The growing wafer foundry industry
Latest update time：2021-05-03
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At present, the global market's urgent demand for wafer foundry capacity has reached an all-time high. Against this background, not only traditional wafer foundries, but also some large IDM manufacturers have successively expanded their investments. For example, Intel announced that it will focus on wafer foundry business, and SK Hynix also announced that it will expand its investment in wafer foundry business.
This wave of chip shortages was mainly caused by power management ICs and display driver ICs, and then further spread to MCUs, NAND Flash control chips, NOR Flash, CIS, etc. The global shortage has caused the wafer foundry capacity to be in short supply, resulting in unprecedented situations such as sharp price increases and bidding for capacity. TSMC believes that this capacity shortage phenomenon may not be alleviated before 2023.
Recently, four manufacturers have made major moves to expand their wafer foundry capacity, which has attracted attention from the industry. They are SK Hynix, TSMC, Powerchip and Intel.
Storage IDM Transformation
Last week, SK Hynix CEO hinted that the company will increase investment in the foundry business as it is key to the company's business transformation.
Currently, the foundry business accounts for only 5% of SK Hynix's revenue, and there is still a lot of room for growth. The company provides foundry services through its SK Hynix System IC subsidiary, which recently moved its factory from Cheongju, South Korea to Wuxi, China.
In 2020, SK Hynix also purchased a 49.8% stake in Key Foundry, a wafer foundry spun off from Magnachip.
SK Hynix System IC subsidiaries and Key Foundry mainly produce 8-inch wafer mature process chips. Judging from the statement of its CEO, SK Hynix hopes to make breakthroughs in advanced processes.
As SK Hynix's foundry revenue accounts for less than 5% of its total revenue, the industry believes that the company may continue to acquire foundries or invest in them to expand the proportion of its foundry business.
From the second half of 2016 to the first half of 2018, the global memory market experienced large-scale shortages and price increases, so the world's three largest memory manufacturers, Samsung, SK Hynix and Micron, made a lot of money. But starting from the second half of 2018, the market began to change, and the prices of DRAM and NAND Flash fell all the way. Therefore, the revenue of Samsung, SK Hynix and Micron went from rising sharply to falling sharply in more than a year.
Under such circumstances, SK Hynix announced that it would increase its investment in non-storage businesses in the next few years, focusing on wafer foundry and logic chips to reduce risks and minimize the impact of ups and downs in a single field on the company's revenue.
In February 2018, SK Hynix announced that it would invest USD 107 billion to build four wafer fabs to consolidate its position in the memory chip industry.
As the demand for logic devices such as mobile phone basebands and AP processors, as well as automotive chips, increases with their applications, the 8-inch production capacity of many wafer foundries is fully loaded. In order to meet market demand, in 2019, SK Hynix acquired the wafer foundry of logic chip manufacturer MagnaChip in Cheongju, South Korea, to expand its 8-inch wafer production line.
Wafer foundry is TSMC's main business, and logic chips, especially logic chips using advanced processes (such as mobile phone basebands, AP chips, CPUs, FPGAs, etc.) are the embodiment of TSMC's core competitiveness. SK Hynix's large-scale investment plan in this regard is objectively competing with TSMC.
Leading Nanjing expands production
Recently, TSMC announced a three-year investment of US$100 billion to expand its wafer factory. Last week, the company also confirmed that it will invest US$2.887 billion to expand the 28nm process capacity of its Nanjing plant, increasing output by 40,000 wafers per month, mainly for the production of automotive chips.
TSMC pointed out that currently there is no clean room space in Taiwan's wafer fabs, and only the Nanjing plant has ready-made space available, where production lines can be set up directly, which is conducive to quickly forming production capacity.
According to the plan, TSMC's Nanjing plant's 28nm process capacity will be mass-produced in the second half of 2022, and will reach the full capacity target of 40,000 wafers per month in mid-2023. Currently, TSMC's Nanjing plant mainly produces 16nm chips, with a monthly production capacity of about 20,000 wafers.
TSMC's Nanjing plant was approved in 2015. From construction to production to profitability, the plant has progressed at almost rocket speed, breaking many TSMC records. It took only 14 months from groundbreaking to equipment entry, making it the company's fastest-built and fastest-online plant. More importantly, it achieved profitability in the second year after mass production, which is rare in the entire semiconductor industry.
The Anti-Moore's Law
In late March, Powerchip held a groundbreaking ceremony for its 12-inch wafer fab in Tongluo, with a total investment of NT$278 billion. The total production capacity is 100,000 wafers per month and will be put into production in phases starting in 2023. The annual output value at full capacity will exceed NT$60 billion.
Regarding the operating strategy of TSMC's new Tongluo plant, TSMC Chairman Huang Chongren created the Reverse-Moore's Law to explain: the investment in a 12-inch wafer production line is as high as NT$100 billion, and the investment in a new 12-inch plant with a 3nm process is closer to NT$600 billion. Wafer manufacturing plants bear great financial, technical and operational risks, and a gross profit margin of 20-30% is considered good. In contrast, IC design and other semiconductor peripheral supporting industries are enjoying the fruits of small investment and high profits. The Reverse-Moore's Law is to change this unbalanced supply chain structure. Wafer manufacturing and other upstream and downstream peripheral industries must establish a new cooperation model of profit sharing and risk sharing to allow the semiconductor industry to develop healthily.
The new plant is expected to be installed in September next year, with a monthly production capacity of 25,000 pieces in the first phase. It will be put into production in phases starting from 2023, with a total production capacity estimated to be 100,000 pieces per month.
Powerchip was once the largest DRAM manufacturer in Taiwan. It had made huge profits and also suffered huge losses in the past. In 2012, due to the impact of falling DRAM prices, its net value per share turned negative. After that, the company readjusted its operating strategy and transformed into a wafer foundry. In addition to manufacturing DRAM for Kingston and Fabless Semiconductor, it also invested in wafer foundry businesses such as LCD driver ICs, power management ICs, and CMOS image sensors.
In 2013, Powerchip turned losses into profits and has maintained profitability for seven consecutive years. In particular, the shortage and price increase of memory in 2017 and the first half of 2018 made Powerchip make a lot of money, with profits exceeding NT$10 billion in 2018. However, since the second half of 2018, with the decline in the semiconductor industry, especially the sharp drop in DRAM prices, Powerchip's DRAM foundry capacity utilization rate has been low. However, the recent severe shortage of global wafer foundry capacity has given Powerchip an opportunity to increase the investment in 12-inch wafer fabs.
In addition to investment in production capacity, innovation is also a direction for the wafer manufacturing industry to enhance its value. Powerchip is the only wafer foundry in the world that has both storage and logic process technologies. Although the process is not the most advanced, the company has made good use of its unique expertise and has successfully launched the Interchip technology for storage and logic wafer stacking, breaking through the bottleneck of data transmission between chips through heterogeneous wafer stacking.
IDM leaders join the battle
In the past decade, after seeing the gradual maturity, high efficiency, and good performance of the foundry business, many IDM companies have entered the foundry industry in order to seek better development opportunities, such as SK Hynix mentioned above, and industry leader Intel.
Intel entered the foundry industry in 2013, but the business has never improved. At that time, Intel announced that it would use its own 20nm process technology to produce FPGAs for Altera (later acquired by Intel), which caused an uproar in the industry. It was probably from then on that people believed that Intel really wanted to enter the foundry industry. Later, Intel also announced its entry into the foundry industry, but because the long-term IDM model is very different from the Foundry model, the transformation requires very large adjustments, including adjustments in thinking. This is indeed difficult for Intel, which is accustomed to the high profits of the IDM model.
It was also from the time when Intel started to produce FPGAs for Altera that it seemed to see the merits of the foundry business model. In particular, around 2012 and in the following years, smartphones developed rapidly. Qualcomm took the lead by virtue of its early layout in 3G, and was very popular in the market at that time, with its market value exceeding that of Intel. Mobile phone-related chips, especially processors, are the leading products in the foundry market, and Samsung and TSMC have made a lot of money from this. This also stimulated Intel, which not only saw the huge business opportunities of foundry chip production, but also further entered the field.
Based on this, in March this year, the IDM overlord took advantage of the new CEO taking office and the severe shortage of global chip production capacity to launch the IDM 2.0 strategy, focusing on investing in the wafer foundry industry. To this end, Intel also established a new business unit and declared that the business will strive for customers like Apple. According to Intel's plan, the two new wafer fabs will be put into production in 2024, and will be able to produce 7nm process chips.
Conclusion
The above lists only a few wafer foundry expansion projects that have attracted much attention recently. In fact, at a time when production capacity is seriously in short supply, many manufacturers have announced expansions, such as UMC and SMIC, which are investing in expanding production lines to seize order opportunities in the next two to three years. I believe that this wave of wafer foundry expansion will become more and more popular in the next year.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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