TSMC will have to play along with the US Department of Commerce if it’s going to maintain access to the US technology it needs to keep competitive. That means asking for a licence every time it takes an order from Huawei, and any other company that raises the ire of US authorities, despite the fact that TSMC has promised a token investment in manufacturing on American soil.
The rules haven’t officially kicked in yet, though local press reports that TSMC has already stopped taking orders from Huawei. Once the current backlog is fulfilled TSMC will need a special license for each order. Such licenses will likely get granted: remember that this is a bargaining chip, and the US is hoping the additional pressure will extract concessions from the government in Beijing. A few licenses will be issued, to show that trade is possible, but when the Chinese don’t blink (and they’re pretty unlikely to) then the door will close.
That’s marvelous news for fabrication plants in China, notably SMIC, and ensures that the Chinese government will keep shoveling money into domestic production. However, China needs technology too. Right now SMIC is only capable of putting out chips down to 14nm, and even that’s a stretch – only 1.3% of the company’s production was that small last year, the rest of it is all bigger geometries. Going smaller will likely need the same US tools and software that TSMC is using, which will be hard to come by given the current trade relationship, so Huawei will need TSMC for the 7 and 5nm parts it needs.
In the meantime Huawei will be able to stockpile to a certain extent, and has been building inventory for a while, but in cellular infrastructure (particularly 5G) the technology is moves too fast for a company to order chips years in advance. Huawei will likely spin Honor into a separate company, making smartphones and consumer electronics, and able (in theory) to buy chips from TSMC, but that still leaves Huawei with yesterday’s technology for network infrastructure.
In the US, meanwhile, TSMC will be building a 5nm fabrication plant in Arizona, expected to start turning out 20,000 wafers a month in 2024. However, we should be clear that this isn’t very big by TSMC standards. 20,000 wafers a month is enough to serve a few markets, perhaps the US military and friends, but it isn’t going to make enough chips for the latest iDevice. For comparison – the company’s other 5nm fabrication plant (in Taiwan) is currently ramping up to 90,000 wafers per month, and overall TSMC averaged a million wafers a month last year. That $12bn isn’t a lump sum either – the investment will be spread over the next nine years, and TSMC will be expecting support from both local and federal governments. US senators are already demanding more transparency around the deal.
Samsung will be worried. It’s in South Korea, but from the US Asian countries could end up in the same basket. Samsung has been busy reminding people that it’s investing $116bn to ramp up 5nm fabrication, but could still lose customers to an American TSMC plant. There’ll be worried faces at Qualcomm too, as TSMC manufacturers Qualcomm-designed chips for a host of Chinese mobile-phone manufacturers. Those companies aren’t in US sights at the moment, but if the Americans think some chips are finding their way to Huawei then the gate could come down pretty quickly.
China has said it will respond, though we don’t know how just yet. Recruiting some allies will certainly be high on the list, and $6m invested in London’s Imperial Collage (announced on Tuesday) is a good place to start. China already has a policy of global engagement, and investment, which will be important as friendly countries become currency in trade negotiations.
It’s no secret that the US government would like more stuff made on American soil, and that semiconductors are in the heart of a lot of “stuff” these days. Financial incentives encouraging companies to build locally is nothing new, and TSMC was certainly made an offer it couldn’t refuse, but the implications of these events will be far ranging. US fabless semiconductor companies are on edge, Chinese businesses are giving up on the US market, and curtains are being drawn between blocks of countries willing to trade with each other – it only remains to be seen if these new curtains are made of the same iron as the last ones.
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