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TSMC versus SMIC

TSMC versus SMIC
by Daniel Nenni on 09-29-2009 at 12:24 am
Categories: Foundries, TSMC

This blog is about the legal battle between TSMC and SMIC which is currently playing in the California court system. Taiwan Semiconductor Manufacturing Corporation (TSMC) and Semiconductor Manufacturing International Corporation (SMIC) do what their names suggest – the manufacturing of semiconductors for an international roster of clients. TSMC touts itself as the first chip foundry, SMIC touts itself as the first China-based chip foundry. TSMC is ranked #1 , SMIC is #4, see my blog TSMC vs Global Foundries for more details on capacity and revenues.

The starting point is illustrated above, where SMIC went from equipment being installed in August of 2001, to qualified production in December 2001. As a point of proof, TSMC referred to the Fab of the Year Award that SMIC received from Semiconductor International in 2003, highlighting the fact that just four months after installing equipment in its fab, SMIC had four processes up and running, manufacturing 18 different products. Adding to that suspicion was the claim that SMIC hired away 100+ TSMC employees that had access to the sensitive process data required to bring a fab to production. To begin the legal discovery process, TSMC analyzed SMIC .18m silicon from a Broadcom product and documented stark similarities to the identical product silicon from TSMC. With discovery came incriminating emails which are a centerpiece of the case.

December 2003, TSMC filed suit alleging systematic intellectual-property (IP) theft and patent infringement by SMIC. Witness testimony indicated:

  • An estimated 90% of SMIC’s 180nm logic process was copied from TSMC
  • SMIC attempted to disguise the origin of the information by internally referring to TSMC and its technology by the code name ‘BKM1′, referring to ‘Best Known Method 1
  • SMIC’s use of TSMC technologies was ‘no secret’ and was openly discussed by SMIC engineers

Email supporting this testimony included exchanges between SMIC COO Marco Mora (a fromer TSMC employee) and then TSMC employee, Katy Liu, asking that she transfer TSMC’s process recipe documents and technical training manuals to SMIC. Proving once again, even very smart people can do very stupid things.

Not surprisingly, SMIC agreed to settle the case in February of 2005. Under terms of the settlement, SMIC is to pay TSMC $175 million over 6 years and the companies have agreed to cross license 180nm patent portfolios through December 2010.

In August 2006 TSMC filed a new lawsuit for more than $130 million alleging breach of the 2005 agreement. TSMC claims: SMIC continued copying TSMC manufacturing technology for newer (130nm) manufacturing processes in SMIC’s fabs, it also developed the advanced 90nm process using TSMC’s know-how.

“SMIC has carried out massive corporate espionage directed by certain [of] SMIC’s top operating officers,” the 31-page complaint said. “SMIC lavishly copied the information it stole from TSMC, word for word, line for line, diagram for diagram, and even typographical error for typographical error.”

In November 2006the High Court in Beijing accepted SMIC’s filing in which it claimed TSMC had intentionally disseminated untrue and misleading statements to damage SMIC’s reputation and goodwill.

TSMC “rather than competing fairly in the marketplace, have undertaken a concerted effort to infringe SMIC’s legal rights unfairly,”

TSMC filed in California for a reason, California has significant case law in regards to protecting intellectual property. SMIC filed in Bejing for a reason, China has scant case law in regards to intellectual property. It will be interesting how the Bejing and the California court proceedings compare. The California trial, which began this month, is expected to last 50-60 days, and is being broadcast by the Courtroom View Network. Trial updates will be available via my Twitter: DanielNenni

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TSMC Versus Global Foundries

TSMC Versus Global Foundries
by Daniel Nenni on 09-13-2009 at 11:46 am
Categories: Foundries, GlobalFoundries, TSMC

The big news last week was Global Foundries’ (GFI) agreement to acquire Chartered Semiconductor (CHRT) for $3.9B, but what does it really mean to the semiconductor world in total?

CurrentlyTSMC has 11 fabs producing wafers, 8 in Taiwan, 1 in Shanghai, 1 in Singapore, and 1 in Washington State. After the acquisition, Global Foundries will have Chartered’s 6 fabs in Singapore, AMD’s fab in Dresden with 1 more fab under construction in Dresden and another under construction in upstate New York, so 9 fabs in total.UMC has 10 fabs, 8 in Taiwan, 1 in Japan, and 1 in Singapore, and SMIC has control of 11 fabs in China. The ranking numbers above are clearly disjointed, UMC is #2 with 10 fabs, while SMIC is #4 with 11 fabs?

Unfortunately capacity does not guarantee economies of scale: TSMC owns 50% of the foundry market revenue and 80% of the profits, UMC is second with 12%, GFI, SMIC, and CHRT have yet to show a profit. Why are these numbers disjointed you ask? Wafer yield (good die per wafer) is important of course, yield is secret however, but from personal experience, TSMC is the top yielding foundry and these numbers support that.

Just as important is foundry wafer pricing, which, interestingly enough, is determined by the customer, more often than not. TSMC is considered a first source for semiconductor manufacture, UMC, CHRT, and SMIC are considered second sources, meaning that leading fabless semiconductor companies work with TSMC first, then replicate manufacturing at the other foundries. TSMC has the most advanced process technologies and the most skilled people so they are an easy first choice, reducing the risk of introducing a new product, and getting it to market as early as possible. Once the product is ramped on a TSMC process, wafer price becomes the central issue and the cutthroat negotiation with other fabs begin. Second and third sourcing also has fault tolerance built in, just in case Taiwan has a natural or unnatural disaster.

The foundry business challenge is to make their manufacturing processes sticky, focusing on customer retention, enabling a premium pricing strategy. Believe me, this is a key part of TSMC’s overall corporate strategy, a very deep customer loyalty program. Examples include:

  • Semiconductor design enablement programs, TSMC spends millions of dollars every year ensuring Semiconductor Design and Manufacture Predictability.
  • TSMC has a closely coupled services group in Global Unichip Corporation, which competes with the fabless ASIC companies mention in my blog: EDA is Dead.

Can GFI compete head-to-head with TSMC? Not now, and probably not ever. GFI’s United Arab Emirates based financial backing is a key selling point, deja vu of SMIC which is backed by the Chinese government but has yet to show a profit. GFI’s competitive advantage today is that they are not TSMC, for those who fear a foundry monopoly. Who knows what tomorrow will bring but based on my knowledge of the GFI executive staff, expect an innovative and sticky approach to the foundry business.