EU Chips act
The semiconductor industry, a cornerstone of modern technology, is witnessing a contentious debate unfold in Europe.
Taiwan Semiconductor Manufacturing Company (TSMC), a global leader in chip manufacturing, is set to receive substantial subsidies from the German government for establishing a factory in Germany as per EU chips act.
While this move is hailed as a significant step toward boosting European semiconductor production, it has raised concerns and sparked dissatisfaction among competitors, notably GlobalFoundries (GF).
The latter’s objections, based on the perceived unfairness and potential market dominance of TSMC, have prompted discussions about competition, subsidies, and the future of the industry.
The TSMC-GF Dispute
TSMC’s decision to set up a factory in Germany, bolstered by the promised 5 billion euros in subsidies from the German government, has brought its market dominance and potential repercussions into the spotlight.
GF, a significant player in the industry, is expressing strong reservations about the level of support TSMC is receiving, claiming that it tilts the competitive landscape disproportionately in EU.
Saam Azar, the legal chief of GF, emphasized in an interview that TSMC’s size and the extent of subsidies grant it a considerable advantage.
TSMC’s entry into the European market, positioning itself to produce chips near GF’s major clients, is seen as a direct competition move that could threaten GF’s market share.
This has ignited a debate on whether such subsidies can be considered fair and appropriate in maintaining a level playing field.
Earlier INTEL CEO had asserted that Intel should receive a larger portion of the US CHIPS Act funding due to the company’s significant domestic research and development (R&D) efforts.
Unlike competitors such as TSMC and Samsung, Gelsinger highlighted that Intel conducts the majority of its essential R&D within the US.
He had argued that this distinction warrants a greater share of the funding, as it aligns more closely with the original intent of the CHIPS Act – fostering domestic semiconductor innovation and capability.
Also Read: Intel CEO Wants Bigger Piece of $52B CHIPS Act Pie than foreign companies
Rivalry between TSMC & GF
TSMC and GlobalFoundries (GF) are the two leading contract chipmakers in the world. TSMC is the market leader, with a 54% share of the global foundry market in 2022. GF is the second-largest foundry, with a 10% share.
The rivalry between TSMC and GF is intense, and it is likely to continue in the years to come. TSMC has a number of advantages over GF, including its leading-edge technology, its large customer base, and its financial strength. However, GF is making investments to catch up to TSMC, and it is possible that the two companies will eventually become more evenly matched.
Here are some of the key areas where TSMC and GF compete:
Technology: TSMC is the leader in semiconductor manufacturing technology. It offers a wider range of process nodes than GF, and it is also the first to introduce new nodes.
This gives TSMC a significant advantage in terms of attracting new customers and retaining existing ones.
Customer base: TSMC has a much larger customer base than GF. This is because TSMC is the preferred foundry for many of the world’s leading semiconductor companies, including Apple, Qualcomm, and Nvidia.
GF’s customer base is more limited, and it is focused on a smaller number of industries, such as automotive and industrial.
Financial strength: TSMC is much more financially stronger than GF. This is because TSMC has been profitable for many years, while GF has been struggling financially.
TSMC’s financial strength gives it the resources to invest in new technologies and to expand its production capacity.
Despite TSMC’s advantages, GF is making investments to catch up. GF is building a new fab in New York, and it is also investing in new technologies.
It is possible that GF will eventually become more evenly matched with TSMC, but this is likely to take several years.
The rivalry between TSMC and GF is important for the global semiconductor industry. The two companies are competing to provide the best possible technology to their customers.
This competition is driving innovation and helping to keep the semiconductor industry competitive.
Subsidies as a Catalyst for Market Dominance
GF’s Chief Executive Officer, Tom Caulfield, and others within the company have raised concerns about TSMC’s potential dominance over the semiconductor market, fueled by these substantial subsidies.
The analogy of “feeding the biggest tiger with steroids” portrays how such financial support could disproportionately empower TSMC and enable it to further tighten its grip on the industry.
The fear is that this could lead to an unbalanced market with limited competition and over-reliance on a single supplier, ultimately hampering innovation and growth.
GF’s Quest for Equity and Competition
GF’s objections and threats of filing a complaint with the European Union (EU) stem from their desire for equity and a competitive market.
The company argues that if TSMC is receiving nearly 50 percent in subsidies for its factory setup, similar support should be extended to its competitors.
This demand for a level playing field reflects the need to ensure that subsidies do not inadvertently create a skewed competitive landscape that stifles innovation and diversity.
Navigating the Future
The situation prompts questions about how governments, regulatory bodies, and industry players can strike a balance between incentivizing semiconductor production and avoiding market concentration.
Subsidies can undoubtedly play a crucial role in boosting local manufacturing and technological advancement.
However, careful consideration is required to ensure that these subsidies do not inadvertently undermine competition and lead to unintended market dominance.
Conclusion
The TSMC-GF dispute over subsidies and potential market dominance is emblematic of broader challenges faced by the semiconductor industry and governments worldwide.
Striking a balance between supporting technological progress and maintaining a competitive landscape is a delicate task.
The outcome of this debate will not only shape the European semiconductor market but also set precedents for how countries approach subsidies and competition in critical industries.
As the world becomes increasingly reliant on technology, finding equitable and sustainable solutions is essential for fostering innovation, growth, and healthy competition.
