TSMC Believes It Makes Sense to Dedicate Fabs to Particular Customers

TSMC May Start Building Dedicated Fabs for Certain Clients

by Anton Shilov
07/24/2012 | 09:32 PM

Taiwan Semiconductor Manufacturing Company announced last week that given the current market trends, it would have a number of very large customers and it would eventually make sense to dedicated a whole semiconductor manufacturing facility to each of those big clients. The announcement potentially means a significant change for the business of contract makers of semiconductors.


It is not a secret that there a number of fabless companies like Apple, Nvidia, Qualcomm and some others, who sell hundreds of millions of chips every year and who are growing rather quickly. For such companies, any hassles with abilities of contract semiconductor makers like TSMC to supply means slowdown to their growth as well as drop of profitability since chips tend to get more affordable every month due to competition. At the same time, those companies will unlikely build their own fabs since they will have to develop process technologies themselves and invest massive amounts of capital into maintenance of  the fabs. For such companies, TSMC plans to propose a different business model: dedicated factories.

"I think that it is an almost natural outcome the way market is trending [to dedicate certain amounts of capacities to particular clients]. I think that they are going to be larger customers, and now it makes complete sense to dedicate a whole fab to just one customer and hold [this fab] for just one customer. Now remember, we made our mark in serving many customers. In fact, that is a really part of our secret sauce of success: the ability to serve many customers to their satisfaction. We will still retain that capability, but there are customers that are getting bigger and bigger. So it makes sense that we dedicate a whole fab or even more than a whole fab to just one customer," said Morris Chang, chief executive officer of TSMC, during a recent conference call with financial analysts.

It is clear that building and owning a semiconductor manufacturing facility requires a lot of capital and expertise. With a cost of a 450mm semi factory being around $10 billion, even large companies may not be interested in owning such a fab. At the same time, TSMC may provide industry-standard process technologies tailored for a particular customer, high-volume manufacturing, flawless operation along with abilities to quickly solve problems and provide necessary services cost-effectively. Basically, TSMC wants to propose a new foundry model: customers will not buy chips or wafers, but rather wafers along with factory time. Ultimately, fabless makers of semiconductors may even pay part of the foundry's capital expenditures to speed up ramp up or time to market.

But before proceeding to a new foundry business model TSMC will attempt to centralize manufacturing of different devices as much as possible in order to be able to quickly resolve all the possible issues. TSMC's fabs in Taichung will produce various products using 28nm fabrication process, whereas fabs in Tainan will be dedicated to 20nm and 16nm FinFET manufacturing.