Foundry Industry Booming

Producers of electronics and automobiles are waging a war to secure system semiconductors for graphic processing, data communication, signal conversion and computation. Recently, demand for home appliances, smartphones and cars powered by system semiconductors has been on the rise amid the diffusion of fifth-generation (5G) communication and artificial intelligence (AI) technologies.

As a result, foundry companies are enjoying a boom as orders exceed their capacity.

Corporate customers that place orders for application processors (AP), graphics processing devices (GPUs), and semiconductors for vehicles with TSMC of Taiwan and Samsung Electronics have to wait for more than a year. "We have an extremely busy production schedule until the end of the year," a Samsung Electronics official said. "We cannot book customers' orders due to a lack of production lines that use 8-nm and sub-7-nm extreme ultraviolet (EUV) lithography technology."

The situation is similar at second-tier foundry players that mainly produce semiconductors with 8-inch wafers. These companies are focusing on low-tech analog semiconductors that convert natural signals such as light and sound into digital ones and power semiconductors that control power.

Electronics makers and automobile manufacturers are on high alert due to concerns that they may face disruptions in production. Audi and Volkswagen Group are planning to cut production in China and other countries in the first quarter of this year due to a lack of semiconductors for vehicles. In Japan, home appliance manufacturers have put the launch of their products on hold for about 10 weeks due to a lack of Bluetooth chips.

There are two main reasons why foundry production cannot keep up with demand. First of all, production of sophisticated application processors (APs), graphic processing units (GPUs), and automotive semiconductors require ultra-micro fabrication processes using sub-7-nm lithography, which are is in limited supply. Ultra-micro fabrication processes use EUV lithography equipment produced by ASML in the Netherlands. But ASML can only produce about 40 units a year.

Even if TSMC and Samsung Electronics want to expand their sub-7-nm production capacities, they have to consider ASML's production schedule.

Second-tier foundry companies that produce display driver ICs (DDIs), power management ICs (PMICs) and sensors using 30-nm technology also face a similar situation. They cannot expand production lines using 8-inch wafers because 8-inch equipment is outdated and no longer produced. Unbalance between supply and demand is even worse at these foundry companies.

Foundry service fees are spiking as supply cannot keep up with demand. TSMC recently eliminated a 3 percent discount policy for large corporate customers. Taiwan's UMC and VIS raised their service prices by more than 10 percent.

Companies at the front and back of foundry ecosystems such as fables firms that develop automotive semiconductors and semiconductor back-end processing companies are also raising the prices of their products and services. NXP, a Dutch automotive semiconductor company, plans to notify major automakers of price hikes, while ASE, a Taiwanese packaging company, raised prices by 20 percent in the fourth quarter of 2020 and is considering a further increase in the first quarter. "As Taiwanese companies raised prices, Korean companies are also moving to follow suit," said an official at a local packaging company.