TSMC gets stronger, GlobalFoundries sells another factory

GlobalFoundries, which has been at the center of controversy recently, announced yesterday that it would sell its 300mm plant in East Fishkill, New York, to ON Semiconductor for $430 million. According to GlobalFoundries CEO Tom Caulfield, "This partnership will enable GlobalFoundries to further optimize its global assets, strengthen our investment in differentiated technologies that drive growth, and ensure long-term development for Fab 10 and its employees."

Earlier, they also sold Singapore Fab 3E to World Advanced. At that time, Tom Caulfield also said: "This transaction is part of GlobalFoundries' global manufacturing blueprint optimization strategy. In the future, we will focus more on the development of differentiated technologies such as RF, embedded memory, and advanced analog in Singapore; at the same time, integrating GlobalFoundries' eight-inch wafer factory in Woodlands, Singapore into a large wafer factory with economies of scale will also help reduce our operating costs." In addition, they adjusted the product line of the Chengdu factory earlier.

From the above, it can be seen that since the new CEO took office, GlobalFoundries has been simplifying and focusing its business. On the one hand, this is related to their own business status and direction. On the other hand, it is also related to the fact that TSMC is the only dominant player in the current semiconductor wafer foundry market.

According to the latest report from TrendForce's TrendForce Research Institute, the global foundry market reached $14.62 billion in the first quarter of 2019, with TSMC, the No. 1 company, leading the market with a market share of 48.1%. The data they provided showed that the combined revenue of Samsung and GlobalFoundries, the No. 2 and No. 3 companies, was only a little more than half of TSMC's, while the revenue of my country's leading foundry company, SMIC, was only 10% of TSMC's.

Fab revenue ranking in Q1 2019 (source: Toppu Industry Research)

TSMC's leadership mainly comes from their layout in advanced processes.

In the Q1 2019 financial report released recently, we can see that TSMC's revenue was US$7.096 billion, and the company's gross profit margin was as high as 41.32%. Among them, the revenue from advanced processes (16 nanometers and below) accounted for 42% of the company's total revenue, which is mainly related to their continued leadership in advanced processes.

Take the recently popular 7nm process as an example. TSMC has already started mass production in May 2018, while its competitor Samsung started much later, which has allowed the former to obtain more customer cooperation contracts. According to TSMC, they have received more than 50 orders for 7nm, and this number will exceed 100 by the end of this year. On the other hand, in addition to Samsung itself, its 7nm process foundry customers are currently mainly IBM, which clearly shows the benefits of leading advanced processes.

We can also see from the figure below that in almost every year, the advanced processes pioneered have brought TSMC good profits.

TSMC's revenue share of different processes (source: China Merchants Securities)

On the other hand, because TSMC's technology is relatively advanced, it means that their "backward" technology will be the most advanced technology of other manufacturers. However, because of this time difference, TSMC has accumulated all the capital and completed equipment depreciation in those years, so they can compete in the market at a lower price, which further enhances TSMC's strength.

In addition to the manufacturing process, their investment in packaging is also the key to TSMC's dominance.

Since announcing its entry into the packaging and testing industry in Q3 2011, TSMC has launched technologies such as COWOS and InFO, which have won them orders from Apple. In the face of high-performance demands such as smartphones and HBM, TSMC has also planned a series of packaging technologies such as WoW to help customers better meet future chip demands. Recently, news came that TSMC has completed the world's first 3D IC packaging and is expected to mass-produce chips in 2021. These all-round layouts have consolidated TSMC's leading position.

In addition to TSMC's own technological leadership, the increasing cost of wafer fab investment is another reason why latecomers find it difficult to catch up with TSMC.

According to previous reports from Semiconductor Industry Observer, it currently costs more than $4 billion to build a 12-inch 32/28nm production line, and the investment in a 12-inch 14nm production line is as high as $10 billion. For more advanced processes, the investment cost is unimaginable, and the depreciation cost is also staggering, which locks out many wafer fabs.

This "vicious cycle" makes TSMC stronger and stronger, and it is becoming increasingly difficult for latecomers to catch up. Although Samsung, which has made a lot of money from storage, has invested heavily in wafer fabs in the past two years, there is still a long way to go. This raises a new question for other wafer fabs - how to develop? Especially for domestic manufacturers who must catch up with advanced processes, this is a good question worth pondering.