Mo Dakang: A brief analysis of TSMC’s road to success

TSMC has a history of 30 years since it was established in Taiwan in 1987.

It is the world's largest foundry company, with a market share of 54% in 2015 and an annual market value of approximately US$153.6 billion (September 2016), or about NT$5 trillion. It is expected that sales in 2016 will reach US$29.3 billion. Its 28nm production capacity is 155,000 12-inch wafers per month, with a market share of 80%.

The company has taken a steady approach in terms of process, from 28nm and 20nm to the mature process (capable of mass production and stable in performance and yield) of 16nm in Q2 2015. The advanced 10nm process is expected to be mass-produced in the first quarter of 2017. It also revealed at the end of September 2016 that in addition to the 5nm process currently being actively planned, a 300 to 400-person R&D team has been organized for the more advanced 3nm process.

However, TSMC's success, like other successful companies, is the result of the cooperation of many internal and external factors, and it cannot be achieved overnight.

External factors are that, driven by Moore's Law, IC R&D costs are soaring, and plant construction investment costs are rising. Therefore, after the process entered 28 nanometers (around 2010), many IDM factories adopted the fab-lite strategy and began to embrace foundry. On the other hand, it has the support of the very unique industrial environment in Taiwan, especially the ability to provide foundry with comprehensive services and gather talents, which is one of the main reasons why the foundry industry can only dominate in Taiwan.

The internal factors for TSMC's success are undeniably that it has Morris Chang at the helm, who has grasped the right direction at critical moments.

Looking at TSMC's sales, it was US$2.3 billion in 2000, US$8.98 billion in 2009, and US$29.3 billion in 2016.

To sum up, TSMC's key points may be the following three aspects:

1) In the last century, we did not reject IBM's technology transfer in 0.13 micron, copper process and Low-k, but adopted self-development

When the process enters the 0.25 micron stage, the rapid increase in the number of metal wire layers and the reduction in the width of metal wiring lead to an increase in resistance and capacitance in the wiring system, which causes a time delay of resistance/capacitance (RC Time Delay), seriously affecting the operating speed of the entire circuit. There are two ways to solve this problem - one is to use copper with a lower resistivity as the wire material; replacing the previous aluminum, because the resistivity of copper is three times lower than that of aluminum. The second is to use Low-K Dielectric (low dielectric insulation) as the dielectric layer material.

At that time, IBM first released the new 0.13 micron technology of copper process and Low-K material, and approached TSMC and UMC to sell it. After consideration, TSMC decided to reject IBM and develop copper process technology on its own; while UMC chose to purchase technology from IBM and conduct joint development. However, since IBM's technical strengths were limited to the laboratory, the manufacturing yield was too low and could not reach mass production. In 2003, TSMC's 0.13 micron independent process technology made a stunning debut, with customer order turnover of nearly NT$5.5 billion, and UMC's was about NT$1.5 billion.

Nvidia CEO and President Jen-Hsun Huang once said: “0.13 microns transformed TSMC.”

2) Morris Chang's second comeback in 2009

During the financial crisis, TSMC made a major decision to let then-CEO Richard Tsai step down and Morris Chang return for the second time. Morris Chang's return seemed to give TSMC wings, leaving its followers far behind, consolidating its position as the world's leading foundry and strengthening the basic situation of the global semiconductor three-legged race: Intel, Samsung and TSMC.

According to statistics, TSMC's annual investment amounted to 58.5 billion US dollars from 2010 to 2016. The fact that it can make large investments in a market economy shows its strength.

3) Adhere to the OEM model

Global foundry was not favored by the industry from the beginning, especially the US and Japanese semiconductors, which did not recognize the prospects of foundry, so Taiwan has always been a standout in global foundry. There are two main reasons for this. First, the foundry process technology at that time lagged behind the mainstream IDM factories by at least 1-2 generations, so foundry could only be the second source of IDM production capacity at that time; on the other hand, it was believed that giving the design orders to foundries would lead to technical leakage.

Today, including Samsung and Intel, they are all regarded as IDM foundries, that is, they make their own products and help others to do the foundry work. Therefore, Apple and other companies have always been thinking about getting rid of Samsung, fearing that their technology will be leaked. However, TSMC has always adhered to the foundry model, never competing with customers for orders, and there is no suspicion of technology leakage.

TSMC's contribution to the global semiconductor industry

If the ratio between foundry sales and IC products is 2.5x, in 2016, its $29.3 billion x 2.5 = $73.25 billion. Based on the global integrated circuit sales of $275 billion (excluding discrete and optoelectronic devices, etc.), TSMC's contribution to global integrated circuits is 26.6%, indicating that more than 25% of the integrated circuits shipped worldwide are processed by TSMC's foundry.

According to Morris Chang's "Report to Shareholders" at the shareholders' meeting on June 6, 2016, TSMC achieved four major milestones in 2015, including 12-inch wafer shipments of 8.763 million pieces, a year-on-year increase of 6.1%; revenue from advanced processes below 28 nanometers accounted for 48%, better than the 42% in the previous year; TSMC can provide 228 process technologies and produce 8,941 different products for 470 customers; and its market share in the foundry industry has increased for six consecutive years, reaching more than 50%.

Author: Mo Dakang