At TSMC’s annual general meeting, TSMC chairman, Mark Liu, confirmed for the first time that Germany had invited TSMC to build a fab in the country. TSMC revealed that it had started evaluating the plan, despite being at a preliminary stage.
Ultimately, Liu emphasized, any decision would be based on customer demands, given TSMC’s long-term goal to raise shareholder value. Indeed, as TSMC expands its footprint overseas, there have been concerns toward its declining gross margin. In Q2 this year, the company’s gross margin has dropped to 50%. Liu, however, sought to alleviate fears of further decline by expressing confidence in TSMC’s ability to keep gross margin at above 50% in the long term. Using TSMC’s 2019 announcement regarding its Arizona fab as a case in point, Liu emphasized TSMC’s careful evaluation process, indicating that the talks over the Arizona project had started as early as 2016.
Regarding its ongoing evaluation process in Japan, Liu admitted that the cost of a fab was indeed higher compared to that of Taiwan. TSMC’s Japanese customers, in this case, would be expected to support TSMC’s project. Discussions with Japanese partners take place on a weekly basis, according to Liu, and TSMC’s current goal in Japan is to successfully set up the fab and ensure a stable revenue growth to cover the expenditure.
Echoing Morris Chang, TSMC founder, who doubted the feasibility of semiconductor autonomy, Liu observed that the localization of chip production had indeed been a trend, but he believed that the development would be limited. “Semiconductor manufacturing isn’t just about having the lands, capital and technologies,” Liu said, “many companies have been asking for subsidies and planning to relocate supply chains, but it wouldn’t solve intricate problems such as the pandemic, natural disasters and trade disputes”.
Under IDM 2.0, Intel already eyes the European market
As TSMC evaluates its expansion to Europe, its competitor Intel has been ahead in this regard, despite lagging behind in process technologies.
The latest chip shortage sweeping through Europe, especially across Germany’s automotive industry, has triggered much soul searching among European countries, in addition to various geopolitical factors. As Angela Merkel, German Chancellor, put it: “if a big bloc like the EU is not in a position to produce microchips, I don’t feel comfortable about that. “
To tackle the issue, the European Union has set a lofty goal to produce at least 20% of the world’s supply on a value basis and to manufacture at the 2nm node by 2030. In order to achieve that, Thierry Breton, European Commissioner for Internal Market, said that Europe would need to expand its capacity to build mid-level chips and attract chipmaking giants like TSMC, Samsung and Intel to build a plant in Europe.
Intel was quick to move. It has made known its intention to invest US$20 billion across several EU member states, including the Netherlands and Belgium, with Germany as the most ideal location. In addition, Intel also seeks US$10 billion in subsidies from the EU. The company already operates a fab in Ireland, dated back to the late 1980s, and is planning to upgrade it to the 7nm node, costing US$7 billion.
Following TSMC’s expansion into the United States, Intel, under the new leadership of Pat Gelsinger, has garnered its strength to challenge TSMC. Gelsinger even publicly criticized Washington’s decision to subsidize US$12 billion to TSMC’s Arizona fab, arguing that it would undermine US competitiveness in the long term, especially when TSMC would keep its most cutting edge IP in Taiwan.
Under its IDM 2.0 strategy, Intel would also re-enter the foundry business, and in this sense its goal aligns with that of the EU, particularly given the relative lack of incentives for TSMC: Europe only accounts for 10% of the Taiwanese foundry’s capacity. Undoubtedly, TSMC has also factored in another fundamental problem: to what extent does Europe need TSMC? As the recent launch of the European Alliance on Processors and Semiconductor shows, major players like Infineon and STMicroelectronics have challenged the feasibility of introducing advanced manufacturing nodes, considering it marginal to the continent’s automotive sector.