Taiwanese company TSMC plans to invest $ 100 billion over the next three years to build several semiconductor manufacturing plants and expand the production of highly advanced chips for third-party companies. This TSMC announcement overlaps with those made by Intel, Samsung, SMIC and other companies, which also want to allocate large resources in the coming years to the manufacture of semiconductors. With this, not only should the current shortage of chips end, but we could witness a productive overcapacity in the middle of this decade, aggravated by the interest of the United States, China, Japan and the European Union in being as self-sufficient as possible in the semiconductor manufacturing.
Last January, TSMC announced that it would allocate between 25,000 and 28,000 million dollars this year for the development of advanced chips and the increase of its production capacity. Just a week ago, the CEO of the company, C.C. Wei, sent a letter to his clients in which he assured that he planned to invest 100 billion dollars until 2023 in advanced semiconductor manufacturing technologies.
Along with the investment announcement, TSMC asked its clients to accept a higher price for the chips to be delivered in the coming months and to cancel all price reductions for wafer supply contracts during the four quarters of 2022, according to the letter seen by the Japanese newspaper Nikkei Asia. Wei assures that the greater investment of his company responds “to a structural and fundamental increase” in the demand for chips, motivated by large long-term trends, including the deployment of 5G and high-performance computing.
TSMC only produces 10% of the world chip market in value, but almost all the fundamental components of smartphones are manufactured by TSMC, as well as processors from NVidia, among others.
Wei believes that “this modest action [raising prices] is the least disruptive option for chip supply chains and will allow TSMC to fulfill its mission of supplying leading semiconductor technologies and having sustainable production capacity.” Suspending the price cuts is an unusual action for TSMC, consider the experts consulted by Nikkei Asia, because the usual thing is that each quarter the Taiwanese company lowers prices, as the production of new chips increases as the number of defective parts is less greater the volume to supply.
TSMC, leader in custom chips
TSMC has been the world’s largest custom chip manufacturer for years. In fact, since the company began manufacturing chips 35 years ago, the vast majority of its production has been for third parties, which in the sector is known as “pure-play foundry”, a novelty for years, because the usual in the last decades of the last century it was for companies to design and manufacture the chips that they commercialized.
The exponential growth of the investment needed to build an advanced chip manufacturing plant, from tens and hundreds of millions to several billion dollars, coupled with the increase in size and capacity of the chip factories and the sophistication of their activity, It has caused that, over the years, many companies dedicated themselves only to designing chips and patenting them and commissioning others to manufacture them.
This strategy was followed especially by US companies, such as Qualcomm, Apple, NVidia or Broadcom, which order physical chips from TSMC. AMD, which originally designed and manufactured the microprocessors that rivaled Intel’s, also sold its manufacturing assets to GlobalFoundries, as a plant built in Dresden with German subsidies that is still in operation. Now, one part of AMD’s processors are manufactured by GlobalFoundries and the other, the most advanced, by TSMC.
TSCM is building a gigantic chip plant in Taiwan with three-nanometer technology, surpassing the current five-nanometer, while Intel believes it is increasing confidence in its seven-nanometer technology
And it is that TSMC, apart from manufacturing very mostly to order, has the peculiarity that its production is tremendously advanced compared to other chip manufacturers. At present, TSMC’s chip production is only comparable to that of Samsung, which also uses the most sophisticated chip photolithography techniques, extreme ultraviolet, with design rules of five to ten nanometers, and next year , both will initiate the three-nanometer on an industrial scale. The difference is that Samsung allocates a large part of its production to make DRAM and NAND memories, with very repetitive designs, and the other part to manufacture circuits of its own design and consumption and also to order from third parties.
For a few months, for example, some of Qualcomm’s SnapDragon chipsets for smartphones have been made by Samsung at its South Korean plant and virtually all of Qualcomm’s radio communications subsets for smartphones are manufactured by Samsung at its plant in Austin, Texas. ). This plant, precisely, was left without electricity due to the cold storm in the North American state and is causing serious problems in the supply of chips for smartphones.
In the case of TSMC, almost all of its production is for third-party companies, which send it their designs to be physically manufactured with extremely advanced technology. 90% of all 5 to 10 nanometer chip manufacturing (pure-play foundry) is done by TSMC and the remaining 10% by Samsung (predictably by Qualcomm). It is a market of 21.100 million dollars, which is more than a quarter of the entire world market for custom chips, according to the graph below published by the Financial Times on March 25 based on data from the consulting firms Bain, IC Insights and Gartner.
TSMC also accounts for almost three-quarters of the global market for custom chips between 12 and 32 nanometers, half of the less sophisticated between 45 and 90 nanometers and a quarter of the simplest process. The participation of companies such as the US investment fund GlobalFoundries, the Taiwanese UMC, the Chinese SMIC or even Samsung in the global market for custom chips is relatively small and only significant as the sophistication of the chips declines. Of the total custom chip market of $ 75.9 billion evaluated in the graph, TSMC invoices about $ 46.5 billion, 80% of the total. And, obviously, it is the most profitable.
The global semiconductor market hovers around $ 450 billion, although this year it will perhaps exceed the $ 470 billion estimated by WSTS. This means that TSMC only produces 10% of the world chip market by value. But this 10% is highly strategic, because almost all the fundamental components of smartphones are manufactured by TSMC (those of Qualcomm, Apple and MediaTek, with the exception of those made by Samsung).
TSMC also makes NVidia’s server processors, Apple computers that do not carry Intel chips, and much of the chips with ARM designs, such as tablets and many IoT devices, as well as the cheap, but equally essential, microcontrollers for cars. Many automakers have now learned that their most sophisticated components were manufactured on a tiny island in southern Japan, which, above all, the Chinese giant considers to be part of its territory and does not miss a chance to claim it.
The chip, link in a large logistics chain
TSMC is dedicated, in the end, to insolate and record the tiny tracks that make an integrated circuit work in wafers up to 18 inches in diameter that it buys from others, with machinery acquired from the Dutch ASML and circuit design software from various companies. , mainly Americans. These engraved wafers are painstakingly cut into very small pieces, called chips, which are subsequently verified, encapsulated, reverified, and integrated into other components or directly onto motherboards, forming complete circuits.
Sometimes a chip manufactured by TSMC travels a total of 45,000 kilometers in its various phases. In other cases, they only travel the 170 kilometers that separate Taiwan from mainland China. But they always go through dozens of hands or automated equipment from very different companies until they are packaged in electronic devices and billed to their destination.
This supply chain was perfectly oiled, or at least it seemed, until the end of 2019. But the pandemic struck, many factories closed, orders for finished products fell and existing stocks were used to supply the few stores open. After the initial shock, individuals and companies began to buy computers and laptops to work or hang out at home and the demand for chips and electronic products began to rise.
As the chip stocks in storage in mid-2020 were running low, the industry began placing more orders than necessary, in the hope that something would arrive. By the end of 2020, the chip supply chain was completely collapsed. Months earlier, Trump had also contributed to the drastic embargo on Huawei that it imposed on TSMC. And anticipating the embargo, Huawei had been buying from TSMC and whoever had the product as much as it could, aggravating the availability of stocks for the fall, a period of strong demand.
Adverse natural causes
This first quarter of 2021 has seen new interruptions in the global chip logistics chain due to natural causes, such as the intense cold in Texas, which left two large plants of Samsung and other companies without electricity, apart from an earthquake that damaged one Renesas plant, as indicated. Almost a month ago, one of Renesas’ large car driver factories in Japan caught fire, with the forecast that it would take four months to regain activity.
Last week, Renesas announced that it could transfer part of the production of the burned plant to another plant it has in Japan, without specifying how and for how long the supply of vital chips for the automotive industry would be affected, many of which they have had to stop car production precisely because of a lack of chips. Other specialized chip manufacturers, such as the European Infineon, STMicroelectronics, NXP or the American Texas Instruments are also at the top, with many delays in deliveries.
The shortage of supplies of all kinds is so serious that it has now been known that Apple is canceling the production of part of its Mac computers and iPad tablets, as just published by Nikkei Asia, due to lack of stocks of components and is not expected to resume. until June. For experts, Apple’s stoppage reveals that the situation is more serious than previously thought, because Apple’s great asset is precisely its expertise in managing its immense supply chain and that companies manufacture and supply it. on time everything you need.
To complete the dramatic picture, a container ship runs aground in the Suez Canal, leaving hundreds of merchant ships trapped for a week and compounding the already existing near collapse of many western ports. Suddenly, when the Ever Given, 200,000 tons and 400 meters long, ran aground, with space to carry 20,000 containers of six and twelve meters long each, the strategic importance of the containers was seen, which was implanted from 1950 and that is a fundamental piece of the global logistics chain, almost as much as the chip in its field.
Just as the world saw at the beginning of the pandemic that China and India controlled the world production of masks or medicines, it turns out that about 98 percent of the world production of containers are made in China, according to Mai Boliang, CEO China International Marine Containers (CIMC), which manufactures about half of the world’s containers, according to the South China Morning Post.
CIMC operates 20 production lines at its Shenzhen base, manufacturing the equivalent of 220,000 six-meter-long containers each month, with thousands of workers working 11-hour shifts six days a week, and they can’t even keep up with the explosive demand. The price of a standard six meter container has more than doubled in one year, to over $ 3,500 each. Freight, obviously, has also skyrocketed, and it is also difficult to find containers in Asian ports, because many who are in the West have not returned, waiting to unload and reload goods.
Intel outsources TSMC and invests in new plants
In the midst of this completely overwhelmed advanced chip manufacturing panorama, Pat Gelsinger, Intel’s new CEO, with just one month in office, revealed on March 23 his commitment to invest 20,000 million dollars until 2024 in construction of two new chip manufacturing plants in Arizona, which would come into operation in 2024, and the upgrade of existing ones in other countries, such as Israel or Ireland.
The plan outlined by Gelsinger is for Intel to continue to manufacture the vast majority of its chips in its own plants, but with a greater reliance on third parties for short-term chip production, and to focus on manufacturing chips for third parties from 2023. All this, with the agreement with several companies, including IBM, for the development of advanced transistor structures that allow it to continue reducing the chip design rules.
The plan is to have the five nanometer technology by 2023, three nanometers by 2025, two nanometers by 2027 and 1.4 nanometers by 2029, according to a slide presented by the Dutch manufacturer of production lines ASML at a conference at the IEDM congress, very specialized in the future of chips, and on a previous Intel slide from May 2019, as seen in the two lower graphics, extracted from Anandtech.
In mid-February, at the also highly specialized International Solid-State Circuit Conference (ISSCC), Mark Liu, president of TSMC, detailed the roadmap of the design rules for his chips. In the graph below, it can be seen that last year the five-nanometer design rules were very advanced in the case of TSMC, to be optimized throughout this year, and the one that comes with the three-nanometer ones begins with the integration density, speed and power savings improvements listed in the graphic below.
TSMC’s advancement over Intel in chip integration technology is at least three years and about two full integration technologies, assuming that Intel will achieve a two-year cadence in the future to advance each generation, which in the latter has not succeeded. The measurement in nanometers does not now correspond to the reality of the distance between transistors, but it gives an idea of the leap between successive semiconductor integration technologies.
Source: Semiconductor Digest
Intel’s plan is to help reduce the current chip shortage with its $ 20 billion investment through 2024. Gelsinger also confirmed, for the first time, that Intel will use TSMC services to manufacture some of its most advanced processors in 2023 and It also announced the creation of a third-party chip manufacturing business called Intel Foundry Services.
The question that Bloomberg raises in an opinion piece, in which many specialists agree, is the difficulty of Intel getting customers in 2023 to manufacture advanced chips if at that time Intel turns to TSMC to make its more advanced chips. Unless there is an imposition by the end customer (for example, the Ministry of Defense) that the chips are exclusively Made in the USA, it is difficult for them to win many contracts.
In any case, the investment planned by Intel until 2024 will be surpassed this year by TSMC and multiplied by five in three years, if the plans explained by Wei to its clients by letter of investing 100,000 million dollars are fulfilled. TSMC is already building a $ 12 billion plant in the state of Arizona, as Intel wants to do, announced last May at Trump’s behest. And in southern Taiwan, TSMC is about to complete a gigantic 160,000-square-meter chip plant (equivalent to a 400-meter square on a side or 16 blocks of Barcelona’s Ensanche) with three-nanometer technology.
Samsung, on the other hand, plans to invest in the manufacture of semiconductors around 116,000 million dollars until 2024, as announced a few months ago, although the bulk of the investment will be to make semiconductor memories, which also require the use of manufacturing technology. tip. Meanwhile, Gelsinger told investors last week that “confidence in [Intel’s] seven-nanometer technology is increasing.”
China, for its part, has just exempted the payment of taxes to companies that acquire equipment to manufacture and design chips, along with the continuous announcement of important investments in the coming years to reduce its dependence on Taiwan and other countries and be the maximum of self-sufficient. And the European Commission plans to invest 10 billion dollars in this decade also to make advanced chips. Everyone wants to get TSMC or, at the very least, that the most advanced chips are not totally dependent on it.
Next Monday, a summit is scheduled at the White House for the Biden Administration to analyze and seek alternatives with semiconductor manufacturers and the automotive industry to the current shortage of chips. Guests include Samsung, General Motors, and GlobalFoundries, among others. Joe Biden, president of the United States, has proposed a 50,000 million investment for the development of semiconductors and the industry is pushing for greater tax breaks to make chips in his country. If chips already obsessed Trump at the end of his term, now the issue is a priority for Biden, much more even than 5G.