Four hidden worries behind TSMC's flourishing age

In 2021, Biden formally takes over as the president of the United States. However, the global government's pressure on the semiconductor industry continues unabated. For the global foundry king TSMC, it is facing a key turning point in its development in the next 10 years.

On February 24, U.S. President Biden signed an executive order to submit a review report on the supply chain of key commodities such as semiconductors within 100 days. On the same day, he invited congressmen from both parties to request Congress to allocate 37 billion U.S. dollars (approximately new NT$136 billion) has invested heavily in the semiconductor industry in the United States.

Lasted for 2 years, on March 1, under the leadership of Eric Schmidt, the former chairman of Google, the National Security Council released a 752-page report. It issued a stern warning that "the United States almost entirely relies on imported products for the most advanced chips, exposing the United States from defense to industry, all to foreign risks." This report keeps appearing under the name TSMC.

The turning point comes from global pressure

EU multi-country research and discussion, spend money to return to the field of chip manufacturing

The EU also wants to return to the field of chip manufacturing. After experiencing the impact of the car chip shortage on the EU economy, on February 3, under the proposal of the German Minister of Economy Peter Altmaier and the French Minister of Economy Bruno Le Maire, Germany, France and France The 17 European Union countries are also negotiating to invest 50 billion euros (about NT$1.690 billion) to reduce the EU's dependence on imported chips.

The governments of India, Japan, China, and other countries are all staring at the semiconductor industry in Taiwan, China. At the beginning of 2021, TSMC’s stock price hit a new high, and its market value surpassed Intel, the semiconductor leader in the past. All experts and media reports focused on the smooth development of TSMC’s future manufacturing process, and will continue to lead in technology and market share in the next few years; but Few people mentioned that when TSMC has become a geopolitical battleground, governments of various countries have begun to actively think about how to make moves to regain the leadership of semiconductor manufacturing.

Challenge 1: Facing the threat from the United States

According to the US National Security Report, they will regain the leadership in semiconductor manufacturing.

To understand how the U.S. government can regain its leadership from semiconductor companies such as TSMC and Samsung, you may refer to the report "National Security Commission on Artificial Intelligence" published by the National Security Council on March 2. Report), Chapter 13 of this report is the blueprint of the planning roadmap for how the U.S. government will regain its leadership in semiconductor manufacturing.

The report pointed out that chips will be the most important foundation of the future artificial intelligence industry. Not only will the economy benefit from the chip industry, "who has the most advanced chip manufacturing technology will gain advantages in every field of war"; page 214 mentioned "The dependence of the United States on imported chips, especially Taiwan, has been the weakness of the United States’ economic and military development strategy", and believes that TSMC and Samsung are the two companies with the world’s top chip manufacturing technology, and Intel "to In 2022, the manufacturing process will be two generations behind."

"The United States must keep manufacturing cutting-edge chips in the country, and its technology must lead its rivals by more than two generations." The report pointed out that through large-scale investment, the United States can expand the domestic market, allowing Dutch ASML or Japanese semiconductor partners to be willing to contribute to the United States. Business opportunities, refused to sell key equipment and materials to China. This report predicts that after China's semiconductor technology has developed to 14 nm, it will not be able to advance further.

The report emphasized that the United States should increase subsidies. "South Korea, Taiwan, and Singapore all provide 25% to 30% tax credits, which are twice as high as the conditions provided by the United States."

However, how can the United States surpass the technological leadership barrier set by TSMC? The report mentioned that the key is that TSMC’s 2D circuit linewidth reduction technology, which is good at, has reached the physical limit. "The marginal benefits of this technology evolution are getting smaller and smaller." At present, TSMC must invest several times higher than in the past. Cost, to build a giant fab, but can only get less capacity than in the past.

"When semiconductors reach their physical limits in two-dimensional density, advanced packaging technology will play an extremely critical role." In other words, the future is not just who can make transistors smaller, but who can build more layers. The wafer is integrated in the same IC. In this field, Intel still has a leading position. In the United States, Stanford University has published a plan to integrate 100-layer wafers into a single IC.

The report recommends that the United States should invest 1 billion US dollars in advanced packaging technology research in 2022, and invest twice as much capital in the past five years, about 12 billion US dollars, in the latest semiconductor technology, such as extreme ultraviolet light (EUV). Semiconductor exposure and development, 3D stacking, carbon nanotubes, compound semiconductor transistor manufacturing, automated IC design, and low-temperature computing are all future development opportunities for the United States.

However, according to TSMC’s 2020 financial report, TSMC’s research and development expenses in this year are as high as US$3.7 billion, which is still higher than the amount recommended in the report. However, the United States has the world’s top talents, and future competition is bound to become more intense.

Challenge 2: The problem of lack of water and electricity in Taiwan, China

TSMC's electricity demand may double in the next 3 years

According to a Bloomberg Intelligence report, TSMC’s demand for electricity will double within three years, because the 5-nanometer and 3-nanometer plants have substantially used extreme ultraviolet EUV equipment. The report estimates that when TSMC’s 5-nanometer plant and 3-nanometer plant are operating at full speed at the end of 2023, the 5-nanometer plant will consume 720MW (million watts) per hour and the 3-nanometer plant will consume 880MW per hour. The report points out that the new The increased electricity demand is almost 98% of TSMC's global electricity consumption in 2019.

According to TSMC’s Social Responsibility Report, TSMC’s global electricity consumption in 2019 was 14.327 billion kWh, which is 91% of Taipei’s total electricity consumption in 2019. According to Bloomberg Intelligence estimates, TSMC will increase by nearly one Taipei city by 2023 compared to 2019. Power consumption! Although TSMC has made great efforts to improve power efficiency and purchase green power, because EUV uses extreme ultraviolet light close to the physical limit for wafer exposure, the energy conversion efficiency is only one-third of that of traditional DUV, but only 150 per hour. The number of wafers is only half of the traditional equipment. Therefore, although TSMC has built factories everywhere in Taiwan, China, the number of newly opened production wafers has actually not increased much.

What's more, the extreme weather has an increasing impact on the water and electricity supply of Taiwan, China. How to maintain stable production and even further expand the factory is a major challenge for TSMC in the future.

Challenge 3: Obstacles to high gross margins

Building in the United States is 6 times more expensive, and employees do not work overtime on weekends

Under the constraints of natural resources such as local manufacturing of chips and Taiwan’s hydropower, the US government’s establishment of factories in the United States is a risk and opportunity for TSMC’s future growth.

On March 1, the "Economic Daily" reported that when TSMC was recruiting employees to set up factories in the United States, TSMC revealed that the Arizona plant will be twice as large as the existing Nanke plant. In the future, it plans to build 6 plants there to become a super-large crystal. Gigafab. However, Japan's "Industry Shimbun Daily" also reported that TSMC also encountered the problem of high costs in setting up factories there. Compared with Taiwan, China, the construction cost was as high as 6 times!

This is not surprising. An industry insider observed that most of the employees on Intel’s production line have a high school education and take all leave at the weekend, and the US labor union is quite strong.

Taiwan, China, uses high-quality talents to work hard day and night on the production line, coupled with the same hardworking suppliers, to create TSMC's success. Therefore, TSMC has significantly recruited talents in Taiwan, China. Not only has the salary doubled, but it also has full insurance, housing and transportation allowances. These resistances also affect TSMC suppliers. The suppliers also revealed that the cost of following TSMC to the United States for production must be higher than that of Taiwan Several times more expensive.

Challenge 4: The test of customer retention

Intel's demand for safety, fear of affecting the supply chain

According to an announcement by the Arizona government at the end of 2020, TSMC has bought a 1,100 plan in the northern part of Phoenix, and will offer more rewards and subsidies. Even if there are risks, TSMC still has to take a step towards internationalization, but after leaving Taiwan, China, Whether it can maintain the ultra-high gross profit margin will be the focus of observation in the future.

Intel announced its entry into foundry. In the short term, the technology is difficult to be on par with TSMC, but it is worth noting that this time, Intel’s main demand is security.

Intel CEO Pat Gelsinger bluntly said in an exclusive interview with the British BBC: “For the world, 80% of the supply of this key technology is in Asia, which is not a satisfactory way.” Continue to promote decentralized supply chains to European and American governments to increase supply chain security Sexual thoughts, and said that in addition to building two factories in the United States this year, there are plans to build new factories in Europe and the United States in 2022. This demand was used by GF in the past and was unsuccessful. However, after the turbulence of Sino-US trade changes, Covid-19, and shortage of automotive chips, the logic of pursuing the highest efficiency and the cheapest cost in the past will be adjusted.

The founder of a high-tech company with annual revenues of tens of billions observed that under this premise, customers will definitely consider decentralizing the supply chain. This time Intel announced the launch of foundry services. Qualcomm immediately expressed interest. Chip production in key areas such as national defense will certainly decentralize production locations; Intel continues to beckon to TSMC’s largest customer, Apple, whether Apple will restart the decentralized supply chain plan when TSMC’s production capacity is insufficient is of vital importance to TSMC.

Now, TSMC has truly become a battleground in global geopolitics. This is a risk of extinction or an opportunity for big growth. Whether TSMC can turn resistance into a boost, this will truly make TSMC truly become the world's largest wafer manufacturer. The key and the most difficult battle. The urgent crisis behind TSMC's flourishing age, wafer manufacturing has become a global geopolitical battleground.