TSMC doesn’t just sell wafers, it sells trust. It’s the Colgate Ring of Confidence for fabless customers. This focus on trust started at the very beginning when Morris Chang founded TSMC over 25 years ago, and still today trust remains an essential part of their business.
When TSMC started, the big thing it brought was that it was a pure play foundry. It had no product lines of its own. Foundry had existed before, but it was semiconductor companies selling excess capacity to each other. This meant that the buyer of wafers was always vulnerable to the seller company being successful and needing that capacity and they would get thrown out. And that was without even considering that companies might be buying wafers from a competitor, sending them masks of their crown-jewels and trusting that nobody would try and reverse engineer anything.
So when TSMC started, it brought the confidence that TSMC wasn’t going to suddenly stop supplying wafers since they needed the capacity for themselves, nor that TSMC was competing with them in the same end-markets. That is not to say that there never have been capacity issues: TSMC cannot afford to build excess capacity “just in case” any more than anyone else, so when businesses take off better than forecast or some other event happens, wafers can end up on allocation just as has always been the case in semiconductor, an inherently cyclical business.
Not competing with its customers remains the case today (as, to be fair, it does for GlobalFoundries, SMIC, Jazz and other pure-play foundries). But it is not the case for Samsung, which is in the slightly bizarre situation of having Apple as its largest foundry customer while competing with it as the volume leader in the mobile market (and never mind the lawsuits). Samsung is large diversified conglomerate, almost a lot of different companies all using the Samsung brand-name. Samsung makes all the retina displays for iPhone too, and doesn’t even use them themselves. They are a huge memory supplier. Apple is rumored to be moving from Samsung to TSMC for its next application processor (presumably to be called A8).
Intel has made a lot of noise about entering the foundry business but the only significant company that has been announced is Altera. And there are even rumors that they are thinking of going back to TSMC. But a company like Altera using Intel for its high end FPGA products might need 1000 wafers a month when a fab has a capacity of 50-100K wafers a month. It won’t “fill the fab”. It needs to get an Apple or a Qualcomm or an nVidia for that. But at least Altera can be confident that no matter how successful Intel’s other businesses are, at those volumes they are unlikely to be squeezed out, the amount of capacity they need is in the noise.
The other area that foundries have had to invest is to create an ecosystem around them of manufacturing equipment and material suppliers, IP and EDA companies. This grand alliance has made a huge investment in R&D. In aggregate, it has invested more than any single IDM. As a result the Grand Alliance has produced more innovation in high performance, lower power, lower cost than any single IDM.
At a modern process node deep cooperation is required. It is not possible for everything to be done serially: get the process ready, get the tools working on a stable process, use the tools to build the IP, start customer designs using the IP and the tools, ramp to volume. Everything has to happen almost simultaneously. This requires an even greater sense of trust among everyone involved, and the fact that changing PDKs means changing IP means redoing designs means inevitably an increased investment too.
So TSMC has a competitive edge, the great wall of TSMC to keep out the barbarian hordes:
- it sells confidence and trust, not just wafers
- it does not compete with its customers
- it has orchestrated a grand alliance to create an ecosystem around its factories that has made a bigger R&D investment than any single IDM.
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