TSMC expects 5nm process and HPC product revenue share to reach 10%

Taiwan’s premier foundry, Taiwan semiconductor Manufacturing Company (TSMC), is one of the world’s foremost makers of chips inside smartphones and personal computers. The company’s latest manufacturing node is sold as ‘7nm’, which allows Advanced Micro Devices Inc., a designer of Santa Clara-based application processors and graphics processing units, to compete effectively with Intel Corporation in the microprocessor space.

TSMC management recently spoke with analysts and provided key insights into what to expect from the entire foundry and semiconductor industry this year. The fab has been busy making significant investments in its N7 and N5 nodes as it expects demand for them to increase.

TSMC plans to spend $15 billion to $16 billion in capex in 2020, 80% of which is on 7nm, 5nm and 3nm process nodes

For TSMC, 2019 was a sign of 7nm growth. The fab process technology covered by N7 contributed 35% of its revenue, an 8% increase from the previous quarter and a 12% increase from a year earlier. For the full year, 7nm-based products contributed 27% to TSMC’s revenue, compared to 9% in 2018. Interestingly, while the revenue contribution from smartphones was up 4% for the year, revenue from high-performance computing came from it, with central and graphics processing units down 3%.

More importantly, TSMC is aware of keeping its production capacity in line with customer demand, and to that end, the fab plans to invest $15 billion to $16 billion in capital expenditures this year. By comparison, the company spent $14.9 billion in capital expenditures in 2019 due to increased 5G deployments.

80% of this year’s spending will be allocated to advanced manufacturing nodes, including the 7nm, 5nm and 3nm families, with 10% for advanced packaging, mask fabrication and specialty technologies. TSMC’s expertise covers MEMS, CMOS image sensors, embedded NVM, RF and other fields. Additionally, of the $14.9 billion TSMC spent on acquiring property, plant and equipment throughout 2019, about $120 million was directly related to the upcoming 5nm ramp and the development of 5nm and 3nm process technology families.

TSMC says 5nm ramp will include HPC products this year, impacting its gross margin and contributing 10% to 2020 revenue

TSMC overtook the semiconductor and foundry industries this year, and the fab expects to do the same for years to come. The semiconductor and foundry industries are expected to grow by 8% and 17%, respectively, over the next four years, while TSMC expects that, in dollar terms, it will outpace foundry growth by a few percentage points. TSMC believes that in the current quarter, current 5G growth will allow it to produce better results than seasonality usually allows.

Furthermore, the company believes that not only is the market expecting 5G penetration to reach teens this year, but that penetration has surpassed what 4G demonstrated at a similar stage. Subsequently, it believes that strong demand for 5G and HPC products will drive demand for advanced processes in the coming years, and if you’re careful, you’ll notice the lack of application processors for smartphones from this list.

TSMC’s N6 manufacturing process (6nm) is at the end of the fab’s 7nm process technology family. The density of N6 is 18% higher than that of N7+ (TSMC’s first EUV-based 7nm) and an EUV layer is added on top of it, and the design rules are fully compatible with N7 (DUV-based 7nm). TSMC has confirmed that risk production of N6 is on track for Q1 2020, with the process technology going into mass production by the end of the year (possibly late H2 if our guesses are correct).

After N6, TSMC’s first 5nm-based process node is called N5. Manufacturers have confirmed widespread EUV adoption for N5, and the process offers an 80 percent density and 20 percent performance boost compared to products based on the 7nm series. 5nm entered risk production last April when TSMC validated the design of the process node with a silicon test car. The manufacturing process will enter mass production in the first half of this year and ramp up substantially in the second half.

This aggressive growth will be driven by mobile devices (hello Apple A14) and more importantly, high performance computing products as TSMC management said. The bolding at the end has been confirmed and it offers limited possibilities. TSMC’s high-performance computing products cover central processing units, artificial intelligence, and networking applications, so it’s free to speculate on what those products might be. TSMC expects 5nm to account for 10% of its total revenue in 2020.

Fab confirms that all major customers will move to second-generation 5nm in 2021, and 7nm process revenue will grow to 34% of total revenue this year

TSMC is also working with customers to design the N3 (3nm) process node, but as usual, it declined to mention which customers were involved. What’s more, the fab has confirmed that all major customers will move to N5P in 2021. N5P is TSMC’s second-generation 5nm process. It provides front-end and middle optimization to achieve 7% performance or 15% power efficiency gain. Early 5nm tape outputs are less than 7nm at a similar stage, but TSMC believes they will equal 7nm in high volume production.

Capital intensity will be less than 40% next year and 30%-35% next year as TSMC lays the groundwork for future process technologies. The company cleared unsold wafer inventory in the fourth quarter of the first half of 2019, noting that production capacity is expected to grow by single digits in 2020.

TSMC predicts double-digit growth in back-end revenue this year, it forecasts 7nm process technology family revenue to grow to 34% in 2020, driven by mobile and HPC demand, and 5nm growth will indeed unlock 7nm capacity distribute.

The Taiwanese fab is under pressure from the U.S. government to shift production of components critical to national security to the U.S. or provide an equally acceptable solution. To this end, TSMC said that the cost of plant construction is the lowest in Taiwan, and these low costs are in the best interest of all its customers.

Dr. Wei Jianzhong, vice chairman and CEO of TSMC, refuted media reports that China Semiconductor Manufacturing International was cutting his company’s 14nm orders. Dr Wei expects sub-6Ghz 5G base stations below 5G, not mmWave for 5G, and he declined to comment on the new customers TSMC has added for the N7 and N5 process technology families.