SMIC was sanctioned, and TSMC bucked the trend with opportunities and challenges
SMIC, one of China's largest semiconductor manufacturers, has been sanctioned by the U.S. government, triggering shocks in the semiconductor industry. As the world's largest professional semiconductor foundry, TSMC has demonstrated outstanding strategic vision and strong technical strength in this turbulent period, seized business opportunities, and attracted many customers who originally cooperated with SMIC. However, at the same time, TSMC is also facing some new challenges. Let's take an in-depth look at the opportunities and challenges that TSMC faces in this event.
In the face of SMIC's sanctions by the U.S. government, TSMC has shown its outstanding strategic vision. First of all, TSMC accelerated investment in capacity expansion. With the growing demand in the global semiconductor market, TSMC has promoted a new round of technology investment plans to meet customer needs in 5G, artificial intelligence, and other fields. This strategic investment not only boosts TSMC's production capacity, but also strengthens the company's competitive advantage in the global market.
Opportunity:
Market share expansion
After SMIC was sanctioned, some of its major customers such as MediaTek, Unigroup, and Huawei HiSilicon were forced to suspend their cooperation with SMIC. These customers have had to turn to other partners in order to ensure the stability of the supply chain and continue to receive chip support. As the world's leading chip foundry company, TSMC has strong technical strength and quickly attracted the favor of many of its customers.
According to industry analysis data, SMIC's share of the global foundry market in 2022 will be about 5%. With the loss of some important customers, its market share will decline further. At the same time, TSMC has received more orders, and its global market share is expected to climb further in 2023 from an all-time high of 59.1%. In the field of advanced processes, TSMC dominates, with a global market share of 92% in 2022 for its 5nm and below process chips.
The technological leadership is highlighted
The sanctions make it difficult for SMIC to acquire advanced chip-making equipment and technology, which will prevent it from keeping up with advanced processes for some time to come. In contrast, TSMC has now begun mass production of industry-leading 3nm process chips, and plans to mass-produce 2nm process chips in 2024, which will further widen the gap with competitors in the field of advanced process chips.
The importance of advanced processes is self-evident, which means smaller chip size, faster computing speed, lower energy consumption and other advantages. Advanced process capabilities are key to TSMC's ability to maintain its leading position in many emerging fields, such as artificial intelligence chips, 5G and IoT chips.
Deepening customer relationships
As more and more SMIC customers turn to TSMC, the relationship between the two parties will be further deepened. The long-term good cooperation helps TSMC better understand customer needs and provide high-quality products and services in a targeted manner. This deep binding also makes it difficult for customers to easily switch to other suppliers in the future, thus strengthening TSMC's position in the market.
Challenge:
The pressure on production capacity is tightening
As more customer orders are absorbed, TSMC's production capacity will face huge pressure. TSMC is currently expanding its production capacity aggressively, including building new advanced process chip factories in the United States, Japan and other places. However, due to the long construction period and huge investment of chip factories, it is difficult to completely solve the bottleneck of production capacity in the short term. How to balance the needs of different customers under the existing production capacity and arrange the operation of the chip production line will be a big challenge.
Geopolitical risks intensify
As the world's number one chipmaker, TSMC's operations will face increasingly severe geopolitical risks. The U.S. sanctions on SMIC hint at the possibility of tougher controls on China's chip industry in the future. Once these measures are extended to TSMC, it will have a huge impact on its global business.
In addition, there have been concerns about whether TSMC's new chip factories in the United States will be overly regulated. If the United States imposes a chip embargo on TSMC, it will deprive it of the right to enter the Chinese mainland market, and the blow to TSMC will be devastating.
Technology leadership is difficult to maintain in the long term
Although TSMC is currently far ahead in advanced processes, it will not be easy to maintain a leading position in the long term. Competitors such as Samsung Electronics and Intel have also invested heavily in advanced process research and development. Once there is a breakthrough, TSMC's lead will face the risk of being gradually narrowed.
In addition, Chinese mainland's investment in chip independent research and development is also increasing, and it remains to be seen whether China's self-developed advanced manufacturing processes can catch up with TSMC in the next few years or decades. Once a breakthrough is made in China's independent controllable chip process, TSMC's position will also be severely challenged.
The competition for talent is intensifying
For TSMC to maintain its technological and production capacity leadership, it needs to attract and retain a large number of top talent. However, in recent years, there has been a serious "talent shortage" in the semiconductor industry, and major companies are spending huge sums of money to poach. And Taiwan itself has a talent shortage, which poses a huge challenge for TSMC to recruit and retain key talent. How to formulate targeted compensation policies and career development plans to attract and retain talents will be a major problem for TSMC.
Overall, SMIC's sanctions have undoubtedly created a favorable opportunity for TSMC to expand its market share and further expand its technological leadership. However, at the same time, TSMC is also facing many challenges such as tight production capacity, intensified geopolitical risks, long-term difficulty in maintaining technological leadership, and intensified competition for talent.
How to weigh the opportunities and challenges, and seek long-term sustainable development while steadily expanding the existing business, will test TSMC's strategic vision and execution. I believe that as long as TSMC can keep a clear head, make prudent decisions, and give full play to its strong technology and talent advantages, it will be able to ride the wind and waves and continue to be invincible in the future competition in the semiconductor industry.