TSMC ♥ UMC?

The relationship between TSMC and UMC is one of the more interesting ones in the fabless semiconductor ecosystem in my opinion. Both are headquartered in Hsinchu Taiwan and it is very hard to visit one company without seeing the other as they have facilities right across the street from each other. They also share humble beginnings from inside the same incubator (ITRI) so to me TSMC and UMC are brothers.

Industrial Technology Research Institute is a nonprofit R&D organization (incubator) for applied research and technical services based in Taiwan. ITRI is credited with transforming Taiwan’s labor-centric economy into a technology powerhouse originating more than 260 companies including UMC and TSMC. In fact, UMC spun out of ITRI in 1980 as Taiwan’s premier semiconductor company. TSMC spun out in 1987 as the world’s first pure-play foundry and the rest is as they say history.

Having worked with both UMC and TSMC for much of my career I can tell you that they are two very different companies with unique business models. While TSMC has always been a leading edge company, UMC has perfected the “second source” foundry business model like no other. Chartered Semiconductor tried it and failed, SMIC tried it and is failing, Dongbu, X-Fab, Siltera, the list goes on and on… The jury is still out on GlobalFoundries but with the acquisition of the IBM Semiconductor business they have a legitimate claim to leading edge foundry technology, absolutely.

Unfortunately for UMC the foundry landscape has changed. With the re-entrance of leading edge IDM Foundries (Intel and Samsung) technology requirements are moving at a much faster pace and the Capital Expenditure requirements are well out of UMC’s reach. UMC’s CAPEX for 2015 is less than $2B while TSMC’s 2015 CAPEX is greater than $10B! This CAPEX explosion started at 28nm but with FinFETs (16nm and 10nm) plus new devices coming at 7nm the CAPEX requirements will continue to skyrocket as we desperately try to keep up with Moore’s Law.

What is UMC to do?

If you remember, at 28nm UMC joined the Common Platform Fab Club and licensed the IBM Gate-First implementation. Fortunately UMC changed to the Gate-Last version of 28nm which is used by TSMC and is now reaping the rewards of its continued “T-Like” compatibility. I do not see UMC licensing the Samsung version of 14nm like GF did so what choice do they have but to develop their own T-Like 16nm? With the help of TSMC and UMC shared customers: Qualcomm, Texas Instruments, MediaTek, etc…

The alternative of course is for TSMC to license the FinFET technology to UMC in a similar “copy exact” agreement to what Samsung and GF did. Morris change joked that this made GF Samsung’s “accessory” but as you may have read both Apple and Qualcomm pushed for this agreement so it needs to be taken seriously. There is no way the big fabless companies will be satisfied with just one foundry source moving forward. It is no coincidence that Apple is ping ponging between Samsung and TSMC, right?

So what do you think will happen here? Will TSMC help a brother out?

Also Read: Apple Leaks Chip Sources?