The semiconductor supply chain is accelerating its globalization strategy. On February 29th, PSMC announced its collaboration with Tata Electronics in India to construct the country’s first 12-inch fab in Dholera, Gujarat. The construction of the fab is expected to commence within this year.

According to Tata’s press release, following the approval from the Indian government for Tata Group and PSMC to establish India’s first fab in Dholera, Gujarat, the investment for the fab is estimated at INR 91,000 crores (roughly USD 11 billion) and will generate over 20,000 direct and indirect skilled jobs in the region . The preliminary plan outlines a monthly production capacity of 50,000 wafers.

Cited from PSMC’s press release, Frank Huang, Chairman of PSMC, pointed out that Tata Sons Group is India’s largest and internationally-renowned company. India not only has the world’s largest population, it also has a huge domestic market. At this critical moment of the global restructuring of high-tech supply chain, the cooperation between PSMC and Tata Sons Group is indeed timely.

Randhir Thakur, CEO of Tata Electronics, stated as follows, “We will be able to serve our global customers’ requirements for supply chain resilience and meet the growing domestic demand.”

As per PSMC’s press release, Tata Electronics plans to produce power management IC, display driver IC as well as microcontrollers and high-performance computing logic at the Dholera 12-inch fab, in order to enter the automotive, computing and data storage, wireless communications, artificial intelligence and other application end markets.

As key countries worldwide continue actively building their own semiconductor supply chains, TSMC has taken the lead in initiating globalization efforts. UMC, through its collaboration with Intel to develop a 12-nanometer process platform, not only advances in process technology but also expands its presence into the United States.

On the other hand, after entering the Japanese market last year, PSMC further declared yesterday its partnership with Tata to establish India’s first 12-inch fab. This marks the first time a Taiwanese semiconductor foundry has entered the Indian semiconductor supply chain.

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(Photo credit: PSMC)

Foundry is a crucial sector in the semiconductor industry and a focal point of attention for many professionals in the industry. Recently, three foundries have released their outlook for the first half of 2024, all indicating a cautious outlook for the first quarter.

According to Taiwanese News outlet Commercial Times, United Microelectronics Corporation (UMC), Powerchip Semiconductor Manufacturing Corporation (PSMC), and Vanguard International Semiconductor Corporation (VIS) anticipate a subdued first quarter due to factors such as off-season effects and holidays.

With conservative estimates on wafer shipments, average selling prices (ASP), and gross margins for the first quarter, there remains a high likelihood of a continued decline in performance compared to the previous quarter.

• VIS: Visibility of the Market Conditions Limited to about Only 2 to 3 Months

VIS stated in a recent conference that semiconductor demand entered the traditional off-season at the beginning of the year.

It is expected that the supply chain will continue inventory adjustments and maintain a cautious approach to orders. Assuming an average exchange rate of NTD 30.9, shipments are expected to decrease by 6-8% quarterly, with average selling prices roughly remaining flat and gross margins falling between 21-23%.

VIS believes that the industry is still undergoing inventory adjustments, and the overall economic situation remains sluggish. Currently, the visibility of the market is limited to only two to three months. In the first quarter, due to continuous inventory adjustments in the supply chain and a cautious approach to ordering, capacity utilization will decrease to 50%.

In addition, regarding the investment in 12-inch fabs, VIS Chairman Leuh Fang stated that due to the significant investment required for 12-inch fabs, there must be definite demand and leading technological sources before deciding to proceed with construction.

Currently, the decision is still in the cautious evaluation stage, and no plants will be built hastily until the technology sources are confirmed.

• PSMC: A Conservative Outlook

PSMC’s General Manager, Brian Shieh, stated during a mid-January earnings call that the company expects a seasonal decline of approximately 5-6% in revenue for the first quarter due to fewer working days.

Regarding inventory, PSMC noted that client inventory levels are currently at normal, with the semiconductor manufacturing segment performing relatively well. It is anticipated that capacity utilization rates for the first quarter of 2024 could rebound to 70% to 75%, offering promising prospects for operations in the latter half of the year.

Overall, PSMC aims for a capacity utilization rate of over 90% for the full year, with the goal of continuously filling the new capacity at the Tongluo plant in the second half of the year. The company estimates that the Tongluo plant can be fully operational in the latter half of the year, primarily focusing on 55nm and 40nm logic products.

• UMC: Visibility of the Market Conditions for 2024 is Relatively Limited

UMC forecasts a modest increase of 2-3% in wafer shipments for the first quarter of 2024, with ASP quoted in USD expected to decrease by 5%, leading to a slight decline in gross margin to around 30%. This is primarily attributed to adjustments in pricing and changes in product mix. Capacity utilization is anticipated to remain at low 60%.

In terms of production lines, stable demand is projected for communication and consumer sectors, maintaining flat revenue trends, while automotive and industrial segments are expected to undergo inventory adjustments, resulting in a seasonal decline in revenue for the first quarter of 2024.

UMC estimates that the revenue contribution from special processes will reach 30% in the first quarter of this year, with sales from a predominant single customer making a significant contribution.

Regarding the medium to long-term outlook for the full year, UMC stated that the semiconductor market is expected to grow at a mid-single-digit rate annually, while the foundry industry is forecasted to grow at a high single-digit rate, approaching 10%.

UMC’s revenue is expected to align closely with the growth rate of the wafer foundry industry. UMC holds a cautiously optimistic outlook for demand in 2024, as smartphone and PC inventory levels returned to relatively normal levels in the fourth quarter of 2023.

Additionally, on January 25th of this year, Intel and UMC announced a collaboration to develop 12nm technology. Both parties will share the expenses, with Intel taking charge of operating the facility.

UMC stated that the capacity expansion will significantly impact the company’s operational performance once production starts. The technology is expected to enter the Process Design Kit (PDK) stage in 2025, begin trial production in 2026, and commence supply in 2027. The 12nm technology represents a potential market worth billions, and the collaboration does not include IP licensing.

Regarding this matter, TrendForce believes that this partnership, which leverages UMC’s diversified technological services and Intel’s existing factory facilities for joint operation, not only aids Intel in transitioning from an IDM to a foundry business model but also brings a wealth of operational experience and enhances manufacturing flexibility.

For UMC, this collaboration is a game-changer as it allows the company to agilely leverage FinFET capacity without the pressure of heavy capital investments.

This move positions UMC to carve out a unique niche in the fiercely competitive mature process market. Furthermore, by co-managing Intel’s US facility, UMC can expand its global footprint, smartly diversifying geopolitical risks. This partnership is shaping up to be a win-win for both.

Overall, TrendForce views this alliance as a significant step. UMC brings its plentiful experience in mature processes, while Intel contributes its advanced technological prowess.

This partnership is not just about mutual benefits at the 10nm process level; it’s a watchpoint for potentially deeper and more extensive collaboration in their respective fields of expertise. In the dynamic world of semiconductor manufacturing, this Intel-UMC alliance is a fascinating development to keep an eye on.

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(Photo credit: UMC)

As reported by Indian media Economic Times, India’s Tata group may collaborate with Taiwanese semiconductor foundries like UMC or PSMC to establish the first fab in India, initially producing mature process chips with a planned monthly capacity of 25,000 wafers. If successful, it would mark Taiwan’s semiconductor industry’s first venture into India.

The report addresses the recent escalation of geopolitical tensions, which has led to India’s issues in local chip manufacturing. Thus, India is reportedly looking for major foundries to establish fabs in India, given its substantial demand for semiconductors.

Although neither UMC nor PSMC has formally announced investments in India, as per the Economic Times of India, Tata Group may collaborate with Taiwanese foundries like UMC or PSMC to establish a semiconductor fab in Dholera, Gujarat, India.

Initially targeting the 65-nanometer mature process, the aforementioned fab is expected a monthly capacity of 25,000 wafers, with plans for future upgrades to 48-nanometer and 28-nanometer processes, supporting the production of GPUs, consumer electronics, and Internet of Things (IoT) applications in the coming years.

According to sources cited by the Economic Times of India, Tata Group has finalized the details of the land for this factory and groundbreaking may occur soon. However, Tata Group’s entry into the 28-nanometer process may take some time as it needs to ensure sufficient orders for mature processes in the Indian market.

PSMC Chairman Frank Huang revealed in early 2023 that he had received an invitation to assist in setting up a plant in India, but he did not disclose the details or the inviting party at that time.

PSMC has yet to announce any investments in India.

Instead, they have partnered with the Japanese company SBI Holdings, Inc. to establish a joint venture for a 12-inch fab in Japan. This venture will be located in the Second Northern Sendai Central Industrial Park in Ohira Village, Kurokawa District, Miyagi Prefecture. It is planned to produce chips ranging from 28 to 55 nanometers, with an initial monthly capacity of 10,000 wafers and an ultimate goal of 40,000 wafers, focusing on the automotive chip market.

UMC has also been reportedly sending representatives to India for inspections and discussions regarding the opportunity to establish facilities there, as disclosed by Indian media in recent years.

However, UMC has yet to take any action to invest in India. Instead, in 2022, the company initiated its strategy to establish a new 22-nanometer fab in Singapore, with plans for completion by the end of the second quarter of this year and mass production slated to begin in early 2025, with an initial monthly capacity of 20,000 to 30,000 wafers.

UMC and PSMC didn’t comment on the matter on February 20th. “UMC does not comment on market speculations.” a spokesperson for UMC said, cited by Economic Times.

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(Photo credit: Tata Group)

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.

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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.

(Image: PSMC)