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%.

(Image: TSMC)

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 between TSMC, 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

In late October, PSMC, in collaboration with SBI Holdings, Inc., the Miyagi Prefecture of Japan, and JSMC Corporation, signed a memorandum of understanding. The memorandum confirmed that JSMC’s first semiconductor wafer plant is expected to be located in the Second Northern Sendai Central Industrial Park in Ohira Village, Kurokawa District, Miyagi Prefecture (Second Northern Sendai Central Industrial Park).

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.

On December 14, Hisashi Kanazashi, the Duputy Director at METI of Japan, noted that top overseas semiconductor firms plan to collaborate with Japan’s strength in “equipment” and expand their research and development presence in Japan.

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• Top 10 Foundries Experience 7.9% QoQ Growth in 3Q23, with a Continued Upward Trend Predicted for Q4, Says TrendForce
• [News] TSMC’s Kumamoto Plant Production Capacity Set for Significant Leap, Gradually Increasing to 55,000 Wafers per Month

(Photo credit: TSMC)

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:

1. Volume Discounts: Significant price reductions are offered for orders exceeding ten thousand units, with pricing flexibility increasing as the order quantity grows.
2. Volume Tied Pricing: Maintaining a certain order volume, pricing has a degree of flexibility based on market conditions.
3. 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.
4. Dynamic Pricing: Rapid negotiations for urgent orders, reducing the risk of volume pressure for IC designers, albeit with relatively limited price flexibility.
5. 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.

Read more

• TrendForce Foresees China’s Mature Wafer Processes to Expand to 33% by 2027, Japan Secures Advanced Processes

(Photo credit: TSMC)

Recently, the seven major foundries —TSMC, GlobalFoundries, UMC, SMIC, Hua Hong Semiconductor, VIS, and PSMC—have successively released their third-quarter financial reports and held performance briefings to explain the semiconductor industry’s business climate and the outlook for the next stage.

Overall, in the third quarter, both the revenue and net profit of the seven foundries showed a YoY decline compared to the same period last year. From the perspective of capacity utilization and foundry pricing, except for TSMC benefiting from advanced processes, seeing a rebound in capacity utilization and stable pricing, the other six all experienced declines in both data.

Recent news on foundry pricing and capacity utilization has been continuous. This article will take a closer look at the data of the above seven major foundries and the latest market dynamics to glimpse into the fourth quarter of this year and the trends in foundry services next year.

How did the seven foundries perform in Q3, and what about their capacity utilization?

TSMC

In the third quarter, TSMC’s consolidated revenue was TWD 546.73 billion, approximately USD 1.731 billion, a YoY decrease of 10.8% but a QoQ increase of 13.7%. The net profit for the third quarter was TWD 211 billion, approximately  USD 6.677 billion, a YoY decrease of 25.0%, but a QoQ increase of 16.0%. TSMC expects fourth-quarter sales to be USD 18.8~19.6 billion, with a gross profit margin of 51.5% to 53.5%.

In the first and second quarters of this year, it was said that TSMC’s 7nm capacity utilization rate had dropped to below 50%. However, in the second half of the year, benefiting from Apple expanding its new product lineup and companies like Nvidia and Qualcomm entering the 3nm era in the second half of 2024, the industry estimates that TSMC’s 7/6nm capacity utilization will hold at around 70% by the end of this year, and 5/4nm will be close to 80%, with a monthly production capacity of about 60,000~70,000 wafers by the end of this year.

GlobalFoundries

GlobalFoundries’ Q3 revenue decreased by 11% to $1.85 billion, and the net profit was USD 249 million, lower than the USD 337 million in the same period last year. GlobalFoundries CEO Thomas Caulfield stated in the financial report, “although the global economic and geopolitical landscape remains uncertain, we are collaborating closely with our customers to support their efforts to reduce inventory levels.”

UMC

UMC’s consolidated revenue for Q3 was USD 1.77 billion, a 1.37% increase compared to the second quarter but a 24.3% decrease compared to the third quarter of 2022. The gross profit margin for the third quarter was 35.9%, and the net profit was USD 495 million.

UMC’s utilization showed a significant decline during the second and third quarters, with its capacity utilization dropping from 71% in the second quarter to 67% in the third quarter, according to the company.

Looking ahead, UMC Chairman Jason Wang stated that short-term demand in the computer and communication sectors is gradually picking up in the fourth quarter, and the automotive market remains challenging. Customers continue to manage inventory levels cautiously, and the expected utilization in the fourth quarter is about 61% to 63%, with a QoQ decrease of about 5%, average selling prices remaining stable, and a gross profit margin of about 31% to 33%.

SMIC

SMIC’s Q3 revenue was USD 1.62 billion, a YoY decrease of 15.0% but a QoQ increase of 3.9%. Net profit attributable to shareholders of the parent company was CNY 678 million (approximately USD 95 million), a YoY decrease of 78.41% and a QoQ decrease of 51.81%.

In terms of production capacity, SMIC’s Q3 capacity was approximately 795,750 8-inch equivalent wafers (an increase of 41,500 8-inch equivalent wafers compared to the second quarter’s 754,250 wafers), with a capacity utilization rate of 77.1%.

Looking to the fourth quarter, SMIC expects sales revenue to increase by 1% to 3% QoQ, and the gross profit margin will continue to bear the pressure from new capacity depreciation, expected to be between 16% and 18%.

Hua Hong Semiconductor

Hua Hong’s Q3 revenue was s USD 568.5 million, a YoY decrease of 5.13% and a QoQ decrease of 8.08%. Net profit attributable to parent company was USD 95.83 million, a YoY decrease of 86.36% and a QoQ decrease of 82.40%.

Looking ahead to the fourth quarter of 2023, Hua Hong expects sales revenue to be between USD 450~500 million, with a gross profit margin of about 2% to 5%.

In terms of production capacity, as of the end of the third quarter, Hua Hong Semiconductor’s equivalent 8-inch wafer monthly production capacity increased to 358,000 wafers, with an overall capacity utilization rate of 86.8%.

VIS (Vanguard International Semiconductor)

In the third quarter, VIS’s consolidated revenue was TWD 10.557 billion, approximately USD 334 million, an increase of 7.1% QoQ.

VIS’s outlook is relatively conservative. The company expects the semiconductor supply chain to cautiously control inventory in the fourth quarter. Although the adjustment of consumer electronics inventory is nearing completion, adjustments in the automotive and industrial sectors are later. The company expects a significant adjustment in the fourth quarter, with an estimated QoQ decrease of 8% to 10% in wafer shipments, a QoQ decrease in capacity utilization in the mid-single digits, between 55% and 60%. The average selling price (ASP) of products is estimated to decrease by 2% or less per quarter, and the gross profit margin will continue to decline to between 22% and 24%.

In recent information revealed by the supply chain regarding foundry pricing, VIS might experience a pricing decline of up to 5% in the second half of the year. Big clients may even have the opportunity to negotiate a discount of up to 10%. This trend is expected to continue into the first quarter of next year, with a further reduction, possibly moving from single-digit to double-digit percentages.

PSMC

Q3 financial reports from PSMC show that, impacted by the decline in both capacity utilization and selling prices, the third-quarter main business recorded an expanded loss of TWD 1.408 billion (approximately USD 44.59 million)) and the after-tax net profit turned into a net loss of TWD 334 million(approximately USD 10 million).

PSMC General Manager Brian Shieh revealed that the market conditions in the third quarter still faced headwinds. To maintain competitiveness, PSMC has reduced prices to customers by about 4% to 5%.

It is reported that PSMC’s third-quarter capacity utilization is around 60%, and the gross profit margin is also impacted by idle capacity losses, dropping to 9.2%.

Regarding future demand, Shieh stated that the supply chain has now descended to a reasonable level, with market demand appearing in areas such as mobile driver ICs and surveillance camera CIS components. Visibility is expected to extend to around one quarter, so he is optimistic that PSMC’s fourth-quarter operations will grow by around mid-single digits.

The overall market sentiment is gradually clearing in anticipation of inventory corrections.

In general, as the fourth quarter is coming to an end, most companies still hold conservative views. In the consumer electronics field, such as PCs and smartphones, inventory adjustments have gradually reached the end, and some have already enjoyed the benefits of an upturn. However, inventory adjustments for automotive electronics and industrial applications are expected to lag, and this downturn is expected to be extended.

Among them, the views of TSMC and SMIC are worth noting. TSMC stated that customer inventory digestion will continue into the fourth quarter. Regarding the automotive and industrial platforms and AI businesses that TSMC has recently actively sought to expand, TSMC President C.C. Wei warned that the demand for AI is “not enough to offset” the weakening demand for chips in consumer electronic products on its earnings call in October.

Haijun Zhao, co-CEO of SMIC, stated that in the fields of smartphone and industrial control, Chinese customers have basically reached a balanced inventory level. However, European and American customers are still at historically high levels. Secondly, the relevant inventory of automotive products has begun to be on the high side, causing customers to be alert to market corrections, and orders are quickly tightening. Additionally, there are signs of a recovery in the third quarter in the smartphone terminal market, and the industry. As a whole, he believes that there will be a rebound in overall consumer electronics next year.

Regarding whether the global semiconductor foundry industry is slowly recovering from a downturn, TrendForce pointed out that in 2023, terminal demand is gradually recovering, and AI and automotive demand are maintaining growth momentum. AI servers are expected to grow by more than 37% in the next three years, and electric vehicles with the support of autonomous driving will have a compound annual growth rate of 30% to 40% in the next three years. Smartphones are expected to end their downward trend in 2024, with a growth rate of 2.9%, and servers will have a growth rate of 2.3%, overall leading to an increase in demand for foundry.

On the other hand, 8-inch wafer capacity utilization rate of foundries will gradually rise in 2024. The 8-inch production line produces products such as MOSFET, IGBT, and PMIC will still focus on 12-inch wafers capacity expansion in the next few years. In addition to adopting solutions from existing chip suppliers, the trend of customized chips has also emerged, and high-speed computing applications have become the biggest driving force for advanced processes. TrendForce predicts that the global foundry industry will experience a slight increase in 2024, reaching a growth rate of 6.4%.

Against the backdrop of geopolitical influences, the concentration of advanced semiconductor manufacturing processes in Taiwan has raised concerns among international companies. According to TrendForce data, as of the end of 2024, over 70% of global advanced process manufacturing capacity is still located in Taiwan.

Governments worldwide have responded by offering generous subsidy policies to attract semiconductor foundries to establish plants locally. The dynamics of Taiwan’s semiconductor fabs in the global setting and changes in the global production landscape have become a focal point of industry attention.

Per TrendForce’s data, when considering the equivalent 12-inch wafer production capacity, in 2023, Taiwan held a global share of approximately 47%, 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, the distribution is expected to shift, with Taiwan’s share decreasing to 42%, China increasing to 28%, South Korea at 10%, the United States at 7%, Singapore at 6%, Japan at 3%, Germany at 2%, and others at 1%.

Examining recent developments in the overseas expansion of Taiwan’s semiconductor foundries, Powerchip Semiconductor Manufacturing Corporation (PSMC) has officially announced the establishment of its first 12-inch fab, JSMC, in Sendai, Miyagi Prefecture, Japan. According to TrendForce’s research, the plant is planned to have a total capacity of around 40Kwspm, starting with a 40nm node and gradually transitioning to 28nm, primarily serving domestic clients in Japan while seeking subsidies and tax incentives for semiconductor.

JSMC’s construction is scheduled to commence in 2024, with full-scale production expected by 2027. With the establishment of PSMC’s overseas fab, TrendForce estimates that PSMC’s overseas production capacity will grow from 0% in 2023 to 9% in 2027.

The progress of TSMC’s second fab in Kumamoto, Japan, has garnered significant industry attention recently. On another note, The German cartel office has approved Bosch, NXP, and Infineon’s investment in TSMC’s German fab, ESMC. Each company will acquire a 10% stake, while TSMC will retain substantial control with over 50% ownership.

According to TrendForce’s research, ESMC’s total planned capacity is around 40Kwspm, focusing on 28/22nm and 16/12nm processes, with construction expected to start in the second half of 2024 and mass production in 2027. TrendForce predicts that TSMC’s overseas production capacity will increase from 9% in 2023 to 15% in 2027.

As for UMC, TrendForce’s research indicates that the overseas production capacity is projected to increase from 42% in 2023 to approximately 47% by 2027. Additionally, UMC’s Fab12i in Singapore has a production capacity of approximately 60Kwspm, with plans for manufacturing processes ranging from 55/40nm to 28/22nm. Moreover, UMC’s Fab12M in Japan is expanding its capacity by around 10Kwspm in collaboration with Denso.

Regarding Vanguard International Semiconductor (VIS), it was previously reported by Nikkei that VIS plans to construct its first 12-inch wafer fab in Singapore, primarily focusing on the demand for automotive chips. However, VIS has not yet officially announced any related developments. According to TrendForce’s research, if VIS does not have new plans for investment in a 12-inch fab, its estimated spending required for the operation of various fabs in 2024 is approximately $94 million, representing a nearly 70% decrease compared to previous years.

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