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Taiwan’s TSMC still holding the cards despite Intel’s foundry intentions

Intel’s plans unlikely to affect TSMC’s command within semiconductor industry in the near term

TSMC Tainan office building (Reuters photo)

TSMC Tainan office building (Reuters photo)

TAIPEI (Taiwan News) — Despite Intel’s plan to get back into the foundry business, Taiwan Semiconductor Manufacturing Co. (TSMC) remains in a dominant position.

New Intel CEO Pat Gelsinger made the announcement during the company’s “Engineering the Future” event last week (March 23). The new branch of the company will be called Intel Foundry Services and will focus on making chips for clients using Intel’s manufacturing technology.

But in the near term, Intel’s plans are unlikely to affect TSMC’s command within the semiconductor industry, especially as the global chip shortage means the Taiwanese tech giant already has more orders than it can fill. TSMC controls the largest portion of the global contract chip manufacturing industry due to its successive process node innovation and massive investment in the latest manufacturing technology, according to Wccftech.

To try and catch up to TSMC, Intel intends to spend US$20 billion to construct two new fabs at its Chandler Ocotillo Campus in Arizona. It also has bumped up its capital expenditures (CAPEX) this year by more than 30 percent to between US$19-20 billion.

TSMC on the other hand is boosting this year’s CAPEX budget by more than 40 percent to between US$25-28 billion. The world’s largest contract chipmaker also has experience working with diversified customers like Apple, Qualcomm, AMD, and Nvidia and maintains a better cost structure compared to Intel, according to The Wall Street Journal (WSJ).

As a contract chipmaker, TSMC also has the advantage of lacking the inherent conflict of interest Intel has as an integrated device manufacturer that designs and sells its own chips, The WSJ reported. Intel says it plans to keep its foundry business independent, but this could make potential customers like Apple and AMD hesitant.

TSMC also will continue to maintain a cost advantage when compared to Intel. According to Power Semiconductor Manufacturing Co. (PSMC) CEO Frank Huang (黃崇仁), the salary of an American engineer is equal to the salary of six Taiwanese engineers, while a Taiwanese engineer is around 75 percent as efficient as a U.S. engineer.

Most importantly, Intel’s current process timeline is lagging and compares poorly when compared to TSMC, which means Intel will struggle to attract customers looking for leading-edge processes, according to Seeking Alpha. Intel’s most advanced 7 nm chips will not be ready for market until 2023, while TSMC plans to begin volume production of its 3 nm chips in the second half of 2022. Samsung is also set to have its 3 nm process ready around the same time.

One advantage that Intel does have over TSMC and Samsung is that it is an American company. And at a time when the U.S. is looking to have a more secure domestic semiconductor supply chain, location has its benefits. However, TSMC already announced last year that it is planning to build a US$12 billion 5 nm fab in Phoenix, Arizona, while Samsung is looking into plans to spend up to US$17 billion to construct plants in the U.S.

Will Intel’s foundry gamble pay off? Or will it fizzle out like the last time it tried to enter the foundry business in 2013-14?