Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest pureplay foundry company, has been in the news quite a bit over the last two weeks, both for the sales it has made (25.3% month-over-month for January), the ones it didn't quite get (Apple for the A9 chip possibly at 14nm) and the new expansion plans in Asia (US $16 billion in Taiwan for Fab 15), to name just a few top stories.
TSMC sales new high
So, traditionally, this is supposed to be the slow period for our industry. Without doubt, the typical slowness did not happen for TSMC who saw phenomenal sales for January 2015. TSMC reported the highest ever sales hitting NT$87.12 billion or US $2.77 billion. As Focus Taiwan commented:
In January, TSMC posted NT$87.12 billion (US$2.77 billion) in consolidated sales, up 25.3 percent from a month earlier and a massive 69.4 percent from a year earlier. The January figure beat the previous one-month high of NT$80.74 billion recorded in October 2014.
[…]Analysts said that although integrated circuit designers generally suffer through the slow season, they kept placing orders to foundry operators such as TSMC to secure chip supply for the future.
[…]A day earlier, rival United Microelectronics Corp. (UMC, 聯電) reported that its consolidated sales for January rose 5.6 percent from a month earlier to NT$12.88 billion on the back of solid demand for its 28nm process, fending off slow season impact.
The January figure was also up 28 percent from a year earlier.
These sales data are truly impressive and the year-over-year increase really speaks to the growth path that the industry has been in since last year.
One reason cited for the continued January growth, rather than traditional decline in sales due to post holiday slow down, is that electronics manufacturers and OEMs want to secure their supply of chips going into the Spring and onward, meaning that they have continued to order from TSMC regardless of actual demand. That is an important point because it means that there is both the concern for supply and availability on the part of the EMS providers and possibly also OEMs, there is also positive outlook for demand to continue during the year (otherwise ordering to continue supply would be too risky), and it also speaks to the problem of limited foundries left in the industry, meaning that demand and availability of leading-edge chips is likely to have an effect on the supply chain and pricing.
Process nodes shrinking faster
Currently, the 28nm and 20nm process nodes are obviously working out very well for TSMC based on the January results. However, clearly the move to even smaller architectures, notably 14nm, are high on the strategic designs of leading OEMs like Apple with their A9 chip for their next generation devices that are in design at this point. Apple currently split the production of the current A8 chip for the iPhone 6 series between Samsung and TSMC, not so for the A9, that will go to Samsung. It is not the case that there has been a falling out with TSMC, rather, Samsung is moving ahead in process nodes faster than TSMC, a similar strategy that Samsung employed to pull market share from rival Qualcomm, as Re/code recently argued.
If the move by Apple away from TSMC is indeed based on solely on the node shrink, there is likely to be a pick-up in CAPEX – something we're already starting to see. This week, as EETimes reported, TSMC announced an additional investment of NT $500 billion, or US $15.9 billion, as part of an expansion to their existing fab in "the Central Taiwan Science Park, near the city of Taichung. TSMC said it expects the investment to create an additional 5,000 jobs at the site that currently employs more than 3,400 people." The announcement came after Taiwan's Environmental Protection Agency approved the TSMC proposal for expansion, which had been under review amid some local concerns over the environmental impact of the fab's expansion.
As DigiTimes reported on the same topic:
Fab 15 is TSMC's third 12-inch wafer fab. TSMC indicated that more advanced process nodes will be introduced at the facility.
TSMC is scheduled to move its 16nm FinFET technology to volume production in the third quarter of 2015. Mass production for 16nm chips will take place at its Fab 14 in southern Taiwan.
In addition, TSMC is undertaking the development of a more-advanced 10nm node technology at its Fab 12 in Hsinchu, northern Taiwan. In the future when the process is ready for mass production, the foundry will gradually move production lines for 10nm chips to Fab 15.
TSMC will begin to tape-out 10nm process products in 2015 before entering commercial production between the end of 2016 and early 2017, the foundry said.
TSMC expects its 2015 capex to exceed US$10 billion, which will be mainly used for developing 16nm and 10nm processes.
Clearly, TSMC will not allow itself to fall behind Samsung, similarly, as a different DigiTimes report notes, UMC and other foundry players are likely to increase their CAPEX spends in China in the wake of the recent Qualcomm fine in China. China's push for local IC houses and production may have an important impact on the foundry sector based on the news so far this year. Without a doubt, these are trends worth watching as they will affect pricing, availability and strategic designs for this year and some years forward.