SAN FRANCISCO — More than 30 years after it served as the setting for the birth of the semiconductor foundry industry with the founding of Taiwan Semiconductor Manufacturing Co. (TSMC) in 1987, Taiwan shows no sign of relinquishing its stranglehold on the $62 billion global business.

TSMC remains, by far, the world’s largest foundry, with 2017 revenue of $32.2 billion, more than five times that of second-ranked vendor Globalfoundries, according to market research firm IC Insights. TSMC accounted for nearly 52% of the worldwide total for the foundry industry last year.

Taiwan is also home to the world’s third-largest foundry, United Microelectronics Corp. (UMC), and the sixth-largest company in foundry sales, Powerchip Technology Corp. Combined, TSMC, UMC, and Powerchip accounted for 62% of all foundry sales last year.

To say that the foundry business thrives in Taiwan is an understatement. As home to three of the top six foundries worldwide, Taiwan has a network of fabs, supply chain infrastructure, and — most importantly — talent that is unrivaled. Despite concern in some quarters about having so much of the foundry industry concentrated on one earthquake-prone island, and despite challenges posed by players in other regions — notably, China — Taiwan’s dominance is firmly entrenched.

TSMC's Fab 14 300-mm gigafab in Taiwan's Tainan Science Park.
TSMC's Fab 14 300-mm gigafab in Taiwan's Tainan Science Park.
Source: TSMC

 

“The reality is, there are so many fabs in Taiwan between TSMC and UMC and the memory guys [such as Powerchip] and Vanguard [Vanguard International Semiconductor Corp.] that it’s hard to imagine displacing Taiwan from the number-one position,” said Len Jelinek, senior director for semiconductor manufacturing at market watcher IHS Markit.

Len Jelinek
Len Jelinek

“From an advanced foundry point of view, it’s all about building on the previous technologies that you have in place — the technology platforms — and then spending on R&D and having the local talent. From that point of view, Taiwan, because of the nature of not only the talent base but the infrastructure, is going to show leadership.”

In recent years, both U.S.-based Globalfoundries and South Korea’s Samsung Electronics have challenged TSMC’s technology leadership and fought for customer wins among the high-profile chip vendors. But TSMC’s sales continue the foundry sales of Globalfoundries ($6.1 billion last year) and Samsung ($4.6 billion last year). But according to Jelinek, TSMC’s lead and deep pool of talent in leading-edge foundry is practically insurmountable.

“When you are operating at the absolute leading edge, the talent that you have is just paramount in developing the next generation,” said Jelinek.

If there is a knock against the foundry business in Taiwan, it’s that the concentration of so much of the world’s foundry capacity in one place makes some observers nervous — especially when that one place has several active earthquake faults.

Reminders of Taiwan’s seismic activity are, unfortunately, not hard to come by. In February, a 6.4-magnitude earthquake struck near the coastal city of Hualien, killing 17 and injuring at least 280. It happened two years to the day after another 6.4-magnitude earthquake struck southern Taiwan, killing 117 people.

Critics argue that a major earthquake in Taiwan could massively disrupt the global semiconductor business. Of TSMC’s 11 front-end fabs worldwide, eight are located in Taiwan, including all four of its advanced 300-mm “gigafabs” capable of producing more than 100,000 wafers per month. Two of these gigafabs are located in the Hsinchu Science Park near Taipei, with one located in Tainan 130 miles to the south and another located in Central Taiwan.

All of TSMC’s 300-mm fabs are built to withstand an earthquake of at least 7.0 in magnitude, according to Elizabeth Sun, a spokeswoman for TSMC. Sun pointed out that TSMC operates in multiple locations in Taiwan and said the fault lines in Taiwan are generally shorter than 60 miles long, decreasing the likelihood that a single major earthquake could disrupt production in multiple locations.

“All of the new factories that TSMC has built are relatively earthquake-proof,” said Jelinek. “The level of damage they would sustain would be minimal, if any. Granted, you might have some loss from wafers being processed at the time of impact, but massive teardown damage is probably highly unlikely.”

Still, others warn that the concentration of foundry facilities in Taiwan is a potential recipe for disaster, so to speak.

Source: IC Insights
Source: IC Insights

Bill McClean
Bill McClean

“There is still potential for disaster,” said Bill McClean, president of IC Insights. “Major earthquakes still do damage and create supply chain disruptions.”

McClean argues that TSMC and the other foundries have many diverse customers such that any significant disruption would affect so many companies and so many different parts, many of which aren’t made by a second source. “Most system suppliers do not plan for such circumstances,” he said.

Rival foundry vendors are eager to seize on concerns over the foundry concentration in Taiwan, catering to companies who are eager to secure a second source for supply. “In addition to its leading-edge technology IP, and packaging solutions, Samsung Foundry fully supports global fabless and IDM semiconductor companies who prioritize diversity in their supply chains, including geographically diverse manufacturing locations, in order to mitigate risk,” said Robert Stear, senior director for foundry marketing at Samsung.

The semiconductor foundry business has been growing rapidly in China in recent years, and many observers expect that the mainland will play an increasing role in foundry in the years ahead. The Chinese central government is actively investing to boost its domestic semiconductor industry, with plans to spend more than $161 billion over 10 years. China is

graduating scores of engineers and working aggressively to recruit experienced process engineers from TSMC and elsewhere. With dozens of fabless chip firms springing up, it stands to reason that a healthy Chinese foundry market will be served by a number of domestic foundry companies.

TSMC also currently has one fab located in mainland China, a 200-mm facility located in Shanghai. TSMC is also planning a second fab in China, a 300-mm facility in Nanjing, that it plans to open later this year. The Nanjing fab will be capable of production at the 16-nm node.

But the vast majority of foundry work done in China today is in trailing process technology. Even the most advanced and well-established Chinese foundry company, Semiconductor Manufacturing International Corp. (SMIC), operates two generations behind the leading edge. U.S. export restrictions do not allow U.S. equipment companies to sell leading-edge manufacturing tools into China.

Chinese foundries have yet to take a significant bite of global foundry sales. SMIC, founded in 2000, is fifth in the world in foundry sales, with 2017 sales of $3.1 billion. According to IC Insights, only one other Chinese firm ranks in the top eight in foundry sales — Huahong Group, which had revenue of $1.4 billion last year.

Jelinek said that he expects the foundry industry to expand continually in China but that it’s hard to imagine any Chinese company challenging at the leading edge in the foreseeable future.

“It takes massive amounts of money to develop sub-14-nm technology. And the Chinese companies haven’t been able to make that kind of investment.”

More importantly, he said, outside of a couple of Chinese fabless chip companies such as Huawei subsidiary HiSilicon, Chinese chip vendors don’t have much need for

capacity at or near the leading edge of process technology. “The vast majority of the high-volume products are companies like Apple, Qualcomm, Nvidia, and Xilinx. These companies really feel much more comfortable developing and working at the leading edge with TSMC.”

Jelinek added that it’s highly unlikely that any chip vendor working with TSMC, Samsung, or GlobalFoundries would be persuaded to take a chance on a Chinese foundry, even if that Chinese vendor were suddenly offering leading-edge technology. “At the absolute bleeding edge, those companies that are under extreme time-to-market pressure … cannot afford a misstep anywhere. So who is the proven entity? It’s TSMC.”

He added that SMIC and other Chinese foundries might one day make inroads at close to the leading edge first with smaller customers whose volumes don’t justify paying the prices commanded by TSMC and the other proven foundry companies.

“You never say never, but the circumstances would have to align perfectly for someone to go outside of TSMC, GlobalFoundries, or Samsung,” Jelinek said.

In the long run, China’s best chance to wrestle a sizable slide of the foundry industry from Taiwan may occur when the slowdown of Moore’s Law and the use of new materials in the semiconductor industry levels the playing field, making TSMC’s advantage at the leading edge less formidable, according to McClean.

“China can pose a long-term threat to Taiwan’s foundry industry,” he said. “This can be especially true if a new medium, besides silicon, comes into play. Long term, anything can happen.”

— Dylan McGrath is the editor-in-chief of EE Times.