Taiwan Semiconductor Manufacturing Company, TSMC, might be a strange name to your ears, but it really is probably one of the most important names in the mobile revolution that we are living in now.
First, TSMC is a semiconductor foundry. Created in Taiwan in 1985 by MIT and Stanford graduate Morris Chang, it has literally changed the industry and made possible the existence of companies like Qualcomm and Nvidia, selling chips without their own foundry where they would make them. Instead they outsource production to TSMC in what is the fabless semiconductor industry, a $50 billion market relying on the foundry.
An interesting fact is that Apple has also signed a contract with the foundry in the middle of 2011, and since then TSMC is manufacturing the A5 and A6 chips for them.
The ‘father’ of Taiwan’s chip industry
In 1985, he returned to Taiwan with great credentials as a top manager at TI to start TSMC, a $220 million project, half-funded by the Taiwan government. While initially the company grew slowly, trying to survive, it was set on the right foundation of three core values: integrity, commitment (employees committed to TSMC, and the other way around, and also committed to customers) and innovation. Laser-focused on quickly ramping up capacity and customer satisfaction, the first orders started to come in.
It really took off in the mid-’90s with the explosion of the fabless industry. Companies like Qualcomm, Broadcom and later Nvidia started relying on TSMC for their production so nearly ten years later, the foundry went from $220 million to an IPO at the New York Stock Exchange with a $6 billion market valuation.
Fast forward to today, the foundry market share grew from 31% in 1997 to nearly 50% currently. It is now Taiwan’s most valuable company and the world’s second most valuable chip manufacturer. Interestingly, former huge rival Intel now has $96 billion market cap, while TSMC is quickly catching up with $84 billion and might soon outgrow Chipzilla.
TSMC and its fabs
Enough history, though. What is really interesting is what TSMC is making and there is a lot of exciting things to look at there.
TSMC is a foundry and it means it is involved in the lowest-level manufacturing - everything from the actual chemistry and the lithography of chips on the wafer. Without going into much detail, we’d just mention that the wafer is a slice of semiconducting material that goes through some complex processing to yield actual chips. Each wafer yields a number of die (depending on their size), that later end up on devices. The larger the wafer, the more chips it yields, the better it is.
Now, let’s go back to TSMC and its factories. The foundry has one 150mm fab, four 200mm fabs and three 300mm fabs (not fully operational yet). In the future, maybe around 2018, it is expected to have its first 450mm facilities.
It’s all about the nanometers
Now, those numbers start to get boring if we don’t link them up to real products, so let’s go to our beloved smartphones and the chips powering them. Devices like the Nexus 4, Samsung Galaxy S III in its U.S. version and the HTC One X, are all running on 28nm processors. 28nm here stands for the manufacturing technology, and basically the lower the number the more precise it is which means more transistors could fit on a single die. Ultimately, that translates into better performance.
What you might not have known is that TSMC is largely driving that progress.
- 28nm. This is the current technology, and in Q3 it was 13% of TSMC revenue. In Q4 it is expected to grow to more than 20%. And for the whole 2013 it is forecast to be 30% of TSMC revenue.
20nm. If you think today’s processors are fast, wait until you see 20nm. TSMC is kicking off late next year but in very, very low volume, in what is more of risk production than en masse. The big ramp up is scheduled for 2014.
Now jumping from 28nm to 20nm, the performance gain is expected to be between 15% and 20% at the same power. And if the speed remains the same, you get a 20% to 25% better power efficiency, which is huge.
- 16nm FinFET. What is really interesting is that while previous generation jumps in processor happened over the course of years, it will be just a year for the industry to get 16nm. This next generation will arrive much faster, around 2015.
Curiously enough, 16nm is one of the biggest changes in processor manufacturing with FinFET. FinField-effect-transistors are a new type of architecture. While previous transistors were all in a single 2D plane, FinFET is actually three-dimensional. This space-optimized design will bring another big increase in energy-efficiency.
TSMC also promises that its 16nm FinFET will be competitive with others (read Intel’s) 14nm ones. The faster cadence is due mostly to a lot of similarities with 20nm (except for FinFET, of course).
Some of TSMC’s customers might decide to even skip 20nm altogether and go directly for 16nm since the time difference is so small.
- Future. And looking further into the future, TSMC is actively investing in and working on some very important new technologies like Extreme UltraViolet (EUV) lithography and 450mm wafer fabs. 450mm wafer can produce as many as 2.5 times more chips than a 300mm one.
If you are looking for an accurate prediction about the phone market, you’d best look at TSMC. With a 50% market share, it is probably one of the best indicators for where this industry is going. Good news is that TSMC expects all 2013, 2014, 2015 and 2016 to be either growth or strong growth years.
Led by 81-year-old Morris Chang, the company is at its strongest. Chang, a world class bridge player, jokes around that he’d love to play against other bridge enthusiasts like Bill Gates and Warren Buffett, confident that he’d win. That calm confidence translates in his steadily growing business. And while he might not get a chance to play against them, he is already on the right track at winning the game of chips.