Morris Chang, founder of Taiwan Semiconductor Manufacturing Corporation (TSMC) believes the future of the semiconductor industry, and speficially the manufacturing side of the industry is in the hands of three global giants: Intel, Samsung and TSMC. The Statesman commented on a speech by Morris Chang saying:
As Morris Chang looks to the future of the semiconductor industry, he sees technical and economic challenges that will strain chip makers' bankrolls and their intestinal fortitude.
In a decade or so, he expects to see only three companies still devoting major resources to pushing chip manufacturing technology dramatically forward.
The final three, he says, will be Intel Corp., the long-standing kingpin of the industry, South Korea's Samsung Electronics Co., the biggest maker of memory chips, and Taiwan Semiconductor Manufacturing Co.
The Statesman continues saying:
Chang believes the chip industry can gradually push ahead to the next two or three generations of advanced chip-making technology before really big challenges start to appear.
When that happens, the number of chip makers that will keep spending heavily on research will start to shrink.
The reason only three will remain is the prohibitive cost of the technologies and the plants. One plant costs in the region of US$5 billion. The Statesman wrote:
State-of-the-art chip factories now cost as much as $5 billion to build, and they require enormous production runs to operate efficiently. Fabless smaller companies would rather let TSMC take care of the chip manufacturing while they concentrate their efforts and their money on innovative design and aggressive marketing. And so would increasing numbers of large companies.
It is hard to see anyone else from capturing market share in the future from these three companies. AMD tried to compete with Intel and got hammered into the ground during an extensive price war over the past few years that has left the company teetering on the brink.
Digitimes recently reported that TSMC had "94% of all profits generated by four wafer foundries in Taiwan." According to Digitimes:
TSMC "revenues were up 25% on year to NT$170.8 billion (US$5.39 billion) in the first half, whereas net profits increased 28% on year to NT$56.9 billion during the same period.
United Microelectronics Corporation (UMC) saw its net profits decline 59% on year to NT$2.6 billion due to falling non-operating income, losses incurred from foreign exchange transactions and declining financial asset values, the company said.
That is not to say the fabless design model is without its threats and dangers. One recent analyst suggested companies like Nvidia may have to reavluate their relationship with TSMC as TSMC is unable to guarantee them production runs. EETimes comments:
Nvidia Corp. is not getting the 55-nm capacity it needs from silicon foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC), a problem likely to worsen as the graphics chip maker moves to the 40-nm node, according to Doug Freedman, an analyst at American Technology Research.
In a report published Thursday (Sept. 11), Freedman wrote that the "fabless business model seems to be getting stressed out" and that the Nvidia-TSMC relationship "sounds problematic" and "needs to evolve."
In order to minimize its own risk, TSMC is building less capacity as it ramps new technology nodes, according to Freedman. TSMC doesn't get enough visibility from its smaller customers such as Xilinx Inc., Altera Corp. and Broadcom Corp., Freedman wrote, so the foundry cannot take the risk of building new capacity to support larger customers. Nvidia is TSMC's largest customer, he noted.
TSMC's board of directors last month approved a $795 million capital spending plan that includes a push into 45-/40-nm CMOS processes and MEMS.
Maintaining high capacity utilization and managing the risk of not receiving sufficient orders for maximum utilization rates is a delicate balancing act for TSMC. One which they will have to manage.
Maybe Morris Chang will be proved right, then again maybe not. We will have to wait and see in 2018 who is still around.
The Statesman: A chip prediction: In the end, three will dominate R&D
Digitimes: TSMC tops Taiwan wafer foundries in revenues and profits in 1H08