The AI Revolution and the Semiconductor Industry
In the world of technology, the semiconductor industry is the unsung hero, the silent partner that powers the digital revolution. The rise of artificial intelligence (AI) has brought this industry into the limelight, revealing the intricate dance between chip manufacturers, AI developers, and the global economy. Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest foundry, is at the heart of this dance. Despite the booming AI market, TSMC’s fortunes are not solely tied to AI. The company’s performance is a complex interplay of various factors, including the health of the smartphone, PC, and generic server markets.
The AI Market: A Piece of the Puzzle
TSMC’s revenues from manufacturing GPU, CPU, and custom ASIC compute engines for AI inference and training represent only 6 percent of its total revenues. This means that AI products only drove $941 million in revenues. While this may seem like a significant amount, it pales in comparison to the revenues generated by companies like Nvidia, which are making a lot more from AI. This disparity highlights the fact that while manufacturing and packaging are important, design and sales drive a lot more revenues and, presumably, a lot more profits.
The Future of AI and TSMC
Looking ahead, TSMC expects AI to drive somewhere in the “low teens” of its revenues in the next five years, with a compound annual growth rate of close to 50 percent. This projection suggests that TSMC’s revenues will more than double between now and 2027, and AI revenues will increase by nearly 5X. However, AI is not the only, or the biggest, driver of revenue growth. The desire to put more chips in more things with more advanced processes to deliver the best performance per watt is what is driving this growth, and AI is but one example of this.
The Challenges of Growth
Despite the promising outlook, TSMC faces several challenges. The recovery of the economy in China that TSMC and others were banking on has not materialized, leading to a drop in sales. The costs for the development and ramping of 3 nanometer and 2 nanometer processes are rising, putting pressure on profits. The ongoing investment in capital equipment, including a very expensive factory that TSMC is building in Arizona, has forced TSMC to burn down $4.38 billion of its cash hoard to run the company and to make $8.17 billion in capital expenses.
The Bottleneck: Packaging
One of the reasons why sales in TSMC’s HPC sector are not higher is that they are gated by the back-end Chip on Wafer on Substrate (CoWoS) silicon interposer technology that a lot of compute engine makers are using to create their devices. The chip foundry itself is not a bottleneck, but the packaging is. Going forward, all chip makers are going to have to be very careful that they line up both wafer etching and packaging.
The Future of Semiconductor Manufacturing
Despite the challenges, TSMC is forging ahead with its 3 nanometer and 2 nanometer ramps. The company expects a strong ramp of N3 in the second half of this year, supported by both HPC and smartphone applications. The N2 development, using nanosheet transistors comparable to Intel’s 18A process, is on track for volume production in 2025. Despite what Intel is claiming about transistor supremacy in 2025 with its 18A process, TSMC believes N2 will be the best in either the West or the East.
In conclusion, the semiconductor industry is a complex ecosystem that is influenced by various factors, including the rise of AI, the health of the global economy, and the advancements in manufacturing processes. As the world’s largest foundry, TSMC is at the heart of this ecosystem, navigating the challenges and opportunities that come its way.
