TSMC Expects CapEx Boost for Strong 2021 Outlook

Article By : Alan Patterson

TSMC has nearly doubled its capital expenditure budget for 2021 to as much as $28 billion on expectations of strong growth...

Taiwan Semiconductor Manufacturing Co. (TSMC) has nearly doubled its capital expenditure budget for 2021 to as much as $28 billion on expectations of strong growth during the next few years.

In 2021, the world’s biggest chip foundry expects to invest between $25 billion and $28 billion in capex, compared with $17.2 billion last year. Out of this year’s budget, the company will allocate about 80% for its advanced process technologies, including 3nm, 5nm and 7nm. About 10% will go to advanced packaging and mask-making and the remaining 10%, for specialty technologies.

TSMC said the capital investment is aimed at higher growth opportunities underpinned by multi-year megatrends. Starting from 2021, high-performance computing (HPC) will become a new growth driver coming from big customers in a variety of market segments, according to the company. Another factor driving confidence is that 5nm demand is stronger than expected, TSMC said in a conference call with analysts on Thursday this week.

TSMC Chairman
Mark Liu

“High-performance computing will be the major growth driver of our business, TSMC Chairman Mark Liu said. “This field is currently undergoing exciting changes. Everybody is striving to get the best performance with different architectures. Many more players are getting into this field.”

A number of analysts on the conference call asked whether Intel might soon shift more of its orders to TSMC. The Taiwanese foundry declined to comment.

“Current tight foundry conditions, solid expected growth trends — 5G content increases, handset unit growth, Apple’s transition to internally produced silicon, AMD’s share gains, etc. all justify capacity growth and certainly in my mind play into TSMC’s higher capex guide,” Wedbush Securities senior vice president Matt Bryson said in comments to EE Times. “The focus on 3nm development in part with this capex increase fits very well with speculation Intel will shift a portion of its mainstream CPU requirements to TSMC.”

Even so, it’s unlikely that Intel will make such a decision anytime soon, especially just after changing to a new CEO, according to Bryson.

“It makes little sense to me that Intel would make a major transitional decision (locking it into a specific path) right before bringing in a new CEO, particularly when as part of the CEO transition letter, Intel indicated it will provide investors with good news around their 7nm transition schedule. TSMC is in a strong spot over the next few years regardless of Intel’s path.”

Bryson also sounded a cautionary note on TSMC’s bullish expansion plans.

Sharp increases in capital expenditures eventually become catalysts for cyclical downturns, Bryson said. However, given the numerous growth drivers, the industry isn’t close to the cycle turning yet, he added.

The Intel factor

Intel could take a few years before outsourcing a significant part of its CPU production to TSMC, Credit Suisse Vice President Randy Abrams said in a report provided to EE Times.

“We have seen qualification work for desktop and notebook CPUs that could ramp TSMC toward 25-30% of the business being outsourced in a few years. That model would satisfy combined desire to maintain (Intel’s) in-house manufacturing to capture benefits of an IDM model with design-manufacturing cooptimization and also best leverage already recently installed capacity and skilled workforce but also benefit from TSMC’s scale and process leadership for predictable roadmap and some products for density and performance advantage at lower in-house capital intensity.”

Others say Intel will keep CPU production in house and outsource its other products as early as this year. Intel will probably start using foundries for production of non-core CPUs this year and next year, according to Arete Research senior analyst Brett Simpson in emailed comments to EE Times.

“With the CEO change coming mid-February, I think Intel might need a bit more time before they finalize their plans.

“With the recent transistor innovation (gate all around, 3D stacked transistors, as per the link), we think Intel are planning for a big jump in transistor density from 10nm to 7nm. Currently, Intel are achieving around 100m transistors per square mm at 10nm whereas at 5nm TSMC is achieving around 175m transistors per square mm. So Intel needs to see a big improvement in transistor density at 7nm to justify any decision to continue manufacturing.”

New US fab

TSMC’s capex for 2021 includes investment for construction of its new fab in the US state of Arizona.

“We recently acquired a big piece of land in Phoenix — 1,100 acres,” Chairman Liu said. The acquisition is part of a long-term plan to build a production site on the same scale as the TSMC fabs in Taiwan that are the mainstay of the company’s production.

“Currently, our plan is only work on the Phase I production — I’m talking 2024 with 20,000 wafers per month. Going forward we will see, according to market conditions and the cost economics provided by government support,” Liu added.

In the meantime, TSMC also plans to expand its China capacity at a site near the city of Nanjing, after demand recovers from the loss of its US-blacklisted customer Huawei. The Chinese telecommunications giant accounted for about 14 percent of TSMC’s business during the first half of 2020.

“We do expect demand in China will continue and we will gradually, accordingly, increase our capacity in Nanjing,” Liu said.

Growth expectations

TSMC said it expects its compound annual growth rate (CAGR) for revenue to range from 10% to 15% during 2020 to 2025 in US dollar terms.

“We are entering a period of higher growth as the multi-year megatrends of 5G and HPC-related applications are expected to fuel strong demand for our advanced technologies in the next several years,” TSMC CEO C.C. Wei said.

The company that’s a bellwether for the electronics industry said global smartphone shipments will grow 10% year-over-year in 2021. 5G smartphones will account for more than 35% of the overall smartphone market in 2021, compared with 18% in 2020, according to TSMC.

“We expect the silicon content of a 5G smartphone to continue to increase as compared to a 4G smartphone,” Wei said.

Latency improvements in 5G networks will drive more AI applications and more cloud services, according to the company.

“We believe 5G is a multi-year megatrend that will enable a world where digital computation is increasingly ubiquitous, which will fuel the growth of all four of our growth platforms in the next several years,” Wei said. Those platforms are smartphones, HPC, automotive and IoT.

As the industry enters the 5G era, HPC will be the largest contributor to TSMC’s revenue growth, according to Wei. CPUs, networking and AI accelerators will be the main HPC applications, he added.

For 2021, the overall semiconductor market, excluding memory, will grow by about 8%, while the foundry industry will grow by about 10%, according to Wei. TSMC expects to outperform with growth in a mid-teens percentage during 2021 in US dollar terms, he said.

Ramping 3nm

TSMC’s N3, or 3nm node, will provide a 70% logic density gain compared with 5nm, a performance gain of up to 15% and power reduction up to 30%, according to the company. As competitors Samsung and Intel look at alternative processes, TSMC said its N3 technology will continue to use a FinFET transistor structure, owing to the maturity of the technology, as well as performance and cost advantages.

“We are seeing a much higher level of customer engagement for both HPC and smartphone applications at N3 as compared with N5 and N7 at a similar stage,” Wei said. “Risk production is scheduled in 2021 and volume production is targeted in second half of 2022.”

Customers that are early adopters in the new node are in smartphone and HPC-related applications, he added.

Exiting the slow lane

The automotive market has been soft since 2018, but that may soon be changing, according to TSMC.

In 2020, the coronavirus pandemic further impacted the automotive market and car supply chain with customers cutting demand in the third quarter, according to Wei.

“We only began to see sudden recovery in the fourth quarter. However, the automotive supply chain is long and complex, where many of our technology nodes have been tight throughout 2020 due to strong demand from our other customers.

“In the near-term, as demand from the automotive supply chain is rebounding, shortages in supply have become more obvious. In TSMC, this is our top priority, and we are working closely with our automotive customers to resolve capacity-support issues.

Chip shortages have emerged in mature nodes such as 40nm and 55nm.

TSMC is working with customers to move them to more advanced nodes, where the company has better capacity, Wei said.

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