Impact of China–Taiwan Geopolitical Risks on Semiconductor Sector

[Daniel Nenni]

Introduction Scope of report:
-Taiwan’s position in semiconductor market Market size, regional semiconductor players, global important
-TSMC dominates semiconductor foundry market Market share, competitive edge, customers, performant
-TSMC and Samsung dominate advanced chip development Matrix on advanced semiconductor chips, usage of advanced chips, key players’ position
-Measures being taken by TSMC to avoid crisis Key risks, steps for averting crisis
-Major winners and losers from the crisis Competitors, customers

Introduction
We discuss the impact on the global semiconductor industry if geopolitical risks between China and Taiwan aggravate.
▪ Our study is limited to semiconductor foundry operations in Taiwan since the region is the world’s largest foundry market.
▪ In our analysis of the semiconductor sector of Taiwan, we have mainly focused on Taiwan Semiconductor Manufacturing Company (TSMC) as it accounts for more than half of the global foundry market and produces the most advanced semiconductor chips. No other Taiwanese foundry matches TSMC in scale or capability.
▪ Furthermore, we discuss the impact on processing chips only as Taiwan dominates the supply of these chips.

▪ Our analysis includes potential winners and losers from the disruption of Taiwanese semiconductor operations.

▪ In our study, we have assumed that Taiwanese foundries could face severe disruption if China takes control of foundry operations.

▪ To understand more about the global semiconductor sector, we recommend other special reports on the semiconductors sector such as Valuation of Semiconductor Companies, Global Semiconductor Chip Shortage, and Semiconductor Supply Chain Analysis published by Aranca. 2 Impact of China–Taiwan Geopolitical Risks on Semiconductor Sector

November 2022 PPT Presentation

https://www.aranca.com/assets/docs/ImpactofChina%E2%80%93TaiwanGeopoliticalRisksonSemiconductorSector2.pdf

 

[VCT]

If there is a war, SMIC will get ultimate sanction and not being able to operate in the long run.

 

[Markwrob]

In spite of Samsung's yield issues, i suspect most large fabless design firms have kept a team or two doing designs in Samsung PDK's if only as pretext to pricing leverage with TSMC.

As questions mount regarding China and Taiwan, some of these teams might be looking at ports to Samsung a little harder now. Who knows, maybe even Apple and Qualcomm will take flyers on chips with Samsung again. Meanwhile, how full are Samsung's logic fabs in south Austin and Taylor TX? (If customers were interested in made-in-America, that is. I guess.) Samsung have room for multiple shells in Taylor. So, not enough orders even for the first there? Or they cant get enough equipment there? Probably both is my guess.

While the latest profit announcement implies they will slow down fab spending, can they really afford to do that if they hope to keep abreast of TSMC? "Watch this space!"

 

[hist78]

View attachment 1122

Introduction Scope of report:
-Taiwan’s position in semiconductor market Market size, regional semiconductor players, global important
-TSMC dominates semiconductor foundry market Market share, competitive edge, customers, performant
-TSMC and Samsung dominate advanced chip development Matrix on advanced semiconductor chips, usage of advanced chips, key players’ position
-Measures being taken by TSMC to avoid crisis Key risks, steps for averting crisis
-Major winners and losers from the crisis Competitors, customers

Introduction
We discuss the impact on the global semiconductor industry if geopolitical risks between China and Taiwan aggravate.
▪ Our study is limited to semiconductor foundry operations in Taiwan since the region is the world’s largest foundry market.
▪ In our analysis of the semiconductor sector of Taiwan, we have mainly focused on Taiwan Semiconductor Manufacturing Company (TSMC) as it accounts for more than half of the global foundry market and produces the most advanced semiconductor chips. No other Taiwanese foundry matches TSMC in scale or capability.
▪ Furthermore, we discuss the impact on processing chips only as Taiwan dominates the supply of these chips.

▪ Our analysis includes potential winners and losers from the disruption of Taiwanese semiconductor operations.

▪ In our study, we have assumed that Taiwanese foundries could face severe disruption if China takes control of foundry operations.

▪ To understand more about the global semiconductor sector, we recommend other special reports on the semiconductors sector such as Valuation of Semiconductor Companies, Global Semiconductor Chip Shortage, and Semiconductor Supply Chain Analysis published by Aranca. 2 Impact of China–Taiwan Geopolitical Risks on Semiconductor Sector

November 2022 PPT Presentation

https://www.aranca.com/assets/docs/ImpactofChina%E2%80%93TaiwanGeopoliticalRisksonSemiconductorSector2.pdf

@Daniel Nenni

Do these two authors and their company Aranca have some reputation? Do you know them?

 

[benb]

We were so much better off as an industry when there were many, smaller fabs. Once there are 10 competitors, or 20, you have enough diversity so one or two can have a war, or an earthquake, and the network can adjust.

The way the industry is now, it’s designed to fail, to get politicians to pick up the pieces. Like banks.

 

[Daniel Nenni]

@Daniel Nenni

Do these two authors and their company Aranca have some reputation? Do you know them?

I do not know them personally but I have heard of them. The company looks legit but the semiconductor content is sketchy. It is interesting to see the outsider view of the semiconductor ecosystem. They do get quite a few things wrong however. For example their take on the foundry landscape is a bit off:

• Samsung and TSMC are neck and neck in developing advanced (under 10nm) chips.
• TSMC has a large capacity with proven technology for producing advanced chips and has high yield rates compared to Samsung.
• Other Taiwanese foundries such as UMC are not as advanced as TSMC.
• Intel designs and develops chips for itself but does not operate as a contract manufacturer. It will start foundry operations in 2025.
• SMIC has scaled to 7nm chip development but has been placed on the chip export blacklist by the US administration.
• GlobalFoundries manufactures less advanced (more than 10nm) chips.

It (TSMC) already has semiconductor plants in China and Singapore, but its main fabrication units are in Taiwan.

https://www.tsmc.com/english/aboutTSMC/TSMC_Fabs

Maybe they used ChatGPT for this report?

In regards to the geopolitical aspect, I put semiconductors in two equally important buckets: Logic and Memory because logic does not work without memory and visa versa. Taiwan dominates logic and South Korea dominates memory. Which country is more politically stable? In my opinion North Korea is the least stable country in this conversation so my concern is memory right now. I'm not sure if the Russian attack on Ukraine helps or hurts the semiconductor geopolitical situation but it is definitely pause for concern.

 

[hist78]

I do not know them personally but I have heard of them. The company looks legit but the semiconductor content is sketchy. It is interesting to see the outsider view of the semiconductor ecosystem. They do get quite a few things wrong however. For example their take on the foundry landscape is a bit off:

• Samsung and TSMC are neck and neck in developing advanced (under 10nm) chips.
• TSMC has a large capacity with proven technology for producing advanced chips and has high yield rates compared to Samsung.
• Other Taiwanese foundries such as UMC are not as advanced as TSMC.
• Intel designs and develops chips for itself but does not operate as a contract manufacturer. It will start foundry operations in 2025.
• SMIC has scaled to 7nm chip development but has been placed on the chip export blacklist by the US administration.
• GlobalFoundries manufactures less advanced (more than 10nm) chips.

It (TSMC) already has semiconductor plants in China and Singapore, but its main fabrication units are in Taiwan.

https://www.tsmc.com/english/aboutTSMC/TSMC_Fabs

Maybe they used ChatGPT for this report?

In regards to the geopolitical aspect, I put semiconductors in two equally important buckets: Logic and Memory because logic does not work without memory and visa versa. Taiwan dominates logic and South Korea dominates memory. Which country is more politically stable? In my opinion North Korea is the least stable country in this conversation so my concern is memory right now. I'm not sure if the Russian attack on Ukraine helps or hurts the semiconductor geopolitical situation but it is definitely pause for concern.

Thank you for answering my question. The strange thing is that Aranca claimed it is a global consulting firm serving Fortune 500 companies with offices in United States, United Kingdom, China, India, Dubai, KSA, and Japan. Yet, as dumb as me, I can't find any office street address info from its official website. I did find more information from third parties websites. It seems to be headquartered in India.

There are so many errors or logic problems in the report, such as:

1. Like you mentioned, TSMC doesn't have a fab in Singapore while the report's authors went ahead to create one anyway.

2. As you pointed out, the report said Intel will start foundry operations in 2025. I guess it's probably a surprise to Intel CEO Pat Geisinger.

3. The report said: "SMIC has scaled to 7nm chip development but has been placed on the chip export blacklist by the US administration." Most importantly SMIC is banned to procure advanced chip "manufacturing equipment" by US and its allies, not the "chips" itself.

4. I was surprised that Aranca got the secret TSMC "net income by segment 2021" (page 4, bottom right). Actually it's copied from TSMC 4Q2021 earning conference call presentation data, page 8. Except the original TSMC pie chart was for "2021 Revenue by Platform", not for "net income" as the authors stated.

5. On the page 4 of the report: "TSMC manufactures >50% of semiconductors required globally and has >90% market share in advanced chips". Really? 2022 global semiconductor sales was $574.1 billion while TSMC 2022 revenue was $75.88 billion. How did the author come out this >50% global market share for TSMC?

2022 Semiconductor Sales: https://www.semiconductors.org/glob...ase-3-2-in-2022-despite-second-half-slowdown/

6. On the page 7 of the report, under the subject of "Who will be major winners and losers from disruption of TSMC’s operations", as @VCT listed above, it predicted Samsung and Intel as the winners and neutral for SMIC.

How can that happen? The two authors probably don't know both Samsung and SK Hynix have major memory fabs in mainland China. Furthermore, Samsung's smartphones, display, TV, appliances, and PCs products are heavily using chips from Qualcomm, MediaTek, and other fabless companies who use foundries in Taiwan. The potential damages on Samsung will be huge.

A war will interrupt TSMC and UMC's production and triggered embargo against mainland China's companies, including SMIC. The embargos imposed on China will make Samsung a clear loser.

On the other hand, among 2022 Intel's $63.054 billion revenue, mainland China contributed $17.125 billion while Taiwan contributed $8.287 billion. If a war broke out in Taiwan Strait, Intel's 40% revenue will be in jeopardy. Intel won't be a winner at all.

7. The report's authors naively assume the war between Taiwan and mainland China will be limited to the Taiwan region. In reality such war will easily drag US, Japan, South Korea, Philippines, Australia, Vietnam, Singapore, or even NATO in. Either in the form of military intervention or economic embargo or both, every country will be a loser.

In such situation Apple can't safely and easily switch to Samsung at all.

BTW, if PLA's missiles landed on Taiwan, I think SMIC and YMTC will be included in the Taiwan's missiles retaliation target list. I don't see how SMIC can escape from such dangerous outcome.

 

[VCT]

Thank you for answering my question. The strange thing is that Aranca claimed it is a global consulting firm serving Fortune 500 companies with offices in United States, United Kingdom, China, India, Dubai, KSA, and Japan. Yet, as dumb as me, I can't find any office street address info from its official website. I did find more information from third parties websites. It seems to be headquartered in India.

There are so many errors or logic problems in the report, such as:

1. Like you mentioned, TSMC doesn't have a fab in Singapore while the report's authors went ahead to create one anyway.

2. As you pointed out, the report said Intel will start foundry operations in 2025. I guess it's probably a surprise to Intel CEO Pat Geisinger.

3. The report said: "SMIC has scaled to 7nm chip development but has been placed on the chip export blacklist by the US administration." Most importantly SMIC is banned to procure advanced chip "manufacturing equipment" by US and its allies, not the "chips" itself.

4. I was surprised that Aranca got the secret TSMC "net income by segment 2021" (page 4, bottom right). Actually it's copied from TSMC 4Q2021 earning conference call presentation data, page 8. Except the original TSMC pie chart was for "2021 Revenue by Platform", not for "net income" as the authors stated.

5. On the page 4 of the report: "TSMC manufactures >50% of semiconductors required globally and has >90% market share in advanced chips". Really? 2022 global semiconductor sales was $574.1 billion while TSMC 2022 revenue was $75.88 billion. How did the author come out this >50% global market share for TSMC?

2022 Semiconductor Sales: https://www.semiconductors.org/glob...ase-3-2-in-2022-despite-second-half-slowdown/

6. On the page 7 of the report, under the subject of "Who will be major winners and losers from disruption of TSMC’s operations", as @VCT listed above, it predicted Samsung and Intel as the winners and neutral for SMIC.

How can that happen? The two authors probably don't know both Samsung and SK Hynix have major memory fabs in mainland China. Furthermore, Samsung's smartphones, display, TV, appliances, and PCs products are heavily using chips from Qualcomm, MediaTek, and other fabless companies who use foundries in Taiwan. The potential damages on Samsung will be huge.

A war will interrupt TSMC and UMC's production and triggered embargo against mainland China's companies, including SMIC. The embargos imposed on China will make Samsung a clear loser.

On the other hand, among 2022 Intel's $63.054 billion revenue, mainland China contributed $17.125 billion while Taiwan contributed $8.287 billion. If a war broke out in Taiwan Strait, Intel's 40% revenue will be in jeopardy. Intel won't be a winner at all.

7. The report's authors naively assume the war between Taiwan and mainland China will be limited to the Taiwan region. In reality such war will easily drag US, Japan, South Korea, Philippines, Australia, Vietnam, Singapore, or even NATO in. Either in the form of military intervention or economic embargo or both, every country will be a loser.

In such situation Apple can't safely and easily switch to Samsung at all.

BTW, if PLA's missiles landed on Taiwan, I think SMIC and YMTC will be included in the Taiwan's missiles retaliation target list. I don't see how SMIC can escape from such dangerous outcome.

Most analysts are young.

 

[M. Y. Zuo]

So much of the geopolitical stuff sounds like sabre rattling, or third party-rattling, that it can be hard to tell up from down. Especially when the claims about the semi industry don't sound any more credible or insightful than what many forum members here could write.

This 'Aranca' firm based in India seems especially dubious as they don't reveal their true information, and as certain factions in India have a particularly strong vested interest in drumming up mutual suspicion between China and the U.S. (and weakening both).

 

[ta152h]

So much of the geopolitical stuff sounds like sabre rattling, or third party-rattling, that it can be hard to tell up from down. Especially when the claims about the semi industry don't sound any more credible or insightful than what many forum members here could write.

This 'Aranca' firm based in India seems especially dubious as they don't reveal their true information, and as certain factions in India have a particularly strong vested interest in drumming up mutual suspicion between China and the U.S. (and weakening both).

It is difficult to tell, because we can't read into the minds of Chinese leaders. And our own leadership is so ineffective as to be irrelevant.

But, before you discard it, let me ask you, if you had to put all your money in a company, would you even consider TSMC as a long term proposition? If you were NVIDIA, or QCOM, or any other company, would you want your entire fate to depend on TSMC so long as it is almost entirely Taiwan based? I wouldn't.

Even the threat is very good news for Intel. You'd have to be crazy to be the CEO of fabless company and not be at least a little concerned about the situation in the Orient. It's not entirely predictable either way, and you have no control over it, so naturally you're going to want something to mitigate it. TSMC putting a fab in U.S. is certainly a nod to this, but Intel is going to benefit from this instability in a big way.

And yes, Intel may lose some sales to China and Formosa, but they'll be pretty much the main fab in the world if South Korea and Taiwan end up being engaged in conflict. And it's difficult to see China engaged in war without South Korea being involved. Intel is easily the safest, and this will enter at least somewhat into decisions of this nature. It has to.

 

[benb]

Here's what Bing's AI answered when I asked what effects would china miltary conflict with taiwan have on the global semiconductor industry?
1) It would be a greater impact on global trade than the Ukraine war
2) A successful invasion of Taiwan would give China almost total control over the world's semiconductor supply

 

[M. Y. Zuo]

It is difficult to tell, because we can't read into the minds of Chinese leaders. And our own leadership is so ineffective as to be irrelevant.

But, before you discard it, let me ask you, if you had to put all your money in a company, would you even consider TSMC as a long term proposition? If you were NVIDIA, or QCOM, or any other company, would you want your entire fate to depend on TSMC so long as it is almost entirely Taiwan based? I wouldn't.

Even the threat is very good news for Intel. You'd have to be crazy to be the CEO of fabless company and not be at least a little concerned about the situation in the Orient. It's not entirely predictable either way, and you have no control over it, so naturally you're going to want something to mitigate it. TSMC putting a fab in U.S. is certainly a nod to this, but Intel is going to benefit from this instability in a big way.

And yes, Intel may lose some sales to China and Formosa, but they'll be pretty much the main fab in the world if South Korea and Taiwan end up being engaged in conflict. And it's difficult to see China engaged in war without South Korea being involved. Intel is easily the safest, and this will enter at least somewhat into decisions of this nature. It has to.

This is the type of geopolitical thinking that seems dubious to me. Sure Intel may derive some short term advantages from political instability surrounding their competitors, but in the long term, if such a situation lasts, it seems unlikely for there to be any positive outcome in store for the shareholders, management, ordinary employees, suppliers, or customers.

I would have answered your questions but I try not to talk about politics beyond a certain threshold since there's always smoke and mirrors surrounding these big topics that may cause discussions to produce more confusion than clarity.
And I get the hunch that this topic will definitely not be clear or straightforward even after the obstacles to understanding are removed.

 

[cliff]

I totally agree with ta152h and this is very relevant to this industry. Companies need to make backup plans. Our policy is to create the same designs in GF as we do in TSMC.

I would think that companies on the insane nodes would do the same.

 

[Daniel Nenni]

I totally agree with ta152h and this is very relevant to this industry. Companies need to make backup plans. Our policy is to create the same designs in GF as we do in TSMC.
I would think that companies on the insane nodes would do the same.

Thus the need for Intel Foundry Services. I just did a podcast with the IFS VP of Design Ecosystem in fact:

Podcast EP153: Suk Lee’s Journey to Intel Foundry Services, with a Look to the Future - Semiwiki

Dan is joined by Suk Lee, Vice President of Design Ecosystem Development at Intel Foundry Services. He has over 35 years of experience in the semiconductor industry, with engineering, marketing, and general management positions at LSI Logic, Cadence, TI, Magma Design Automation and TSMC. At...

semiwiki.com

It is breaking listening records.