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Intel’s Entry into Foundry Business: Partnership with Tower Semiconductor and the Changing Semiconductor Landscape

and Overview of TSMC

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest pure-play foundry, a company that specializes in manufacturing chips for other companies. Founded in 1987, TSMC has grown to become one of the most important players in the semiconductor industry.

In this article, we will explore what makes TSMC such a vital part of the technology ecosystem, how it has managed to achieve remarkable success over the last few decades, its financial performance, and its business diversity. TSMC’s Role as a Pure-play Foundry

TSMC is a pure-play foundry, which means that it focuses solely on manufacturing chips for other companies, rather than producing chips for its own use.

This model has been successful for TSMC as it allows the company to specialize in the manufacturing process, optimizing its production capabilities to deliver high-quality chips at competitive prices. One of the primary reasons why companies choose to work with TSMC rather than produce their chips is the significant capital expenditures required to set up a chip-making facility.

By outsourcing the chip fabrication process to TSMC, companies can save on these investments, redirecting their resources towards other areas, such as research and development. Even companies that have their foundries opt into working with TSMC due to the reduced financial risk.

The semiconductor industry is highly cyclical, and investing in a foundry comes with significant risk. Outsourcing reduces the risks of building a manufacturing plant that may result in significant losses, especially during economic downturns.

TSMC’s proficiency in the design and manufacturing of advanced process technologies, such as 7nm, that demands a high level of technical expertise is another area of attraction for many companies. These technical capabilities continue to increase the demand for TSMC’s services, making it a critical partner to many tech giants.

Financial Performance and Business Diversity of TSMC

TSMC’s revenue for the year 2020 was $47.85 billion, an increase of 25.2% from the previous year. It is worth noting that TSMC’s profit margin in 2020 was 39.4%, which is exceptionally high compared to other semiconductor companies.

TSMC’s revenue is broken down into segments such as smartphones, automotive, high-performance computing, and IoT. The majority of the company’s revenue comes from smartphones and high-performance computing.

TSMC has a diversified customer base, with businesses from around 500 companies. TSMC’s highest revenue-generating regions are North America and Asia, where the company generates around 60%-70% of its revenue.

TSMC’s relationships with these companies are critical to the company’s financial success. Being in business with globally known brands such as Apple and Qualcomm, ensures a stable base in return their commitment, however always at the risk of depending on their future decisions, the likes of which we saw when Huawei and TSMC terminated their cooperation due to regulatory enforcement.

Despite its dependence on a few significant customers, TSMC’s balanced mix of business diversity by industry, business segments and geographic locations, coupled with its highly sophisticated production processes, make the company less susceptible to volatile market conditions.

Conclusion

In conclusion, TSMC is a vital player in the semiconductor industry, with its focus on providing pure-play foundry services and the ability to deliver advanced process technologies. It’s financial and business performance have been consistent due to its diversification and the establishment of well-established relationships with various businesses in the industry.

Dependent on other corporations for its business poses significant risks for TSMC but has been able to weather storms such as the impacts of the ongoing US-China trade war, making it an integral part of the technology ecosystem. TSMC’s Investment Plans and Market Share

TSMC has shown a strong commitment to investing in its manufacturing processes and increasing its production capacity to meet the growing demand for its products.

In 2020, TSMC announced that it would increase capital expenditure by approximately 22% to $17 billion, with a focus on expanding fabrication capacity, advancing chip innovation and improving productivity. TSMC’s investment plan aims to increase its production capacity by building new fabs, adding equipment to existing fabs, and releasing new process technologies.

The expansion to a new fab in the US, fab 18, has been the result of geopolitical risks, an approach aimed to win back some of the market share that the US has lost to other countries in semiconductor manufacturing due to intellectual property risks. There is also a focus on its advanced process nodes, particularly the 5nm and 6nm process nodes, which deliver superior performance and energy efficiency enhancements and are becoming increasingly in demand.

This investment plan has proved successful as TSMC has continued to maintain its status as the world’s largest foundry, considerably ahead of its closest competitors, Samsung and GlobalFoundries. In Q4 2020, TSMC’s market share grew to 56%, underscoring the company’s strong position in the market.

TSMC’s success in the market is due to its ability to innovate and expand its product offerings, highlighting an early move into the most prominent growth segments of high-performance computing and IoT. By leveraging partnerships with leading-edge companies like Qualcomm, which is looking to further push the limits of 5G technology or Apple in its latest iPhone series, TSMC has shown its commitment to advancing its advanced process nodes and its expertise in building chipsets that power these segments to varying degrees.

With the market size expected to grow exponentially, this puts TSMC in a good position to capitalize on the expanding demand, and maintain its position as a leading supplier in these segments.

History and Background of TSMC

TSMC was founded by Morris Chang, originally from Taiwan, who gained a Ph.D. in Electrical Engineering from MIT and then served as the first General Manager of Texas Instruments in Taiwan, and subsequently founded General Instrument Taiwan in 1981. The stunning account of the success he enjoyed as a businessman and as an industry leader recounts his fierce personality and how he challenged and influenced the complicated socio-political climate that was present to show Taiwan’s potential in high-tech electronics manufacturing.

In 1987, Morris Chang founded TSMC to provide pure-play foundry services that specialized in the production of chips for other companies. This was a new concept at the time, as most companies producing chips had their foundries.

TSMC’s growth in its early years was unprecedented, with the company growing quickly, and its sales reaching the three-digit million marks within ten years. The company also went public in 1994, and within two years, it was one of the most valuable companies in Taiwan, with a market capitalization of more than $12 billion.

Since then, TSMC has continued to achieve remarkable growth and global expansion, building more fabs and acquiring new companies to expand its product and service offerings. In 2010, TSMC became the world’s largest foundry for the first time and has maintained that position ever since.

TSMC has the reputation of being recognized globally as a responsible and committed corporate partner, and has won numerous awards over its long journey in the field of sustainable development, customer centricity, operational excellence, women empowerment, and community development.

Conclusion

TSMC’s investment plan geared towards expanding production capacity and releasing new process technologies has paid off. The company has continued to achieve remarkable growth, adding new fabs, gaining market share and maintaining its status as the world’s most valuable foundry.

By advancing its innovative capabilities and ability to offer a diverse product offering, TSMC’s position in the market looks guaranteed as it continues to contribute to the economy of Taiwan and provide its shareholders with the best return through its strategies of investing in a long-term vision and partnership. TSMC’s Role and Challenges during the Covid-19 Pandemic

The semiconductor industry experienced significant challenges during the Covid-19 pandemic.

Mainly, companies had to keep up with the growing demand for chips as the world shifted to remote working, online learning, and other digital solutions. As one of the largest foundries, TSMC was not immune to these challenges.

In 2020, the COVID-19 pandemic caused disruptions in the supply chain, leading to a chip shortage around the world, which even affected automotive companies. TSMC was no exception.

However, the company was recognized for its transparency in communicating risks to its customers, helping them manage their expectations and minimize the impact of the shortage. Recognizing the need for a more resilient supply chain in view of any future risks to their business, TSMC expanded its investments in 2020 to keep pace with the growing demand.

TSMC announced its intention to invest $28bn towards manufacturing capacity in 2021 in an attempt to meet the increased demand and keep pace with competitors, such as Samsung. TSMC had to contend with other challenges such as geopolitics and government subsidies as well.

Some countries have been prompted to subsidize the establishment of chip-making facilities to ensure they do not fall behind in technological advances and risk being left out of the economy of scale. Companies such as TSMC and Samsung have reaped the benefits of preexisting expertise and advantages when manufacturing chips, creating a sense of advantage over rivals that only recently entered the market or in developing countries, placing pressure on governments and companies to offer subsidies as means to close the gap.

This resulted in a situation where homegrown chip manufacturers such as SMIC of China and UMC of Taiwan have a competitive edge, and pose a challenge to TSMC’s jump into new markets. Overview of TSMC’s Top 10 Competitors

Samsung is TSMC’s biggest competitor, with a market share of around 18% compared to TSMC’s 56%.

One of the key advantages Samsung possesses is its vertical integration, which lets the company manufacture both the processors and other products such as memory and storage, simultaneously increasing its revenue stream. Its IC business has been expanding since 2004 and the recent investment of almost $150 billion into the foundry business is evidence of their ambitions to compete with TSMC in the coming years.

Samsung announced that its EUV adoption rate would be around 25%, compared to TSMC’s 70% and applying pressure on TSMC to feel the need to achieve higher yields more effectively. Other companies that compete with TSMC include GlobalFoundries, UMC, SMIC, Intel, Qualcomm, Apple, Broadcom, NXP Semiconductors, and Texas Instruments.

GlobalFoundries, owned by Mubadala Investment Company in Abu Dhabi, is one of the largest foundry companies and proprietary manufacturing technology supplier, both of which are crucial strengths when entering into a partnership with other companies. UMC has a market share of approximately 7%, and its strengths lie in high volume production of Analog and Mixed Signal chips, where it has a market lead.

However, UMC lags in emerging markets such as 7nm nodes, where TSMC and Samsung have expanded rapidly. SMIC of China is a rising force, backed by the China government and operating at a lower margin than other firms.

There is pressure on SMIC to deliver higher performance and reliability at an economical price point to outweigh the missing footprint of higher performing nodes compared to other foundries.

Intel, Qualcomm and Apple present indirect competition to TSMC, as they have their foundries for chip production that enable them to have tighter control, flexibility and potentially streamline costs.

However, its worth noting that the decision to produce at home and use external manufacturing options is often accompanied by highly peculiar considerations. Also, these in-house facilities are not large enough to completely replace the supply chain, and it requires collaborations with foundries, like TSMC, to meet the demands.

Conclusion

As the worlds largest foundry, TSMC is facing intense competition from other major players like Samsung. However, it seems that TSMC has the upper hand due to its early investment in emerging markets that have propelled it to a leading market position.

The pandemic and geopolitical risks had an impact on the semiconductor industry, but the industry has had room for expansion, and governments have started offering attractive incentives to set up new fabs, expanding competition in the marketplace. TSMC’s success lies in its balanced and diversified business which is positioned to continue delivering growth through continued investment and development to meet emerging market requirements.

Intel’s Entry into the Foundry Business and Partnership with Tower Semiconductor

Intel, a dominant player in the semiconductor industry, has recently made significant moves to expand into the foundry business. Foundries, such as TSMC, specialize in manufacturing chips for other companies.

This marks a notable shift for Intel, as the company has traditionally focused on producing chips for its own use. Intel has a long and storied history in the semiconductor industry.

Founded in 1968, the company has been a leader in the development and production of microprocessors for decades. However, in recent years, Intel has faced increased competition and challenges in its core business, particularly as other companies have made significant advancements in process technology.

In March 2021, Intel announced plans to invest $20 billion to build two new chip manufacturing plants, or fabs, in Arizona. This move signaled Intel’s renewed focus on manufacturing and came alongside the announcement of its Intel Foundry Services (IFS) business.

Intel’s goal is to leverage its expertise in process technology and chip design to offer foundry services and compete directly with companies like TSMC and Samsung. The relaunch of Intel’s foundry service comes at a time when there is an increased demand for cutting-edge semiconductor manufacturing.

As technology continues to advance, companies require access to advanced process nodes to develop high-performance chips for a range of applications, including artificial intelligence, autonomous vehicles, and data centers. As part of its foundry plans, Intel has also entered into a partnership with Tower Semiconductor, a leading global specialty foundry.

The partnership involves Intel acquiring a significant stake in Tower Semiconductor’s manufacturing facility in Israel, Fab 42, to increase its production capabilities. With this partnership, Intel aims to tap into Tower Semiconductor’s expertise in specialty analog semiconductor manufacturing.

The acquisition of a stake in Tower Semiconductor allows Intel to expand its capabilities in specialty areas such as radio-frequency (RF) and power management chips, which are crucial components in a variety of industries. This strategic move demonstrates Intel’s commitment to diversifying its product offerings and capturing new market opportunities.

The partnership with Tower Semiconductor is expected to strengthen both companies’ positions in the industry. Intel will have access to a larger manufacturing capacity, enabling it to offer more comprehensive foundry services to its customers.

Additionally, Intel’s investment in Tower Semiconductor demonstrates its confidence in the company’s capabilities and growth potential. For Tower Semiconductor, the partnership with Intel provides a significant boost in terms of resources and expertise.

Intel’s investment allows Tower Semiconductor to expand its production capabilities and further establish itself as a key player in the foundry market. The collaboration also opens up new opportunities for joint development and shared research and development efforts.

Intel’s entry into the foundry business and its partnership with Tower Semiconductor has the potential to reshape the semiconductor landscape. With its vast resources, technical expertise, and established reputation, Intel is well-positioned to compete with established foundries like TSMC and Samsung.

However, Intel will face challenges in catching up to TSMC and other competitors who have already established themselves in the foundry business. TSMC, in particular, has a strong track record of delivering cutting-edge process nodes and has built long-standing relationships with a wide range of customers.

Intel will need to demonstrate its ability to deliver comparable performance and reliability in its foundry services to win the trust of customers. Furthermore, the foundry business is highly competitive, and Intel will need to navigate geopolitical risks, manage supply chain disruptions, and invest significantly in research and development to stay competitive.

The success of Intel’s foundry business will depend on its ability to execute its plans effectively, deliver on its promises, and establish strong partnerships within the industry.

Conclusion

Intel’s entry into the foundry business and its partnership with Tower Semiconductor represent significant developments in the semiconductor industry. As Intel seeks to diversify its business and address the challenges in its core microprocessor business, the company is investing heavily in building new fabs and expanding its production capabilities.

The collaboration with Tower Semiconductor will help bolster Intel’s presence in the foundry market and provide opportunities for growth and innovation. However, Intel will face considerable competition from established foundries like TSMC, and its success in the foundry business will depend on its ability to deliver advanced process technologies and establish strong relationships with customers.

In conclusion, the entry of Intel into the foundry business and its partnership with Tower Semiconductor mark significant developments in the semiconductor industry. Intel’s investment in manufacturing capacity and its relaunch of the foundry service demonstrate its commitment to diversifying its business and competing with established players like TSMC.

The partnership with Tower Semiconductor provides Intel with access to specialty analog semiconductor manufacturing capabilities, enhancing its product offerings. However, Intel faces challenges in catching up with competitors and must navigate geopolitical risks and supply chain disruptions.

The success of Intel’s foundry business will depend on its ability to deliver advanced process technologies, establish strong customer relationships, and execute its plans effectively. This development highlights the increasing importance of the foundry business and signals a shift in the dynamics of the semiconductor industry.

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