Recently, TSMC's relocation ceremony at its new factory in Arizona, the United States, has become the focus of the industry. On the same day, TSMC announced that it would increase its investment in Arizona from the initial commitment of US$12 billion to US$40 billion. At the same time, it plans to build the second phase of the project at the Arizona plant, and is expected to produce 3nm process chips in 2026. This was called "one of the largest foreign direct investments in U.S. history, which will meet all the needs of advanced chips in the United States."   In addition, some time ago, TSMC packed its production capacity and engineers and chartered a plane to the United States. For a time, remarks such as "the United States emptied TSMC", "TSMC became 'TSMC in the United States'", and "Taiwanese talents are being emptied" caused heated discussions. Taiwanese media believe that TSMC's move has sent a very dangerous signal to the outside world, that is, a large number of semiconductor talents will leave Taiwan, China, which will also lead to the local area facing the dilemma of an abnormal lack of technology and talents. After TSMC, Taiwanese semiconductor manufacturers including GlobalWafers will also build factories in the United States, which has once again caused concerns about the transfer of Taiwan's semiconductor supply chain and the outflow of Taiwanese talents and technology. It can be seen that Taiwan's semiconductor industry is in the vortex of game. On the other hand, after more than 30 years of development, the semiconductor industry has formed a relatively complete and stable global supply chain. The United States has the most advanced design, Europe's automotive chip industry ranks first in the world, Asia is at the forefront of wafer manufacturing, and Southeast Asia focuses on packaging and testing. In this global semiconductor supply chain, all countries and regions are interdependent. However, in recent years, a series of factors such as geopolitics and tight production capacity have profoundly affected the global semiconductor industry. Various countries and regions have gradually realized the importance of building a local supply chain. Europe, the United States, Japan, South Korea, India, Canada, Italy and other countries and regions have successively introduced bills to support the development of the semiconductor industry, aiming to strengthen local semiconductor strength. At the same time, some chip design manufacturers also hope to diversify the sources of chip manufacturing supply to avoid supply chain risks. Apple CEO Cook publicly stated that "60% of the world's processor supply comes from Taiwan, China. No matter how you feel or think, 60% from anywhere may not be a good strategy." To this end, Apple plans to produce some of its chips in the United States, and will subsequently purchase chips from European wafer manufacturers.In addition, MediaTek has reached a cooperation with Intel and plans to outsource some of its chips to Intel; Qualcomm also announced this year that it would extend its long-term agreement with GlobalFoundries and agreed to purchase an additional $4.2 billion worth of semiconductor chips from GlobalFoundries' New York factory. Behind a series of dynamics, it seems to be a symphony of "de-Taiwanization" of semiconductors and an "elegy" for the globalization of the chip supply chain. Semiconductor "de-Taiwanization" vortex However, although the multiple hidden dangers behind TSMC's factory in the United States are worthy of vigilance, Taiwan, China, as a major center of the semiconductor industry, is also attracting industry manufacturers to increase investment. After the United States and Europe, the "Taiwanese version of the chip bill" was introduced In June this year, Taiwan is setting off an unprecedented semiconductor investment boom. According to Nikkei's survey on the investment status of various semiconductor companies in Taiwan, at least for now, Taiwan has 20 factories that are under construction or have just started construction. The factory sites also range from New Taipei and Hsinchu in the north to Tainan and Kaohsiung in the southernmost part, with an investment of 16 trillion yen. Data from market research institutions show that Taiwan accounts for about 2/3 of the global wafer foundry market in 2021. In particular, more than 90% of advanced semiconductor processes are produced in Taiwan. In the future, if all these 20 new factories start mass production, the world's dependence on Taiwan's semiconductors will undoubtedly increase further. As a major center of China's semiconductor industry, Taiwan is naturally not absent from the semiconductor industry revitalization policy. In June this year, the Taiwan Economic Department announced the draft amendments to Articles 10-2 and 72 of the "Industrial Innovation Regulations", which will apply new tax incentives to companies with technological innovation and a key position in the international supply chain, and investment in forward-looking innovative research and development and advanced process equipment. According to the latest news on November 17, the Taiwan Administrative Department has officially passed the draft.The Taiwan Economic Department said that after decades of development, Taiwan's industry has built an innovative, resilient and efficient industrial chain that can quickly adapt to market changes and become the backing of the international economic and trade chain. In recent years, major global events have disrupted the operation of the supply chain. In order to achieve the autonomy of key industries, countries have launched huge subsidies and expanded tax incentives for their key industries. It is reported that this amendment is aimed at companies with technological innovation and a key position in the international supply chain, providing 25% of forward-looking innovation R&D expenses to offset the payable corporate income tax of the current year, and 5% of the expenses for purchasing new machines or equipment for advanced processes can be offset against the payable corporate income tax of the current year, and there is no upper limit on the amount of the machine or equipment expenditure, and the total amount of the two deductions shall not exceed 50% of the payable corporate income tax of the current year. The Taiwan Economic Department said that it will actively communicate and coordinate with relevant departments in the future to strive to complete the amendment procedures as soon as possible so that it can be implemented as scheduled on January 1, 2023 and end on December 31, 2029. It is worth mentioning that the tax incentives are not limited to industry categories. Anyone who meets the requirements of R&D expenses, R&D density reaching a certain scale and effective tax rate reaching a certain ratio can apply. The draft does not limit whether it is a local manufacturer in Taiwan, China. As long as it has a R&D center or subsidiary in Taiwan, China and conducts related R&D, it can be applied. Since the core content of the draft is basically about expanding tax reduction measures for the semiconductor industry, and there is a great chance that leading semiconductor companies such as TSMC will be applicable in the future, this revised draft is also called the "Taiwan Chip Act". Regarding this revised draft, some industry insiders believe that there are several main reasons behind Taiwan's promotion of this regulation at this time: It has become a consensus to attach importance to forward-looking technology The anxiety caused by the loss of a group of TSMC talents and technologies Currently, Taiwan lacks advantages in advanced semiconductor equipment (such as etching) The United States, Europe, Japan, South Korea, and mainland China all have corresponding semiconductor industry support policies, and companies in Taiwan have been calling on local governments to introduce some semiconductor industry policiesIndustry insiders have also pointed out that offsetting 25% of a company's forward-looking R&D expenses against corporate income tax is a significant measure; the 5% offset for advanced process equipment expenses against corporate income tax is not very strong. From this, it can be seen that the purpose of introducing this clause is more to encourage semiconductor companies in the Taiwan region to invest in R&D. Especially when the entire industry is in a downturn, companies need to accumulate energy to prepare for the rise of the industry. Therefore, the introduction of such support policies in Taiwan at present is more conducive to enhancing the enthusiasm for corporate R&D.

Overall, looking at the current global semiconductor industry's international competitive landscape, providing better incentives for semiconductor companies in Taiwan that are willing to increase R&D investment has the potential to increase the industry's international competitiveness, further enhance the overall industrial value of Taiwan's semiconductor industry, and help the development of Taiwan's semiconductor industry.

Advertisement

ASML: Establishing a Close Cooperation System with Taiwan

Not long ago, according to Taiwan media reports, ASML decided to increase its investment in Taiwan, investing 30 billion New Taiwan dollars in a new factory in New Taipei City, with about 2,000 employees stationed.

It is understood that to ensure the security of the supply chain in the cutting-edge field of semiconductors, ASML will establish a close cooperation system with customers by setting up technical bases in regions such as South Korea and Taiwan.

In this regard, ASML CEO said that Taiwan is now in a leading position in the world's semiconductor industry and is an indispensable leading role in the global advanced process, as well as the largest EUV region in the world.

ASML currently has a total of 5 factory locations in Taiwan, equipped with training centers for its main sales equipment, deep ultraviolet and extreme ultraviolet lithography machines, and also has a production base for lithography machine equipment, with more than 4,500 employees, and is still continuously expanding the team, including logistics and supply chain aspects.

Micron Strengthens Investment in Taiwan

Manish Bhatia, Executive Vice President of Global Operations at Micron, said that the ecosystem of Taiwan's semiconductors is the result of more than 25 years of accumulation. With the joint efforts of the industry and the government, Taiwan will be able to continue to maintain its core position in the global semiconductor industry in the next 15-20 years and will not be easily replaced.

Micron recently announced an increase in investment in Taiwan. It is understood that not only will Micron's most advanced processes start to be implemented in Taiwan next year, but it also promises to increase investment in Taiwan, with an additional investment of up to 80 billion yuan next year. Deputy Premier Shen Rongjin recently mentioned that in order to compete for customers, Micron Technology has increased its investment in Taiwan by utilizing the complete and efficient industrial cluster in Taiwan.It is reported that Micron's most advanced 1β process DRAM chips will first be mass-produced in Hiroshima, Japan, and will be introduced to Taiwan's factory area for production in early next year. Micron is the largest foreign investor in Taiwan, with up to 10,000 employees in Taiwan, which is the region with the most Micron employees. It is expected that in the next two to three years, another 2,000 engineers will be added in Taiwan, continuing to increase investment in Taiwan.

In fact, Micron's layout in Taiwan has a long history. After establishing the Taiwan office in 1994, it successively made large-scale acquisitions of Taiwan factories after 2008, investing more than 200 billion Taiwan dollars to build a production base. The existing Taiwan production capacity is abundant, including three wafer manufacturing plants in Taichung, A1/A2 (formerly Ruijing Electronics Factory), A3 (newly built), Taoyuan wafer manufacturing plant A/B factory (formerly Huaxia Technology Factory), and Taichung back-end factory (formerly Dacheng Advanced Factory), with a total of 10,000 employees, making it the largest foreign employer in Taiwan.

In the middle of this year, Micron's new wafer manufacturing plant A3 in Taichung entered mass production, focusing on producing 1α process DRAM, and plans to mass-produce the next generation 1β process in 2023, and the R&D team in Taiwan will conduct 1γ advanced research in 2022 to prepare for early mass production.

To coordinate with Micron's medium and long-term development plan in Taiwan, Micron revealed three projects to strengthen investment:

(1) Increase of 2,000 employees

Micron Taiwan currently has 10,000 employees, not only is it the largest foreign company in China Taiwan, but it also accounts for a quarter of Micron's global employees. Seeing the continuous expansion of production capacity, 2,000 more employees will be added in the next 2 to 3 years, and more news has been released, such as the annual salary for new employees in the workplace being higher than one million yuan, and a 15% employee stock purchase discount (U.S. stocks), strongly attacking the Taiwan talent market.

(2) Advanced equipment entry

In the second half of 2022, the EUV extreme ultraviolet light machine 3 will enter the A3 factory, which will be the first time that Micron's DRAM process has been promoted to the extreme ultraviolet light process. At present, the global DRAM manufacturing is mainly dominated by three giants, Samsung, SK Hynix, and Micron, which have supplied 94% of the market.

In 2020, Samsung took the lead in using EUV machines to produce DRAM, and SK Hynix followed suit, forcing Micron, which originally did not think it was necessary to use EUV to promote the process, to join the EUV process race.

Overall, the A3 factory is very suitable for Micron as a base for developing EUV processes, because EUV manufacturers ASML continue to recruit in Taiwan, and the rich support capabilities, as well as TSMC's abundant experience in using EUV, the knowledge on the application level has the opportunity to be shared.(3) Focus on surrounding land, prepare for expansion

In response to the land purchase and expansion plan, Micron Taiwan's head, Lu Donghui, stated that there has always been a plan to optimize the existing space and pay attention to the surrounding land to prepare for the future. At the end of last year, the power battery core manufacturer Changhong Energy announced the sale of a 6,300 square meter factory land in the Zhongke Houli Park to Micron, with a transaction amount of 1.285 billion yuan. It is estimated by the outside world that this is the construction base for Micron's A5 factory.

As for the recent warning issued by research institutions that the price of memory is about to fall, Lu Donghui also responded frankly that since entering the semiconductor industry 22 years ago, the industry has never been prosperous all the way. This wave has been the sixth cycle he has experienced, so even if the industry enters a correction period, it is not unexpected. However, in the long run, whether it is automotive, industrial, or data centers, development is still expected, and it is a market that can grow rapidly.

Nanya Technology & MediaTek

In addition, in June this year, the DRAM giant Nanya Technology invested 30 billion yuan to build a new 12-inch factory in the Nanlin Science Park in Taishan, New Taipei City. According to Nanya Technology's plan, the factory aims to start mass production in 2025, using 10nm process technology to produce DRAM, with a monthly production capacity of about 45,000 pieces, representing the official move of the Formosa Group towards DRAM technology autonomy.

MediaTek CEO Cai Lihang recently told foreign media about the "gradual globalization" trend of Taiwan's semiconductor industry. Under pressure from various aspects such as the economic affairs department of the Democratic Progressive Party authority, he quickly changed his words to "fully invest in Taiwan."

TSMC "Guards" its Main Base

In addition, TSMC is also actively taking action in Taiwan.

Some people point out that TSMC's transportation of engineers to the United States does not necessarily mean the outflow of key technologies. From an economic logic perspective, TSMC's establishment of a factory in the United States is both to get closer to customers and a normal need for overseas layout.

Regarding the "de-Taiwanization" questioned by the outside world, Wang Meihua, the Minister of Economic Affairs of Taiwan, China, recently made three major statements:Firstly, TSMC's 5nm factory in the United States is not expected to start production until 2024, and it is uncertain when it will move on to the next stage. Secondly, the semiconductor industry is a race against time. TSMC's 3nm process has already begun trial production in Tainan, Taiwan, and the construction of the 2nm factory has also started in Hsinchu. In terms of continuing to break through the 1nm process, TSMC has announced an expansion in the Longtan Science Park in Taoyuan, estimating that TSMC's 1nm wafer factory will bring tens of thousands of high-paying engineer job opportunities to Longtan, which also means that TSMC's most advanced process technology will still remain in Taiwan.

Thirdly, in terms of production capacity, Taiwan's semiconductor manufacturers have a combined capacity of about 2 million wafers per month, while TSMC's 5nm in the United States is estimated to have a monthly production capacity of 20,000 wafers, with the vast majority of production capacity still in Taiwan.

Why continue to build advanced process wafer factories in the United States?

Looking at the semiconductor market landscape, 90% of the world's most advanced semiconductor production capacity is currently concentrated in Taiwan, China. This concentration has caused concerns among countries: on the one hand, the "chip shortage" crisis that has lasted for two years has made the global division of labor in semiconductors fragile; on the other hand, the unstable global trade relations have once again magnified the risks of this situation in the game of technology.

In this context, delving into the reasons for TSMC's factory establishment in the United States, "Forbes" magazine interprets that under the friction between China and the United States, TSMC has a lot of "being forced" to establish a factory. However, international changes are too fast, and in the past two years, the epidemic has fluctuated, the war between Russia and Ukraine, and the changes in chip supply and demand have all occurred. Now it seems that TSMC's overseas factory establishment can also be said to be a way to diversify production bases and risks.

If TSMC does not build a factory in the United States, in the future, Intel and Samsung will increase their layout in the United States, and they can easily take away the orders of TSMC's American customers.

This also explains why TSMC, as well as Samsung and Intel, continue to build advanced process wafer factories in the United States.

Although Zhang Zhongmou has repeatedly mentioned that "the cost of manufacturing chips in the United States is 50% more expensive than in Taiwan, China," under the trend, there is no choice but to do so. At the equipment introduction ceremony of TSMC's factory in the United States, Zhang Zhongmou changed his words and said that he has always hoped to build a factory in the United States, and this time he has been prepared.

At the same time as changing his words, Zhang Zhongmou also emphasized: "Globalization is almost dead, and free trade has almost disappeared." It can be understood that Zhang Zhongmou knows that globalization is dead, and in the future, TSMC will find it difficult to obtain substantial order returns in a free trade market environment. Therefore, in order to ensure revenue and long-term planning, TSMC ultimately chose to build a factory in the United States.Of course, building a factory in the United States can indeed better serve TSMC's major customers. According to Digitimes statistics, the United States is TSMC's largest sales market in 2021, with a year-on-year growth of 24% and a revenue share of 64%. Among the top ten customers, 8 are American manufacturers, of which Apple alone accounts for more than 1/4 of TSMC's revenue. At the same time, according to Taiwanese media reports, Tesla plans to entrust 4nm and 5nm process products to TSMC. If true, Tesla will enter TSMC's top 7 customer companies, further increasing the share of American companies. Obviously, the overall share of American customers in TSMC's revenue continues to increase, which is another major factor that prompted TSMC to build advanced process wafer fabs in the United States. In this way, TSMC can be closer to customers. As long as it can ensure long-term order support from American customers, TSMC can stabilize its revenue structure of more than 60%. In addition, TSMC's construction of advanced process wafer fabs in the United States has also, to a certain extent, complied with the supply chain security needs of American customers with decentralized supply sources. The industrial chain pattern may face reshaping As mentioned above, with the entry into force of the US "chip bill", many semiconductor manufacturers have started investment and factory construction plans in the United States, including TSMC, GlobalWafers and other Taiwanese semiconductor manufacturers. At the same time, some chip design manufacturers also hope to diversify the sources of chip manufacturing supply to avoid supply chain risks. In addition, Sim Sang-pil, head of corporate planning for Samsung's foundry business, also said recently that due to the escalating geopolitical crisis, the global technology industry is seeking a second source of supply for advanced semiconductors, which gives Samsung more opportunities to deal with these manufacturers. On the one hand, TSMC and other Taiwanese semiconductor manufacturers continue to place production capacity outside Taiwan, and on the other hand, chip design customers have also begun to hand over chip manufacturing orders to wafer factories outside Taiwan, which has also caused some Taiwanese industry insiders to worry about the "de-Taiwanization" of semiconductors.Previously, the chairman of Qun Yi Investment Consulting, Tsai Ming-Yen, commented that the trend of setting up factories overseas is irreversible, but it does not affect TSMC's leading position in the wafer foundry field. However, in the long term, it is not ruled out that more semiconductor manufacturers from Taiwan, China will follow TSMC to set up factories overseas.

Liu De-Yin recently gave a speech at a closed-door meeting titled "Challenges and Opportunities of Taiwan's Semiconductor Industry", stating that Taiwan's semiconductor industry has a complete ecosystem and industrial cluster, the most advanced process technology, a solid foundation for research and development and production, and holds a key position in the global semiconductor supply chain. Taiwan, China must accelerate development, maintain a technological advantage, develop the overall industrial chain, including IC design, manufacturing, packaging and testing, components, materials, etc., to jointly become indispensable global technology partners.

Overall, under the shadow of the anti-globalization of the semiconductor industry, the world's major core players are also taking continuous actions.

United States: Stimulate the establishment of domestic factories by passing congressional bills, export control measures by the Department of Commerce, and external alliances, and restrict mainland China from obtaining advanced technology.

Europe: Support the landing of advanced semiconductor process capacity to improve supply capacity to cope with semiconductor shortages.

Japan: Subsidize TSMC to build factories in Japan, strengthen Japan-US cooperation, and layout 2nm advanced chip manufacturing.

South Korea: Semiconductors are the pillar industry of its economy, and the government is accelerating legislation to expand domestic manufacturing capacity.

Taiwan, China: The industrial chain is taxed, and TSMC continues to invest in advanced capacity.

Mainland China: In the future, China and the United States may maintain economic cooperation in the mature market, while the core hard technology field is passively cut. In the long term, Mainland China is expected to cultivate a self-sufficient industrial chain system, which will contain many opportunities for localization.

The current industrial pattern is that the United States still has the right to speak in the formulation of industry rules; Mainland China has the world's largest downstream demand market for semiconductors; South Korea and Taiwan, China are the main semiconductor exporters; Japan is making efforts in advanced processes and introducing advanced technology; Europe aims to double its global semiconductor market share from 10% to 20% by 2030.At present, most plans have begun to be gradually implemented, and there may be many uncertainties in the follow-up. However, the competition among countries in the future for advanced chip manufacturing and the expectations and judgments on the counter-globalization of the supply chain are still worth paying attention to and thinking about.

In conclusion, it is not difficult to find that all countries are focusing on the localization of advanced manufacturing and making up for the shortcomings in the upstream supporting industry, and supply chain security has gradually become an indispensable part of the semiconductor industry in various countries.

Regarding the development trend of the future semiconductor industry, some people point out: "Under the background of China and the United States developing their own supply chain systems, supply chain companies in Japan, South Korea, Europe, and China's Taiwan may form two sets of supply systems to adapt to the needs of both sides respectively."

But in the short term, the global semiconductor industry has a complementary supply and demand, and the cooperation is close, and it is difficult to completely cut off.