Caught in the crossfire between the United States and China, Taiwan Semiconductor Manufacturing Company Ltd (TSMC) is managing political and competitive risk by investing in new opportunities overseas and maintaining its technological leadership.
TSMC is far and away the world’s leading IC foundry, or semiconductor contract manufacturer, with 52.9% of the market in the second quarter of 2021, according to data from Statista. Samsung Electronics and Global Foundries followed with 17.3% and 6.1%, respectively.
Top American semiconductor design companies, including Qualcomm, Broadcom, Nvidia, AMD and Apple, are clients of TSMC.
This has made TSMC an object of great concern for American economic and foreign policymakers, who are concerned about a possible Chinese takeover of Taiwan.
According to press reports, TSMC is now preparing to build its first factory in Japan, in cooperation with Sony. Sony is the world’s leading maker of image sensors used in cell phone cameras and other applications.
Japan’s Nikkei newspaper recently provided details of this anticipated project, which was first revealed in July. TSMC and Sony declined to comment for this story, but it appears to be generally accurate. The main points are:
- The facility is likely to be built in Kumamoto Prefecture on the island of Kyushu in southwestern Japan, near Sony’s image sensor factories.
- The total investment is estimated at about ¥800 billion (US$7.1 billion at the current exchange rate).
- Sony is likely to take a minority stake in the company that will manage the facility.
- The Japanese government is expected to provide subsidies that could amount to up to 50% the total cost.
- Products are likely to include image sensor data signal processors and ICs for automotive and other industrial applications, with priority on supply to Sony and other customers in Japan.
- Toyota Group auto parts maker Denso may participate in the project.
- Production is likely to start in early 2024.
As pointed out by Mio Kato, CEO and lead Sony analyst at LightStream Research in Tokyo, production is likely to be at the 28-nanometer node, which probably means they will have [Japanese automotive IC maker] Renesas as a customer as well since TSMC is manufacturing 28nm chips for them already.
Sony now outsources the logic portion of its image sensor chips, so this facility will most likely be used to consolidate production of that part of its product with the image sensors continuing to be produced at its Kumamoto and Nagasaki plants.
This is a positive move for Sony as well as it reduces the risk of supply disruptions and potentially gives it an opportunity to better integrate the signal processing and image sensing functions of its chips by working even more closely with TSMC.
This deal also looks like a win for the Japanese government and Japanese manufacturing.
Last June, TSMC broke ground on its first overseas factory, a $12 billion facility in Arizona.
Government subsidies will at least partially offset the cost of building a factory in the US, which would otherwise not be economical for TSMC.
TSMC will start with 5-nm process technology in Arizona, ahead of Intel’s upcoming 7-nm but behind its 3-nm production in Taiwan.
Integrated circuit design rules are measured in nanometers. The smaller the feature size, the more advanced the manufacturing process and the resulting chips, which take up less space and use less power.
It seems likely that the new Arizona factory will be the first of many. TSMC is widely expected to build a cluster of factories there, as Intel has done, in order to achieve greater economies of scale. More advanced design rules are also likely to follow.
In August, the Greater Phoenix Economic Council signed an MOU with the Taiwan-USA Industrial Cooperation Promotion Office aimed at bringing TSMC suppliers to Arizona as well. According to press reports, some 40 companies are evaluating the offer (CNBC, August 24, 2021).
Europe is also on TSMC’s agenda. In July, TSMC Chairman Mark Liu told a meeting of shareholders that the company was talking with several clients about building a fab in Germany.
In September, European Commission President Ursula von der Leyen told the press that the EC is now drafting a “European Chips Act” to promote a “state-of-the-art” semiconductor eco-system. A TSMC foundry would be an important part of this.
TSMC is also adding 28-nm capacity in Nanjing in response to the automotive IC shortage in China.
Back in Taiwan:
- Intel and Apple have become the first users of TSMC’s 3-nm process technology,
- The Taiwanese government has approved TSMC’s plans to build a new factory equipped with 2-nm process technology.
- TSMC is also planning to build a new facility to make 6- and 7-nanometer chips for Intel, Nvidia, AMD and MediaTek, and
- TSMC and other companies are working with the Taiwanese government and local universities to increase the number of engineering graduates trained to work in the semiconductor industry.
Meanwhile, as reported in TSMC eyes 3D packaging edge in Japan on June 21, TSMC is working with Japanese semiconductor equipment and materials companies, and with Japan’s National Institute of Advanced Industrial Science and Technology (AIST), to develop “next-generation production technology in the 2-nanometer process and beyond by the mid-2020s.”
These initiatives demonstrate the intent and ability of the Taiwanese to maintain their technological leadership and keep their island at the heart of the semiconductor industry.
They also show that Japan, with unmatched semiconductor equipment and materials industry and important customers, is key to both TSMC’s international diversification and its technological advance.
Scott Foster is an analyst with LightStream Research, Tokyo.