient advanced packaging capacity, tight HBM3 memory capacity, and some CSPs repeatedly placing orders. Now, the obstacles related to these factors are gradually being overcome. In addition to TSMC and Samsung’s commitment to increasing advanced packaging capacity, CSPs are adjusting designs, reducing the usage of advanced packaging, and canceling previous repeated orders – all of which are the key factors.

TSMC’s ongoing collaboration with OSATs(Outsourced Semiconductor Assembly And Test) to expedite WoS capacity expansion is gaining momentum. NVIDIA confirmed during a recent financial calls that it has certified other CoWoS advanced packaging suppliers’ capacity as a backup. Industry speculation suggests that certifying the capacity of other CoWoS suppliers for both part of the front-end and back-end production will contribute to TSMC and its partners achieving the target of reaching a monthly CoWoS capacity of approximately 40,000 pieces in the first quarter of the next year.

Furthermore, previous challenges in expanding advanced packaging production capacity, especially in obtaining overseas equipment, are gradually being overcome. With equipment optimization, more capacity is being extracted, alleviating the shortage of AI chip capacity.

(Image: Samsung)

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• • [News] Memory Titans Vie for Control in HBM Tech, Who Will Shape the Next-Gen?
  • [News] Samsung Boosts 2.5D Packaging Equipment to Compete for TSMC’s CoWoS Orders
  • [News] The Alliance among Apple, TSMC, and Amkor May Pose Challenges to Samsung’s Advanced Packaging Strategy