China, Taiwan, and South Korea’s foundry price war continues to heat up. Rumors of price reductions are circulating in the foundry industry, Chinese foundries allegedly lowering their tape out prices, attracting Taiwanese IC design companies to switch their orders.
Companies including Samsung, GlobalFoundries, UMC, and PSMC have reportedly seen customers cancel orders in favor of these Chinese foundries.
According to reports from IJIWEI, China’s SMIC, Huahong Group, and Nexchip began lowering their foundry service prices to Taiwanese IC design companies last year to secure new orders. Many Taiwanese IC design companies have been enticed by these lower prices, prompting them to shift their orders to Chinese foundries. As a result, companies like Samsung, GlobalFoundries, UMC, and PSMC have witnessed customers canceling orders in favor of Chinese manufacturers.
Due to the mature manufacturing processes in China, unaffected by US export restrictions, the lowered wafer fabrication costs have become attractive to Taiwanese IC design companies seeking to enhance their cost competitiveness.
Reports also indicate that this competitive pressure has forced Taiwan’s foundries, UMC and PSMC, to follow suit by reducing their prices. UMC has lowered its 12-inch wafer foundry services by an average of 10-15%, while its 8-inch wafer services have seen an average price reduction of 20%. These price adjustments took effect in the fourth quarter of 2023.
Earlier reports from TechNews had already highlighted that, due to the sluggish semiconductor market conditions in 2023, both China and South Korea aggressively reduced prices to secure orders, with price reductions of up to 20-30% observed in 8-inch and 12-inch mature processes. Taiwanese foundries also made concessions in terms of pricing.
Taiwan’s leading foundry, TSMC, had already initiated pricing concessions in 2023, mainly related to mask costs rather than wafer fabrication. It was reported that these concessions primarily applied to the 7nm process and were dependent on order volumes.
Samsung Foundry, which had previously remained inactive, also adopted a price reduction strategy in the first quarter of this year, offering discounts ranging from 5-15% and indicating a willingness to negotiate.
Looking at the global semiconductor foundry landscape, data released by TrendForce in 2023 showed that Taiwan accounted for approximately 46% of the world’s wafer fabrication capacity, followed by China at 26%, South Korea at 12%, the United States at 6%, and Japan at 2%. However, due to active efforts by China, the United States, and other countries to increase their local capacity shares, by 2027, Taiwan and South Korea’s capacity shares are expected to converge to approximately 41% and 10%, respectively.
Various countries are actively developing their semiconductor industries, with Taiwan’s semiconductor foundries, including TSMC, UMC, and PSMC, becoming prime targets for local manufacturing facilities. TSMC has established plants in the United States, Germany, and Japan, while PSMC, in addition to its facility in Miyagi-ken, Japan, has recently announced plans to assist India in building a factory.
However, for these Taiwanese semiconductor foundries, expanding overseas may not always prove to be a economical choice.
According to Taiwan’s Economic Daily News, PSMC Chairman Frank Huang revealed that 7 to 8 countries have invited the company to establish manufacturing facilities in their respective regions. However, the costs in these countries are higher than those in Taiwan.
Huang pointed out that, based on the data they have, the cost of building a fab in Japan is 1.5 times higher than in Taiwan, with construction costs being 2.5 times higher and operational costs 50% more expensive than in Taiwan. It would take 7 to 8 years for the combined construction and operation to become profitable, meaning the factory would only start making money three years after its establishment. In contrast, PSMC’s Fab P5 in Tongluo Science Park is expected to break even this year.
PSMC had already disclosed plans to assist India in technology transfer for building a fab in early 2023. Huang explained that because South Korea and the United States are unwilling to teach others how to make semiconductors, neither TSMC nor UMC are offering such assistance, leaving PSMC as the go-to option for those seeking guidance in semiconductor manufacturing.
The countries reported to have sought PSMC’s assistance in building fab include Japan, Vietnam, Thailand, India, Saudi Arabia, France, Poland, and Lithuania.
According to TrendForce research, PSMC is the third-largest semiconductor foundry in Taiwan and ranks 10th globally. It announced its investment in a 12-inch factory in Miyagi-ken, Japan, at the end of 2023.
Similarly, TSMC, the leading foundry based in Taiwan, faces similar challenges when expanding overseas. In early 2023, TSMC executives stated during an earnings conference that due to factors such as labor costs, permits, regulatory compliance, and rising living prices, the cost of setting up a plant in the United States is at least four times higher than in Taiwan.
However, beneath the economic considerations, geopolitical factors play a significant role in these decisions. The ongoing regional shift in the semiconductor industry supply chain is inevitable in the current geopolitical climate.
Amidst geopolitical influences, governments worldwide are enticing semiconductor manufacturers with subsidy policies, prompting chip manufactures to establish themselves in various regions. The ongoing dynamics of semiconductor facility construction and the evolving global production capacity remain focal points for the industry in 2024.
Following TSMC’s establishment of facilities in Arizona, USA, and Kumamoto, Japan, the progress of TSMC’s second Kumamoto plant has garnered significant industry attention. On another front, the developments at TSMC’s ESMC facility in Germany continue to capture global attention within the semiconductor industry.
Powerchip Semiconductor Corporation (PSMC) also made headlines in 2023 by announcing the construction of its first overseas 12-inch fab, JSMC, located in Sendai City, Miyagi Prefecture, Japan.
Meanwhile, Samsung’s overseas expansion efforts are equally robust. In addition to its Taylor plant in the United States, Samsung plans to establish a new semiconductor packaging research center in Japan.
According to TrendForce data, considering an equivalent foundry capacity of 12 inches, Taiwan held a global market share of approximately 47% in 2023, followed by China at 26%, South Korea at 12%, the United States at 6%, Singapore at 4%, Japan at 2%, Germany at 1%, and others at 2%. By 2027, Taiwan’s market share is projected to decrease to 42%, with China at 28%, South Korea at 10%, the United States at 7%, Singapore at 6%, Japan at 3%, Germany at 2%, and others at 1%.
In a bid to revitalize its semiconductor industry, Japan has enticed the sector with subsidies worth trillions of yen, aiming to attract both domestic and international semiconductor companies.
Leading semiconductor foundry Taiwan Semiconductor Manufacturing Co. (TSMC) has invested USD 8.6 billion to construct a factory in Kumamoto Plant, and it is considering building a second plant nearby. According to reports, TSMC is also contemplating a third plant within Kumamoto Prefecture to produce cutting-edge 3nm chips.
Apart from TSMC, major players like Samsung and Powerchip Semiconductor Manufacturing Corporation (PSMC) are actively investing in Japan. The initiatives of these giants have not only influenced semiconductor manufacturing equipment suppliers in Japan but also spurred them to accelerate technological research and expand production capacity.
As a result of these efforts, the investment of Japan’s six major semiconductor equipment suppliers has surged by 70% over the past five years.
TSMC Kumamoto New Plant Aims for Monthly Production of 55,000 12-Inch Wafers
Reportedly, the new chip plant in Kumamoto, Japan, operated by Japan Advanced Semiconductor Manufacturing (JASM), a joint venture betweenTSMC, Sony, and Denso, is poised for commencing production in the fourth quarter of 2024, while the plant’s production capacity will target a full capacity of 55,000 12-inch wafers per month.
Simultaneously, JASM aims to enhance the local contribution of semiconductor supply chain and ecosystem in Japan from the current 25% to 60% by 2030.
Meanwhile, according to sources cited by Bloomberg, TSMC has informed its supply chain partners that it is considering building a third factory in Kumamoto Plant in southern Japan, codenamed TSMC Fab-23 Phase 3.
TrendForce’s analysis mentioned that Japan’s expertise in semiconductor materials and machinery makes it an attractive location for TSMC’s expansion.
Additionally, Japan’s critical role in semiconductors and raw materials, coupled with collaboration with Sony, provides TSMC with significant advantages. TSMC’s investment in Japan is expected to facilitate access to advanced materials and expertise in CIS technology.
Furthermore, industry speculation suggests that in the future, Japan will not only continue subsidizing semiconductor manufacturing but also enhance collaboration between the semiconductor industry and academia to attract more talent to join the semiconductor industry.
PSMC Japanese Plant Aims for Monthly Production of 40,000 12-Inch Wafers
The plant will produce 28nm, 40nm, and 55nm chips for automotive and industrial applications, with a planned monthly production of 40,000 12-inch wafers. Previous reports indicated that PSMC plans to construct multiple plants, with the first phase potentially starting construction as early as 2024, involving an investment of around JPY 400 billion (USD 2.6 billion).
The Japanese Ministry of Economy, Trade, and Industry (METI) is expected to provide up to JPY 140 billion in subsidies for the project, targeting operational commencement by 2026. The timeline and plans for the second phase are yet to be determined, with a total investment of approximately JPY 800 billion.
Regarding subsidies, PSMC stated that once Japan announces the subsidy amount for this semiconductor wafer plant investment, all relevant parties will reconfirm the effectiveness of this memorandum of understanding and proceed with the planned construction.
Is Foundry Revenue Expected to Continue its Upward Trend?
In the semiconductor industry chain, the significance of the foundry industry is self-evident. In recent years, the foundry sector has been affected by headwinds in end markets such as consumer electronics. However, as entering the latter half of the year, there are gradually emerging positive signals in the semiconductor industry.
According to TrendForce’s report on December 6th, looking ahead to 4Q23, TrendForce’s anticipation of year-end festive demand is expected to sustain the inflow of urgent orders for smartphones and laptops, particularly for smartphone components.
Although the end-user market is yet to fully recover, pre-sales season stockpiling for Chinese Android smartphones appears to be slightly better than expected, with demand for mid-to-low range 5G and 4G phone APs and continued interest in new iPhone models. This scenario suggests a continued upward trend for the top ten global foundries in Q4, potentially exceeding the growth rate seen in Q3.
According to the Semiconductor Equipment and Materials International (SEMI) report presented at SEMICON Japan 2023 on December 12, the global semiconductor equipment market is anticipated to experience a 6.1% year-on-year decline to USD 100.9 billion in sales for new equipment in 2023, marking the first contraction in four years.
However, the forecast for 2024 shows a reversal, with the semiconductor equipment market expected to grow by 4%, reaching USD 105.3 billion in sales. In 2025, a substantial increase of 18% is projected, surpassing the historical high of USD 107.4 billion in 2022.
SEMI CEO Ajit Manocha has noted that the semiconductor market exhibits cyclical patterns, with a short-term downturn expected in 2023. However, he anticipates a turning point towards recovery in 2024.
The year 2025 is poised for robust recovery, driven by increased production capacity, the construction of new wafer fabs, and growing demand for advanced technologies and solutions.
Major Companies Indirectly Boost Chip Equipment Investment in Japan, Surging 70% in 5 Years
According to a report by Nikkei, the proactive investments by semiconductor giants such as TSMC and Micron in Japan have accelerated technological innovations and production capacity expansion among Japanese chip equipment manufacturers.
The combined investment (including R&D and equipment investment) of Japan’s six major chip equipment firms, namely TEL, DISCO, Advantest, Lasertec, Tokyo Seimitsu, and Screen Holdings, for the fiscal year 2023 (April 2023 – March 2024) is approximately JPY 547 billion, marking a significant 70% increase compared to the 2018 fiscal year.
On December 13, Tokyo Electron Limited (TEL) President Tony Kawai stated at SEMICON Japan 2023 that the semiconductor market is projected to exceed USD 1 trillion by 2030, highlighting the immense potential within the industry.
With 32 mature process wafer fabs set to be completed in China by the end of next year, Taiwanese wafer foundries are gearing up early in response to the “red alert.”
Faced with the pricing war, semiconductor insiders reveal that mature process foundries in Taiwan are anticipating a roughly 10% reduction in prices in the first quarter. The aim is to seize orders ahead of the competition and maintain high capacity utilization rates.
In contrast to traditional sales discounts, major semiconductor foundries like TSMC, UMC, and PSMC have recently introduced a “diversified” pricing strategy for IC design, including:
Volume Discounts: Significant price reductions are offered for orders exceeding ten thousand units, with pricing flexibility increasing as the order quantity grows.
Volume Tied Pricing: Maintaining a certain order volume, pricing has a degree of flexibility based on market conditions.
Deferred Wafer Delivery: Allowing the extension of the original wafer delivery timeline by one year or even longer, providing IC design firms with flexibility and reduced pressure when placing orders.
Dynamic Pricing: Rapid negotiations for urgent orders, reducing the risk of volume pressure for IC designers, albeit with relatively limited price flexibility.
Wafer Bank: Transforming wafers into semi-finished products stored in foundries, facilitating on-demand packaging and delivery when needed.
These initiatives are strategically positioned to capitalize on the anticipated recovery in consumer electronics demand next year.
Insiders reveal that due to the sluggish market conditions in the first quarter and the impact of an upcoming extended holiday, demand for the next quarter may not just be “cool” but could freeze.
Industry experts characterize this downturn as an “L-shaped bottom,” and if orders are taken by Chinese foundries before the recovery, Taiwanese foundries will lose out on the subsequent rebound. Consequently, the three major mature process wafer foundries in Taiwan are compelled to lower prices in advance, with an estimated price reduction of around 10% for the next quarter. However, the foundries refrain from commenting on pricing.
Historically, major domestic mature process fabs maintained stable prices but offered discounts by shipping more wafers than ordered. In an effort to boost high capacity utilization and secure orders early, these fabs will no longer stick to stable pricing in the first quarter of next year.
Instead, they have adopted a direct price reduction of 10% for orders exceeding 10,000 wafers. IC design companies estimate that as benchmark fabs initiate price reductions, other industry players will inevitably follow suit.
While the extent of price reduction varies depending on products and processes, an average price reduction of 10-20% for wafer foundry services in the first quarter of next year is anticipated.