Introduction
On July 18, 2024, during its Q2 earnings call, TSMC Chairman and CEO C.C. Wei announced a transformative initiative, “Foundry 2.0.”
Expanded Definition of Foundry: TSMC is redefining the term ‘foundry’ to include not only wafer fabrication but also crucial backend processes like packaging, testing, and even mask making. This broader scope positions TSMC as a more comprehensive partner for chip design companies.
Focus on Advanced Packaging: While TSMC has always been a leader in chip manufacturing, Foundry 2.0 places a strong emphasis on advanced packaging technologies. Techniques such as 3D chip stacking and heterogeneous integration are crucial for creating high-performance, power-efficient chips.
Vertical Integration: By incorporating packaging and testing into its operations, TSMC is moving towards a more vertically integrated model. This can lead to cost reductions, improved quality control, and faster time-to-market for its customers.
Addressing Antitrust Concerns: The broader definition of foundry is likely a strategic move to address potential antitrust issues. By emphasizing its role in a broader ecosystem, TSMC aims to demonstrate that it’s not a monopoly in traditional wafer fabrication.
Increased Revenue Potential: The expansion into packaging and testing represents a significant growth opportunity for TSMC. These segments are expected to contribute substantially to the company’s revenue in the coming years.
This new concept redefines the scope of the semiconductor foundry industry by incorporating additional sectors such as packaging, testing, and mask making. The move is aimed at addressing the evolving dynamics of the semiconductor market and reflecting TSMC’s expanding role within it.
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What is “Foundry 2.0” by TSMC & Why ?
TSMC’s Foundry 2.0 is a strategic rebranding that expands the traditional definition of a foundry to encompass a broader range of semiconductor manufacturing processes.
What is Foundry 2.0?
Traditionally, a foundry focused primarily on wafer fabrication, taking chip designs from customers and producing the actual silicon wafers. However, TSMC’s Foundry 2.0 encompasses:
- Wafer fabrication: The core business of producing silicon wafers.
- Packaging: Assembling the die into final packages.
- Testing: Ensuring the chip functions correctly.
- Mask making: Creating the blueprints for chip production.
By including these additional processes, TSMC is positioning itself as a more comprehensive partner for chip design companies, offering a one-stop shop for semiconductor manufacturing.
Why is TSMC Changing its Path?
There are several key reasons for TSMC’s shift to Foundry 2.0:
Expanding Addressable Market: By broadening its services, TSMC can tap into new revenue streams and increase its overall market share.
Strengthening Supply Chain: Controlling more of the semiconductor production process can enhance supply chain resilience and reduce reliance on external partners.
Addressing Antitrust Concerns: As TSMC’s dominance in wafer fabrication has grown, there have been increasing concerns about its market power. By expanding its definition of a foundry, TSMC aims to dilute its market share in wafer fabrication and potentially reduce regulatory scrutiny.
Customer Demand: Many chip design companies are seeking more comprehensive partners that can handle a larger portion of the semiconductor manufacturing process. Foundry 2.0 responds to this demand.
In essence, TSMC’s Foundry 2.0 is a strategic move to future-proof its business, expand its offerings, and maintain its leadership position in the semiconductor industry.
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Navigating Antitrust Concerns
The rebranding to ‘Foundry 2.0’ appears to be a strategic move to mitigate antitrust concerns. As the dominant player in the semiconductor foundry market, TSMC commands a substantial 61.2% share, according to TrendForce. By expanding its definition of the foundry industry, TSMC effectively lowers its market share to approximately 28%, which could ease regulatory scrutiny.
Historically, antitrust issues have arisen in similar contexts. For instance, Microsoft’s dominance in the browser market led to regulatory actions in the early 2000s. TSMC’s attempt to redefine its market footprint might be viewed similarly by regulators, who could challenge the company’s self-defined market scope.
Evolution of TSMC’s Capabilities
Since its inception in 1987, TSMC has transformed from a company providing basic wafer production to a comprehensive semiconductor services provider. Initially, TSMC utilized equipment from the Industrial Technology Research Institute (ITRI) and technology from Philips to produce chips for major clients like Intel, Motorola, and Texas Instruments.
Today, TSMC’s capabilities extend far beyond wafer fabrication. The company now excels in producing industry-leading photomasks, employing cutting-edge fabrication nodes, and offering advanced packaging technologies. TSMC can manage the entire chip production process, from wafer processing to final packaging, making it a one-stop-shop for many semiconductor needs.
Addressing the Needs of Emerging Companies
One of TSMC’s significant advantages under the ‘Foundry 2.0’ model is its ability to cater to emerging semiconductor companies. Many smaller firms lack the resources to develop their own photomasks or handle advanced packaging. Instead, they rely on TSMC to provide these critical services, often bringing a design file and receiving a finished chip several months later.
TSMC’s comprehensive service offering includes advanced chip packaging and assistance in finding the right Outsourced Semiconductor Assembly and Test (OSAT) providers for its clients. This end-to-end service model is a significant draw for companies that need high-quality semiconductor solutions but lack the internal infrastructure to handle complex manufacturing processes.
Comparison with Competitors
TSMC is not alone in offering a broad range of services. Intel Foundry Services (IFS) also provides vertically integrated solutions, positioning itself as a competitor in the Foundry 2.0 space. However, other foundries like GlobalFoundries have chosen to focus solely on specific aspects of semiconductor manufacturing, such as selling off their mask-making operations to third parties.
This strategy leaves them with a narrower focus, potentially missing out on critical elements of the chip production workflow. By contrast, TSMC’s integrated approach ensures it can manage all aspects of semiconductor production, maintaining its competitive edge in the industry.
Financial and Operational Impact
Demand for Advanced Nodes C.C. Wei emphasized strong demand for TSMC’s 3nm and 5nm process technologies. The growth in AI and smartphone applications is driving significant interest in these advanced nodes. Wei projects that 2024 will be a robust year for TSMC, supported by continued demand for its cutting-edge technologies.
Revenue Forecast TSMC expects its financial performance for the year to improve significantly, with revenue forecasted to increase by 24-26%. This growth is attributed to the strong performance of advanced process nodes, which constitute a substantial portion of TSMC’s sales.
Revenue Breakdown In Q2 2024, TSMC’s 3nm process contributed 15% to wafer sales revenue, while 5nm and 7nm processes accounted for 35% and 17%, respectively. Advanced processes (7nm and below) collectively represented 67% of total wafer sales revenue for the quarter.
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Significance of Foundry 2.0
Redefining the Foundry Industry Foundry 2.0 signifies a major shift in how semiconductor manufacturing services are categorized and delivered. By including packaging, testing, and other processes, TSMC is setting a new standard for comprehensive foundry solutions.
Adapting to Market Changes The initiative reflects TSMC’s adaptability to market changes and the growing complexity of semiconductor manufacturing. This proactive approach positions TSMC as a leader in offering integrated solutions that meet the needs of modern semiconductor applications.
Enhancing Market Competitiveness With the expanded scope under Foundry 2.0, TSMC is strengthening its competitive edge in the semiconductor industry. The initiative ensures that TSMC remains at the forefront of innovation and technology, supporting its dominance in the global market.
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Implications of Foundry 2.0
Enhanced Chip Performance: Foundry 2.0’s focus on advanced packaging will accelerate the development of more powerful and energy-efficient chips. This is crucial for industries like AI, high-performance computing, and mobile devices.
Strengthened Supply Chain: By expanding its operations, TSMC can create a more resilient supply chain, reducing the impact of potential disruptions.
Increased Competition: While TSMC remains a dominant player, Foundry 2.0 could intensify competition with other chipmakers and packaging companies.
New Business Opportunities: The expanded ecosystem opens up new opportunities for smaller chip design firms and startups, fostering innovation.
Conclusion
TSMC’s introduction of Foundry 2.0 marks a significant evolution in semiconductor manufacturing.
By expanding its scope to include critical stages such as packaging, testing, and mask making, TSMC is addressing the changing dynamics of the industry and reinforcing its position as a leading global foundry provider.
This initiative not only reflects the growing complexity of semiconductor production but also positions TSMC to continue driving innovation and maintaining its competitive edge in the market.
As the semiconductor industry evolves, Foundry 2.0 will play a crucial role in shaping the future of manufacturing and technology.
