After the peak of component crunch in the second quarter along with insufficient inventory in the third quarter, stress of stagnant deliverables on the highway seems to have been relieved. A consensus of the supply chain is to let the manufacturers breathe. The fourth quarter is in line with the traditional off-season, and the days should be easier. From foundries to IC design houses, Taiwanese manufacturers are in the limelight now. DIGITIMES Asia has noted in its reports that the foundry sector is now a seller's market with strong demand to last in end of 2022. Such messages are based on dynamic changes in demand-supply status of IT industry from the most upstream of the supply chain. Component shortages and component cannibalization require long-term rolling tracking. DIGITIMES Asia has been making dynamic adjustments to its views in line with rolling forecasts.
According to the ancient Chinese thinker Zhuangzi, persistence on building up competence over time is the only way to earn people's trust. Taiwan, with a small population of less than 24 million, has managed to gain advantages in the semiconductor and electronics supply chains. Taiwanese people call TSMC the "sacred mountain" that protects the country - an analogy to the mountain range running the length of the island. And some argue that China would not attack Taiwan recklessly because of TSMC's importance in the global supply chain. The argument may not stand but it does indicate there have been changes in TSMC's role in the wake of geopolitics in the US-China standoff.
Many years ago, a friend of mine in the industry told me a joke about customer relationships in the foundry sector. He said that UMC took good care of customers and would actively matchmake customers for partnership opportunities. SMIC took pride in being a national icon and gave the best service to its fellow Chinese firms. It was not the case for TSMC though. Its customers came from near and far for its leading-edge technology. If the yield rate for a customer's chips was not up to standard, TSMC was not to blame. There must be something wrong with the customer's design or spec because TSMC never made a mistake.
China imported more semiconductor chips than oil for the first time in 2013. According to BCG, China imported US$350 billion worth of semiconductor chips in 2020, which represented about 60% of the global semiconductor market. The amount was twice as much as China's oil imports. Self-sufficiency therefore has become the most critical part of China's national development strategies. Backed by strong state support, YMTC raised its goal of attaining a 3-4% share of the global market in 2022 to 7%. SMIC also has plans to build four new fabs. However, there have been reports that Chinese corporations including YMTC and SMIC are having difficulty acquiring production equipment from abroad. The US has China's semiconductor sector in a stranglehold amid intensifying conflicts. Uncertainties are lying ahead for China's semiconductor industry.
The reason why I am so optimistic about the competition between TSMC and Samsung is that neither quantum technology nor in-memory computing will dictate the outcome before 2025. Even if Samsung is able to make a breakthrough, it will not enter commercialization and make a significant impact until sometime in the 2030s.
The popularity of Bluetooth LBS (location based service) apps is rising as the related applications can be used for direction-tracking or as electronic fences to trace and analyze the footprints of confirmed COVIC-19 cases, helping curb the spread of the coronavirus, Digitimes Research has found.
The development of on-device AI chips for smart speaker applications is gaining momentum as brand vendors are incorporating those chips into their speaker products to improve related real-time voice services and sound quality and enhance the protection of user privacy by reducing the reliance on cloud applications, Digitimes Research has found.
I tried to work out some scenarios where TSMC could be defeated, the first being throwing in it into a state of panic. The semiconductor fabrication industry is highly connected with the surrounding infrastructure. A foundry service provider needs first-rate engineers and production environment. When I visited TSMC founder Morris Chang 13 or 14 years ago, he told me there was no land north of Hsinchu to build a 12-inch wafer fab. Aside from locations in central and southern Taiwan and properties owned by state-operated companies, the Taiwan government finally managed to find a piece of land near Baoshan in Hsinchu for TSMC to establish a next-generation production base. The goal was to enable TSMC to still tap the mature talent and stable water and electricity supply in Hsinchu. It is known that TSMC is given supply priority when there is water or power shortage in Hsinchu.
TSMC's capital expenditure exceeded US$10 billion for the first time in 2016. If TSMC further increases its capex and it drives investments into peripheral businesses and attracts funds from foreign corporations, the contribution these investments will make to Taiwan's GDP growth is worth investigating.
Intel claims that TSMC's 7nm process is the equivalent of Intel's 10nm process. This may be true in terms of tech specs but Intel hasn't really outraced still TSMC. Samsung, on several occasions, announced they led TSMC in launching more advanced process technologies, but it failed to secure key customers. For the foundry sector, announcing more advanced process nodes ahead of competitors doesn't necessarily mean success. Production yield rates, partnerships with suppliers and co-development with customers nmnplay more important roles.
For the past few years, TSMC has consistently allocated around 8% of its revenue toward R&D. At the first glance, 8% may not seem like a large sum. However, TSMC generates a foundry service revenue that is three to four times what Samsung makes and six to eight times what UMC makes. Even if Samsung and UMC invested the same percentage of their revenue into R&D, there'd still be a big difference between their R&D expenditure and TSMC's. On top of that, TSMC is already way ahead in process technology. It will be difficult for those lagging behind to overtake TSMC even if they do it at all costs. Besides, TSMC vows not to meddle with customers' business and uphold the principle of neutrality above all else - a principle that is the key to its success.
Since its founding in 1987, TSMC has undergone three phases of development. The first phase saw it stress its position as a pure-play foundry. Like most other companies in Taiwan, it was seeking to gain a foothold in the semiconductor manufacturing sector. Its focus was on making chips and its message to customers was that they could completely trust TSMC. By not meddling with customers' business and upholding the core value of neutrality, TSMC concentrated on creating values for customers. During this phase, TSMC was a small potato who wished it might rival Intel someday.
As a top player in the car supply chain, Huawei has established partnerships with many Chinese carmakers. However, one of the biggest carmakers in China, SAIC Motor, has said it has no intention to work with Huawei on building "soulless" automobiles.
Mainstream media including Wall Street Journal and the CEO of TSMC's rival GlobalFoundries have all pointed out that having TSMC manufacture a majority of semiconductor chips is the biggest risk to the global supply chain. The claim has merit. TSMC dominates around 55% of the foundry market and generates more than 80% of the foundry industry's revenue. A TSMC production halt will seriously disrupt the global handset, server and even automotive sectors. It doesn't matter what competitors say but it matters how one builds up strength that others cannot question and challenge. Former Intel CEO Andy Grove once said, "The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing."
US cable operators Comcast, Charter, AT&T and Verizon have seen huge growth in users as remote learning and working are still dominant. Meanwhile, small and medium DSL Internet providers who do not offer high-speed Internet connectivity are struggling, seeking bankruptcy protecion or suffering huge declines in revenue. These DSL providers are now being subsidized by the US government to upgrade to fiber network. This year, the US telecom market will continue to robust growth, as the US government plans to funnel US$3 billion out of the Biden administration's US$1.9 trillion COVID relief bill into paying for low- and middle-income families' Internet bills.