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.

TrendForce reports that from 2023 to 2027, the global ratio of mature (>28nm) to advanced (<16nm) processes is projected to hover around 7:3. Propelled by policies and incentives promoting local production and domestic IC development, China’s mature process capacity is anticipated to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, HuaHong Group, and Nexchip, while Taiwan’s share is estimated to consolidate from 49% down to 42%.

Expansion predominantly targets specialty processes such as Driver ICs, CIS/ISPs, and Power Discretes, with second and third-tier Taiwanese manufacturers at the forefront

Within the Driver IC sector, the spotlight is on high voltage (HV) specialty processes. As companies aggressively pursue the 40/28nm HV process, UMC currently dominates, trailed by GlobalFoundries. Yet, SMIC’s 28HV and Nexchip’s 40HV are gearing up for mass production in 4Q23 and 1H24, respectively—narrowing their technological gap with other foundries. Notably, competitors with similar process capabilities and capacities, such as PSMC, and those without twelve-inch factories like Vanguard and DBHitek, are poised to face challenges head-on in the short term. This trend may also have long-term implications for UMC and GlobalFoundries.

In the realm of CIS/ISP, 3D CIS structure comprises a logic layer ISP and CIS pixel layer. The primary demarcation for mainstream processes is around 45/40nm range for the logic layer ISP, which continues to progress toward more advanced nodes. Meanwhile, the CIS pixel layer, along with FSI/BSI CIS, predominantly uses 65/55nm and above processes. Currently, TSMC, UMC, and Samsung are the frontrunners in this technology. Yet, Chinese players like SMIC and Nexchip are hot on their heels, swiftly closing the gap. Their ascent is further fueled by Chinese smartphone titans OPPO, Vivo, and Xiaomi. Additionally, domestic shifts prompted by governmental policies are positioning Chinese CIS companies like OmniVision, Galaxycore, and SmartSens to rally behind local production.

Power Discretes mainly encompass products like MOSFETs and IGBTs. Vanguard and HHGrace have been deeply involved in Power Discrete processes for some time, boasting a more comprehensive process platform and vehicle certification than many competitors. However, a wave of Chinese contenders, backed by national policies favoring EVs and solar initiatives, are ready to stake their claim, intensifying global competition in this sector. This includes mainstream foundries like HHGrace, SMIC, Nexchip, and CanSemi. Additionally, smaller Chinese IDMs and foundries, such as GTA and CRMicro, are also entering the competitive landscape. If China massively ramps up its production capacity, it will intensify global competition in Power Discrete manufacturing. The impact will not only spark price wars among local Chinese businesses but could also erode the order books and clientele of Taiwanese companies.

In a nutshell, while China actively courts both global and domestic IC designers to bolster its local manufacturing presence, the ensuing massive expansion could flood the global market with mature processes, potentially igniting a price war. TrendForce notes that as China’s mature process capacities continue to emerge, the localization trends for Driver IC, CIS/ISP, and Power Discretes will become more pronounced. Second and third-tier foundries with similar process platforms and capacities might face risks of client attrition and pricing pressures. Taiwan’s industry leaders, renowned for their specialty processes—UMC, PSMC, Vanguard to name a few—will find themselves in the eye of the storm. The battle ahead will hinge on technological prowess and efficient production yields.

According to UDN News, Taiwan’s semiconductor foundry, Powerchip Semiconductor Manufacturing Corporation (PSMC), is planning to establish a 12-inch wafer plant in Japan, with Mie Prefecture emerging as a probable location. This facility will be part of a burgeoning semiconductor hub that links up with the thriving industrial city of Nagoya and UMC’s Japanese plant, pending the approval of Japanese government subsidies. PSMC would be the second Taiwanese semiconductor giant to set up shop in Japan after this move, expanding its global presence.

PSMC has yet to officially comment on its investment in Japan or the specific site for the plant. Market observers note that PSMC’s Chairman, Frank Huang, has a track record of close collaboration with Japanese firms. From early partnerships with Elpida in producing DRAM to later contract manufacturing of ICs for Renesas, PSMC’s order books are expected to be promising in Japan.

In July of this year, PSMC announced a partnership with the Japanese financial group SBI Holdings to establish a 12-inch wafer foundry within Japan and seek official Japanese subsidies.

PSMC envisions that the Japanese foundry will utilize 22/28-nanometer manufacturing processes and incorporate advanced Wafer on Wafer stacking technology to meet the demands of the AI market. Recent reports suggest that the Japanese government has granted substantial subsidies, around 140 billion yen, for the PSMC-SBI collaboration in Japan, although PSMC refrains from commenting on this matter.

Recent reports indicate that the location of PSMC’s new facility in collaboration with SBI is likely to be in Mie Prefecture. This choice is supported by two key factors. Firstly, it’s in close proximity to the bustling industrial hub of Nagoya, offering logistical advantages for both raw materials and wafer exports. Additionally, UMC acquired Fujitsu’s 12-inch wafer plant in Kuwana City, Mie Prefecture, showcasing regional wafer expertise. This choice benefits from the industrial cluster, streamlining recruitment and material logistics for construction and production.

It is understood that PSMC’s collaboration with SBI to establish a plant in Japan will follow a similar joint-venture mode like Nexchip Semiconductor Corporation in China several years ago. PSMC will provide its expertise in constructing the plants and managing the production lines. Once everything is up and running smoothly, they will gradually reduce their involvement and may adopt a shareholding model for the Japanese wafer plant.

(Image: PSMC)

According to a report by Taiwan’s Economic Daily, TSMC is aggressively expanding its advanced packaging capacity. Recently, they placed an additional 30% order for equipment with manufacturers, leading to a doubling of order volumes for companies in the interposer supply chain, such as UMC and ASE Group. Moreover, there are rumors of price increases on the horizon.

TSMC, responding to the robust production demands from major clients like NVIDIA, AMD, and Amazon, has not only expanded its CoWoS capacity as originally planned but has also added another 30% in new equipment. This move implies that once TSMC’s new advanced packaging capacity comes online next year, it will represent at least a doubling of the current production capacity.

Given the substantial demand for TSMC’s advanced packaging orders, coupled with the necessity of interposer in CoWoS for stacking logic computing ICs and high-bandwidth memory, there is an expectation of significant growth in interposer orders, likely exceeding a twofold increase compared to this year. Notably, semiconductor giants like UMC and ASE Group have already secured significant orders from TSMC for interposer layers and are currently in the mass production and delivery stages.

It is understood that UMC, after venturing into the advanced packaging market in recent years, has introduced packaging solutions applicable to IoT, automotive chips, and more, spanning from wafer bumping and wire bonding packaging to advanced 2.5D, 3DIC, and wafer-level fan-out packaging solutions. The most notable among them is the 2.5D silicon interposer layer solution, which, through collaboration with UMC and other specialized packaging facilities, has proven pivotal in securing major orders in the interposer layer market, particularly from NVIDIA.

Industry sources suggest that UMC has increased prices for super hot run interposer layer orders and initiated capacity expansion plans to meet customer demands, while ASE Group is also contemplating adjustments to its advanced packaging quotations.

(Photo credit: UMC)

Source to China Times, the International Semiconductor Industry Association (SEMI) forecasts that from 2023 to 2026, the global semiconductor industry will add 12 new 8-inch wafer fabs, with 8-inch fab monthly production capacity increasing by 14% to a historic high of 7.7 million wafers. In response, UMC stated that from a supply and demand perspective, capacity growth still lags behind demand growth. UMC emphasized that it remains optimistic about the future of the 8-inch wafer market, thanks to ongoing advancements in special processes and differentiation.

SEMI notes that the continuous rise in the penetration rate of electric vehicles (EVs) worldwide is driving substantial growth in the demand for inverters and charging stations. The future mass adoption of EVs is the primary driver for increased investments in 8-inch fabs and the continued expansion of global 8-inch fab capacity.

Examining the situation of new 8-inch fabs in various countries, Southeast Asia will see the largest capacity increase, with a growth rate of approximately 32%. SEMI predicts that China’s 8-inch fab capacity will follow, with an increase of about 22%, reaching a monthly production capacity of 1.7 million wafers. The United States, Europe, the Middle East, and Taiwan are expected to have growth rates of approximately 14%, 11%, and 7%, respectively.

SEMI reports that by 2023, China’s 8-inch fab capacity will account for approximately 22% of the global total, with Japan at around 16%, Taiwan at around 15%, and Europe, the Middle East, and the United States each at about 14%. Furthermore, to meet future market demand, suppliers such as Bosch, Infineon, Mitsubishi, Onsemi, and STMicroelectronics are accelerating their 8-inch fab capacity expansion. It is estimated that from 2023 to 2026, the 8-inch fab capacity for automotive and power semiconductors will increase by 34%.

Concerns have been raised about potential oversupply as global 8-inch fabs expand, but UMC, a major semiconductor foundry, states that given the current rate of 8-inch fab expansion worldwide, the increase in capacity is relatively modest compared to demand. From a supply and demand perspective, it is certain that capacity growth will not keep pace with the growing global demand for 8-inch wafers.

UMC further notes that while 8-inch fabs are increasing, demand is unlikely to remain stagnant. Currently, the majority of semiconductor fabs being built worldwide are 12-inch fabs, making the expansion of 8-inch fabs relatively limited, and the supply-demand balance has not worsened.

(Source: https://www.chinatimes.com/newspapers/20230922000218-260204?chdtv)