TSMC’s new plant in Kumamoto, Japan, is bustling. With more than a thousand employees hard at work, it is on track to commence mass production in 2024. This venture signifies TSMC’s commitment to meet customer demands and navigate geopolitical challenges by expanding its overseas production capabilities.

According to a report by Economic Daily, industry sources reveal that TSMC’s Kumamoto plant is making significant progress in terms of staffing. In August 2023, Taiwanese engineers arrived in Japan accompanied by their families. Simultaneously, locally recruited engineers have completed training and are being deployed to the Kumamoto plant in preparation for the 2024 production.

Notably, TSMC’s Kumamoto plant has successfully trained its workforce. When combined with local employees, the facility now boasts a workforce exceeding a thousand. For the latest Kumamoto plant updates, TSMC assures to refer to the information shared during the October 3Q23 earning conference.

In the prior conference, TSMC disclosed its construction of a cutting-edge wafer fab in Japan. This fab will employ 12/16 nm and 22/28 nm process technologies. TSMC has hired around 800 local employees, most of whom have gained valuable experience in Taiwan. Equipment installation began this month, and mass production is expected by late 2024 if all goes according to schedule.

TSMC’s Kumamoto plant is strongly supported by the Japanese government, Sony Semiconductor Solutions Corporation, Denso, and other partners. The plant’s total capital expenditure is $8.6 billion, and the Japanese Ministry of Economy, Trade and Industry approved a subsidy of 476 billion yen (about US$3.5 billion) in June, covering around 40% of the total Japanese subsidy amount.

The Japanese government is optimistic about TSMC introducing EUV lithography equipment for advanced process mass production in future plants. To secure TSMC’s expansion of the Kumamoto Plant, the government is intensifying its support, with discussions suggesting subsidies of up to 900 billion yen (about US$6.03 billion). This increase underscores Japan’s commitment to boosting domestic semiconductor production value, aligning with their 2030 goal. Companies like TSC, WAHLEE, and MA-tek are poised to expand in pursuit of this goal.

TSC established Shunkawa Co., Ltd. in Japan in 2022 and opened a Kumamoto office in August this year. TSC plans to closely monitor the evolution of new semiconductor plants and explore expansion opportunities in regions such as Tohoku and Hokkaido. Additionally, WAHLEE, a materials distributor, is actively partnering with original equipment manufacturers and Japanese trading companies to tap into the Japanese market.

(Image: TSMC)

In recent developments, Samsung Foundry, a subsidiary of Samsung Electronics, has disclosed that it has initiated discussions with major chip clients, gearing up to provide services utilizing 1.4nm and 2nm processes.

It’s been said that Samsung being ahead in the production of 3nm GAA (gate-all-around) process, yet not as favored by major clients as TSMC. In response to the comment, Ki-tae Jeong, the CTO of Samsung Foundry, had share his insights at Semiconductor Expo 2023 in South Korea.

According to the Chosun Ilboon’s report, Jeong pointed out that in the semiconductor foundry industry, it typically takes approximately 3 years for major clients to make their final purchasing decisions. Samsung is actively engaging with prominent clients, and results may become evident in the coming years. Also, the company is currently discussing future processes such as 2nm and 1.4nm with major clients.

How are advanced semiconductor processes progressing?

Compared to mature processes, advanced processes are better suited for applications that demand high performance and low power consumption. With emerging technologies like AI and high-performance computing driving the industry, the demand for advanced processes continues to rise. Leading semiconductor companies are committed to developing new technologies, with chip advanced processes evolving from 5nm to 4nm and now down to 3nm, while looking ahead to the possibility of reaching 2nm and 1.4nm.

Current progress from major players:

Samsung
Samsung has already commenced mass production of its second-generation 3nm chips and aims to introduce the 2nm process by the end of 2025, with the 1.4nm process expected by the end of 2027.

TSMC
TSMC is planning to start production for N3P in the latter half of 2024, with N3X and the 2nm process set to enter mass production in 2025. TSMC will introduce Gate-all-around FETs (GAAFET) transistors for the first time at the 2nm process node, offering a 15% speed increase at the same power consumption and up to a 30% reduction in power consumption at the same speed, all while increasing chip density by more than 15%.

Intel
Intel is diligently pursuing its “Four Years, Five Nodes” plan. Presently, Intel 7 and Intel 4 are in mass production, and the Intel 3 process is expected to enter the readiness for production stage in the latter half of this year. Subsequently, Intel 20A and 18A processes are planned to enter the readiness for production stage in the first and second halves of 2024, respectively.

Moreover, industry experts believe that in the near term, Intel will focus on the Intel 3 process as its flagship offering in the advanced process semiconductor foundry sector to compete with TSMC, Samsung, and other players.

According to a report by Bloomberg, Yoshihiro Seki, Secretary-General of the ruling Liberal Democratic Party and a member of the Japanese parliament, has announced that the government is planning to allocate an additional ¥900 billion for the construction of TSMC’s Fab 2 in Kumamoto, Japan. Furthermore, an extra ¥590 billion in subsidies will be provided to support the construction of a wafer fab by the Japanese semiconductor startup Rapidus.

Seki emphasized that subsidies usually cover about one-third of the total investment. With measures like training Japanese engineers and collaborative R&D with local companies, this subsidy could increase to potentially cover up to half of the investment. He also noted that the specific amount remains subject to change as the additional budget has not been finalized yet.

The Japanese government initiated the “Strategy for Semiconductors and the Digital Industry” in 2021 to address economic risks and prepare for the wave of digitalization. At that time, they already provided ¥476 billion in subsidies for TSMC’s Kumamoto 1st Fab. The current subsidy marks an expansion of these efforts.

The local government Kumamoto is eagerly anticipating TSMC’s presence. Ikuo Kabashima, the Governor of Kumamoto Prefecture, recently proposed “New Airport Concept Next Stage” that envisions using the airport as a hub for semiconductor imports and exports over the next decade. This plan aims to stimulate the clustering of semiconductor-related industries and contribute to regional development centered around Kumamoto.

Moreover, the Japanese government has pledged to provide ¥330 billion in funding to enable Rapidus to construct a 2nm wafer fab in Hokkaido. These substantial subsidies underscore the Japanese government’s commitment to these semiconductor projects.

In response to the Japanese government’s additional subsidies, Tetsuro Higashi, Chairman of Rapidus, stated in an interview with Jiji Press on the 24th that apart from the new factory being built in Chitose, Hokkaido, “We also plan to construct second and third factories, and they will also be situated in Chitose, Hokkaido.” Rapidus’s 2nm chip R&D/production facility, Chitose Fab IIM-1, located in the Chitose Meimeimei World industrial park in Chitose, Hokkaido, commenced construction in September. The trial production line is expected to start in April 2025, with mass production slated to begin in 2027.

Vanguard International Semiconductor (VIS) has unveiled plans to establish a state-of-the-art 12-inch semiconductor plant in Singapore, reigniting discussions about expanding to Singapore within the semiconductor industry. As per Economic Daily News, while Taiwan and South Korea continue to lead in semiconductor manufacturing in Asia, an increasing number of semiconductor companies have strategically chosen Singapore as their Southeast Asian hub in recent years.

This strategic positioning enables them to reach markets in Vietnam, Thailand, India, and beyond, which is particularly valuable in the context of heightened geopolitical tensions. Singapore’s strategic geographical advantage highlights its remarkable flexibility as a stronghold, uniquely positioned to adapt to meet various demands.

Nonetheless, Singapore grapples with certain challenges, including higher production costs and an aging workforce. Statistics reveal that semiconductors contributed approximately 7% to Singapore’s domestic gross production last year. S&P Global Analytics also notes that the contribution of Singapore’s semiconductor industry to the Asian region is relatively modest. Moreover, the nation faces a significant long-term challenge, one that many economies share: an aging population. Singapore ranks among the fastest-aging populations worldwide.

Turning the attention to key players in Singapore’s semiconductor landscape, companies like TSMC, UMC, ASE, and Micron have established a strong presence. Notably, TSMC collaborated with NXP (formerly Philips Semiconductor) and the Singapore Economic Development Board Investment Corporation (EDBI) back in 2000 to establish SSMC, an 8-inch fab located in the Wafer Fab Park in Singapore.

In a parallel endeavor, UMC invested in Singapore in 2003 and is currently in the midst of an ambitious expansion, including their Fab12i P3 fab, situated in the Pasir Ris Wafer Fab Park in Singapore. The physical infrastructure is expected to be completed by mid-2024, with mass production of 22nm and 28nm chips set to commence in early 2025.

(Image: Wafer Fab Parks)

As reported by Taiwanese media, there’s a gradual uptick in TSMC’s capacity utilization lately, accompanied by a noticeable surge in orders from TSMC’s clients. Some segments of the market are showing signs of rekindled demand, hinting at a possible upswing in the semiconductor industry. Nevertheless, certain semiconductor manufacturing firms remain cautious in their industry outlook.

TSMC’s Capacity Utilization Rate on the Rise

Media’s report indicates that TSMC’s capacity utilization rate has gradually recovered. The 7/6nm utilization, which had dropped to 40% at one point, is now around 60% and could potentially reach 70% by the end of the year. Similarly, the 5/4nm utilization is at 75-80%, and the 3nm capacity, which increases seasonally, is approximately 80%.

Concurrently, TSMC is experiencing a significant uptick in orders from their clients, including tech giants like Apple, MediaTek, NVIDIA, AMD, Intel, Broadcom, Marvell, and STMicroelectronics. Furthermore, AI chip clients such as AMD’s subsidiary Xilinx, Amazon, Cisco, Google, Microsoft, and Tesla have all accepted TSMC’s plan for a price increase in 2024.

Taking Tesla as an example, they are building a supercomputer facility in Austin to accelerate the development of their autonomous driving system, expanding the computing power of Dojo. The core D1 of Dojo is produced using TSMC’s 7nm process and advanced packaging technology. Based on this, Tesla is deepening its collaboration with TSMC, and it’s expected that their order volume will increase from around 5,000 pieces this year to 10,000 pieces next year.

Amid the ongoing AI surge, NVIDIA is actively seeking additional production capacity. On October 19th, NVIDIA’s CEO, Jensen Huang, revealed in an interview that the global demand for AI chips remains robust. He has met with TSMC’s CEO, C.C. Wei, to discuss providing more capacity to serve customers. NVIDIA is in the planning stages for the next generation of chips designed for AI-based infrastructure and has also engaged in discussions with partners such as Quanta and ASUS to strategize collaboration.

Is the Semiconductor Industry on the Rebound?

During TSMC’s Q3 earnings call, C.C. Wei pointed out that, in addition to strong AI demand, there’s a rebound in demand for smartphones and personal computers. As for automotive electronics, benefiting from the continued growth of electric vehicles, the demand for next year is expected to be quite robust. Regarding when the semiconductor industry might hit bottom, Wei remarked that there are some early signs appearing in the PC and mobile phone sectors. However, it remains challenging to predict a strong resurgence as customers are still cautiously managing their inventories.

In response to industry concerns about smartphone growth, TSMC’s CFO, Wendell Huang, noted that smartphone growth is anticipated to remain lower than the company’s future growth rate. High-Performance Computing (HPC) is expected to be the most robust growth segment, making substantial contributions to growth in the coming years.

On the other hand, other semiconductor foundry companies, such as PSMC, have also shared their perspectives on the fourth quarter and future industry developments. Recently, PSMC’s President, Brian Shieh, pointed out that the supply chain’s inventory seems to have reached a reasonable level, with growing demand for mobile panel driver ICs, surveillance system CIS chips, and visibility extending beyond one quarter. Prices for special memory products have started to show an upward trend. Demand for Power Management ICs (PMIC) also displays signs of recovery, even though the trend isn’t as pronounced as that of driver ICs and CIS chips.

Regarding UMC, the company is scheduled to hold an earning call on 25th October. In their previous earnings call for the last quarter, UMC mentioned that due to ongoing adjustments in the supply chain’s inventory, the outlook for wafer demand remains uncertain. Although the industry glimpsed a modest recovery in the second quarter, the overall sentiment in the end-market remains subdued, and customers continue to maintain stringent inventory management practices.