The subsidy amount agreed in the US "CHIPS Act" is being implemented one after another, aiming at advanced processes of 5nm and below. TSMC and Samsung have taken a step further to build factories in the United States. In the short term, it seems understandable that Samsung TSMC will build a factory in the United States with subsidies; However, at a time when the global semiconductor supply chain is increasingly emphasizing the integrity of the local industry, building a factory in the United States will undoubtedly weaken the local competitiveness in the semiconductor supply chain and make a wedding dress for others.
The right to speak will be weakened
From the perspective of the regional distribution of the world's existing IC wafer production capacity, the top two are Taiwan and South Korea, which together contribute nearly half of the global production capacity. Among them, the production capacity in South Korea is provided by Samsung and SK hynix; The production capacity in Taiwan is distributed among many manufacturers such as TSMC, PSMC, and VIS
However, if you look at the process refinement, you will find that the world's advanced processes of 5nm and below are provided by TSMC, Samsung, and Intel. In the global semiconductor manufacturing competition, more advanced chip manufacturing processes represent the development direction of future chip production capacity. According to the law of economy, the more advanced the process, the higher the added value of the product, the higher the profit margin, and the mature process will gradually reduce the profit margin with the gradual improvement of the production efficiency of the process. As a result, in the competition of global chip manufacturing, mastering more advanced manufacturing processes represents a more dominant region.
Global Wafer Manufacturing Capacity in 2022 vs. 2032 (Forecast).
Source: Semiconductor Industry Association
According to the statistics of the Semiconductor Industry Association (SIA), the current global advanced processes of 10nm and below are mainly distributed in Taiwan and South Korea, of which the former accounts for 69% of the share, and the latter accounts for 31%. However, according to the planning layout of the U.S. "CHIPS Act", the U.S. will rapidly improve its ability to manufacture advanced logic manufacturing capacity below 10nm, and its global share will increase from 0% in 2022 to 28% in 2032. Taiwan's production capacity will be reduced from 69% in 2022 to 47% in 2032.
According to SIA's forecast, cutting-edge wafer manufacturing capacity will expand from Taiwan and South Korea to the United States, Europe and Japan by 2032. He also said that between 2022 and 2032, the wafer fab capacity in the United States will increase by 203%, becoming the largest increase in the world. If this plan is realized, the U.S. will reverse a decades-long decline and increase its share of total global fab capacity from 10% today to 14% by 2032. And if we follow the laws of the market and do not take action, the share of the United States will fall to 8% by 2032.
Supporting competitiveness will be weakened
Chip manufacturing is a system engineering with extremely high requirements for upstream supply chain management. For chip manufacturing enterprises, their production and supply roughly need wafers, CMP polishing materials, photomasks, photoresists, wet electronic chemicals, electronic gases, sputtering targets and other seven categories of materials, if the enterprise is involved in packaging business, it also needs many wafer packaging materials. The above list is the consumables required in the chip manufacturing process, and if you include the asset-based supply products such as manufacturing equipment, you need to make a long list. If TSMC and Samsung set up new production capacity in the United States instead of near the company's existing factories, it will inevitably appear that two major chip manufacturers will abandon their original partners and seek local supply in the United States, which will affect the position of South Korea and Taiwan in the global chip manufacturing supply chain system.
TSMC announced the supply of its main raw materials in its 2023 annual financial report, including five categories of silicon wafers, chemical raw materials for the process, yellow light process materials, gases, slurry/grinding pads/diamond saucers, and a total of 33 companies. From the address distribution of the companies listed by TSMC, it can be seen that the vast majority of enterprises have factories in Taiwan, China, TSMC's main manufacturing base, and the manufacturing plants of many suppliers are located in areas close to TSMC.
TSMC gas supply enterprise layout
Data source: TSMC's 2023 annual report, compiled by a reporter from China Electronics News
There are two types of companies in TSMC's supply chain, one is a local enterprise in Taiwan, China, TSMC is its major customer, in the supply chain list announced by TSMC, there are about 8 family members in this list, including silicon wafer supplier Formosa Plastics Sheng Hi-Tech, high-purity process chemicals supplier BASF (BASF), Shengyi Chemical, Kanto Xinlin Technology, industrial gas supplier Lianhua Linde, etc.; The other type is multinational companies with a global layout, but there are processing plants in Taiwan or nearby areas, with about 8 family members in this list, including silicon wafer suppliers Global Wafers, SK siltron, and SUMCO, process chemical raw material suppliers Air Liquide, DuPont, Entegris, and gas supplier Central Glass.
If TSMC sets up a factory in the United States, it is very likely that the supply of raw materials required by the American factory will be partially shifted to local support. In particular, TSMC's suppliers already have U.S. factories, such as Universal Wafers, Air Liquide, Entegris, Air Products, and so on. In this way, the supply chain capacity that may have landed in Taiwan, China, due to the layout of TSMC's new production line, will be transferred to the United States. Companies that do not have a manufacturing base in the U.S. may also follow in the footsteps of major customers to build factories in the U.S.
The peripheral radiation effect brought by Samsung's construction of a factory in the United States may be more obvious. According to the reporter's statistics, there are about 37 supply chain companies in Samsung's foundry business, in addition to equipment and materials, only 3 companies are located in the United States, and most of its supply chain companies are local companies in South Korea, including chemical products such as photoresists, semiconductor special gases, etc. Setting up a factory in the United States will mean that Samsung may have to abandon its local partners in South Korea in order to equip local facilities in the United States.
Is it a good business?
The United States has taken a fancy to TSMC and Samsung's advanced process manufacturing capabilities. But is this really a good deal for TSMC and Samsung?
Low cost is the core goal of building factories in different places. If an enterprise wants to set up a factory outside the original layout, it must have at least one of the following three conditions: superior geographical location in order to reduce transportation costs; abundant resources in order to reduce the cost of manpower and raw materials; Approach the target market in order to reap the benefits of good profits.
From the perspective of reducing transportation costs, in addition to some semiconductor equipment provided by Applied Materials, Lam Research and Kelei, the transportation required for chip manufacturing will be greatly increased due to the construction of factories in the United States. For chip manufacturing enterprises, because the final product, the chip, is small in size and low in weight, it occupies a relatively low transportation budget of the enterprise. The transportation costs of such enterprises are largely due to consumables such as industrial gases and chemicals. At present, most of the process consumables required for Samsung and TSMC production are provided by local companies in South Korea and Taiwan, China, or global enterprises are equipped with material processing points near Samsung and TSMC manufacturing plants or their regions. Most of the companies that do not provide local support for the two manufacturers are also located in Japan, including AGC, which provides CPM grinding pulp, Fujibo, which provides polishing pads, Fujimi, which provides polishing slurries for CMP, and Nippon Metal, which provides semiconductor metal materials. Compared to Texas and Arizona in the United States, which cross the Pacific Ocean, Japan is geographically close to Taiwan and South Korea, and the cost of transportation is lower.
In terms of labor costs, after decades of industrial relocation in the United States, the United States has largely lost its manufacturing genes. The higher labor costs for re-developing manufacturing, especially in industries like chip manufacturing, which are highly sophisticated and require a highly disciplined production team, are reflected not only in higher wages, but also in the training and adaptation costs of American workers. TSMC founder Chang Zhongmou once described the difference in manufacturing style between Taiwan and the United States: "If [a machine] breaks down at one o'clock in the morning, in the United States, it can be fixed the next morning." But on Treasure Island, it can be repaired at two o'clock in the morning. TSMC's efficient operation and management system and strict production process control may not be able to adapt to the United States.
And then from the point of view of the target market.
In 2023, TSMC's top 7 customers contributed nearly 70% of the market share. Among them, Apple's revenue contributed about 25%; Nvidia accounted for 11%, AMD and Qualcomm each accounted for 7%, MediaTek and Broadcom each accounted for 5%, and Intel contributed 4%. In terms of the location of customers, U.S. companies do account for a very large proportion of them.
However, judging from the supply chain layout of the above-mentioned customers and the flow of products in the supply chain system, the United States is not the best choice.
The assembly business of Apple products is mainly provided by Foxconn, and there are also "fruit chain" companies such as Pegatron and Luxshare Precision, whose factories are mainly located in China. NVIDIA and AMD's chip packaging links are largely deployed in Taiwan, China and South Korea. This means that the chips produced from TSMC's chip factories are not actually directly flowing to its target customers in the United States, but entering the next process of the industrial chain, and these processes are still largely distributed in East Asia.
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Author丨Ji XiaotingEditor丨Zhang Xinyimei Editor丨Maria Producer丨Lian Xiaodong