Why talk about yield rate and advanced processes? Because of the consolidation in semiconductors, few semiconductor companies have their own factories for manufacturing. For this part, please refer to the description of my other blog article “6 Common Semiconductor Investment Myths“. In addition, chip functions are becoming more and more powerful and complex, making it necessary to have more advanced manufacturing techniques to meet the requirements of chip designers on chip performance design.
But the problem is that with both technical ability and capital, there are few foundries that can meet the above-mentioned so-called requirements of chip designers on chip performance design. At present, only TSMC (ticker: TSM), Samsung, and Intel (ticker: INTC) are left with this ability. But Intel has been overwhelmed in recent years; therefore, only TSMC and Samsung can provide high-end wafer foundry services at present.
TSMC discussion in my books
I have discussed the company Nvidia (ticker:NVDA) in two recent books; including:
In my book “The Rules of Super Growth Stocks Investing“:
- Sections 2-4, the entire section is dedicated to introducing the company TSMC
- Section 3-3, analyze the business development of technology companies to grasp the pulse of key industries
In my book “The Rules of 10 Baggers“:
- Section 3-2, the entire section is dedicated to introducing TSMC and the global semiconductor supply chain.
Advanced process
What is advanced process?
At present, the industry generally simply uses the 16-nanometer process as the boundary, below 16-nanometer process will be advanced process. One of the main reasons is that in addition to TSMC, Samsung, and Intel, other wafer foundries (mainly UMC, Globalfoundries, SMIC) under various factors and considerations (including technology, capital, embargo), all stay on the 14nm process node.
There is no fixed node definition for advanced processes. 7-8 years ago, 14nm was considered an advanced process, but with the evolution of time and the maturity of technology and cost reduction, few people now regard 14nm as an advanced process. In terms of current chip manufacturing technology, 12nm (included) and below are considered advanced processes. But the most conservative statement is that at present, there is no dispute that the node process technology below 10 nanometers (included) is an advanced process.
In order to impose an embargo on Chinese chips, the U.S. Department of Commerce officially released the “Preventing the Improper Use of CHIPS Act Funding” rules on March 21, 2023, and defined traditional chips. The listed specifications clearly state that 28nm and above are conventional wafers. In other words, a process of 28nm or below is considered an advanced process.
TSMC’s definition
After 2022, TSMC will specifically mark that TSMC’s so-called advanced process only includes 4nm and 7nm processes when it releases its quarterly financial report. But please note that in 2020, TSMC’s advanced manufacturing processes marked in each quarter’s financial report include 4nm, 7nm, and 16nm processes.
In short, with the evolution of time and the advancement of technology, the boundary of nanometer values defined by advanced manufacturing processes will become smaller and smaller, so it is a variable value.
Barrier to entry too high, what are the barriers?
Factory cost
Each factory needs at least tens of billions of dollars, which is the lowest basic figure, so as the process technology improves and inflation increases year by year. With tens of billions of dollars alone, not many listed companies have this capability. After the construction is completed, the semiconductor materials and equipment need to be calculated separately, as well as annual maintenance fees and regular upgrade fees. This pile adds up to a huge pressure on the capital investment of a listed company.
Spend time
It will take at least three to five years for everything to go smoothly from the start of the plant to the commercial mass production. Semiconductors are a cyclical industry. After the factory is built, demand begins to slow down.
Political Factors
SMIC in mainland China, most people know that it has talent, capital, and market, plus customer orders, all meet the perfect conditions for pursuing advanced manufacturing processes. However, in the reality that Western countries led by the United States are afraid that China will surpass the Western world and implement an embargo on key semiconductor equipment, SMIC’s 7-nanometer advanced manufacturing process has been delayed for several years and cannot be mass-produced. As CNBC’s report said: “China is pushing to develop its own chips — but the country can’t do without foreign tech“
Only three are able to
The entry barrier for advanced processes is too high, and almost most wafer foundries have announced that they will no longer pursue advanced processes and only provide foundry services for mature processes with lower costs. However, UMC (ticker: UMC) recently said that it is “assessing” whether to re-enter the advanced process because of the hot wafer foundry market.
At present, there are only three companies, TSMC, Samsung, and Intel, that have the ability to provide advanced manufacturing processes—there are many reasons, and we will discuss them later.
TSMC monopolizes advanced process market
I have shown a picture in 2-4 of my book “The Rules of Super Growth Stocks Investing”. According to the latest information, TSMC monopolizes more than 75% of the world’s wafer foundry “advanced process” market. The foundry profit of advanced processes is much higher than that of mature processes, which is easy to understand. Even more frightening, customers can’t find an alternative.
Samsung Electronics fails to catch
Some readers may disagree and say, isn’t there still Samsung? How can there be no other alternative. Samsung is very ambitious, with the support of the state, its own semiconductor technology strength, the huge capital and resources of the Samsung Group, and the strong ecosystem of South Korean semiconductors; it is indeed the most powerful opponent of TSMC for a long time. Most people have forgotten that it was only 7-8 years ago that Samsung originally surpassed TSMC in terms of market share and technical strength in wafer foundry and advanced semiconductor processes.
Dilemma on a non-technical level
Samsung Electronics boldly announced three years ago that it would become the global leader in the system semiconductor industry by 2030, but now it suffers from slow growth in business such as chip processing and foundry, and important decisions are also due to actual control. The in-charge chaiman of the company, as Nikkei a reported:”The trials of Samsung: Vice Chairman Lee’s legal troubles could threaten tech dynasty“.
A five-year ban by South Korea’s Justice Ministry, Lee Jae-yong cannot return to Samsung Electronics’ management until 2027. All major plans, key decisions, major capital investments, and mergers and acquisitions of Samsung Electronics have all been suspended because of the lack of leaders.
Technical dilemma
However, Samsung is currently encountering many problems in the advanced proces. You can refer to the discussion in 3-3 of my book “The Rules of Super Growth Stocks Investing”, and you will know the many cases of clients who have suffered losses mentioned in it.
Intel aggressively catches up
Intel’s ambition
Intel intends to surpass TSMC in the manufacturing capabilities of advanced processes in the next 4-5 years. But due to poor past records again and again. Therefore, even though the new CEO re-emphasized Intel’s ambitious plan to surpass TSMC last month, the response did not seem to be very enthusiastic.
Future plans, Intel first, Samsung second, TSMC conservative
According to the current “respectively disclosed” plans of the three companies for future advanced process development: Intel is first, Samsung is second, and TSMC is the most conservative. But this is their own plan. As for whether it will come true as planned in the end, and how high the chance of it will come true, no one can say for sure.
I suggest readers to take a look at the plans of the three companies. There is a table in my blog post “Comparison of TSMC, Intel, and Samsung’s new process roadmaps for future chip“, which lists these three companies from the past to the future before 2025; And the time course of each company from the current process to the next 2nm.
Advanced process yield figures
The figure of advanced process yield Samsung’s advanced process yield is very poor, and it is not on the same level as TSMC. Perhaps we should say that TSMC is too good. It is a rare ability to compare the yield rate of advanced processes with the yield rate of mature TSMC processes.
3nm comparison between TSMC and Samsung
According to Digitimes Research, on the 3nm process node, Samsung’s transistor density is 170 million, and TSMC’s transistor density is 290 million, a full 1.7 times more. In addition, judging from the usage of extreme ultraviolet light machines (EUV), currently 65% of the world’s extreme ultraviolet light machines are used by TSMC, and Samsung’s usage is less than 20%, and Samsung also needs to allocate EUV light machines to memory production, the market estimates that Samsung’s monthly production capacity of 3nm may be less than 10,000 pieces in 2023.
According to a report by the South Korean media BusinessKorea in mid-April, 2023, the yield rate of TSMC’s current 3nm process technology is still far behind that of the earlier 4nm (N4) process technology. Compared with the highest 63% yield rate of 3nm process technology, TSMC’s 4nm process technology yield is currently expected to be around 80%. Samsung’s 4nm process technology yield rate has reached at least 70%, which is close to TSMC’s 4nm process technology yield rate of 80%.
But please note: Samsung Electronics’ 3nm process technology uses GAA transistor architecture; but TSMC’s 3nm process is still using Fin Field Effect Transistor architecture (FinFET).
TSMC’s yield rate
For example, TSMC’s 5-nanometer yield has risen from 50% to 80% in just a month after mass production, the 7-nanometer trial production rate is over 70%, and the 4-nanometer yield is 70%.
3nm has been commercialized and mass-produced at the end of 2022. According to media reports at the end of 2022, the yield rate of 3nm is expected to fall at 60% to 70%, or even 75%-80%. During TSMC’s 3nm mass production and factory expansion ceremony held at the Tainan Fab 18 new construction base at the end of 2022, Chairman Mark Liu mentioned that the yield rate of the 3nm process is comparable to that of 5nm; this is a very rare achievement , because 3nm is a new process that has just been mass-produced.
However, in mid-July 2023, media reported that the market rumored that Apple’s A17 Bionic and M3 processors had obtained 90% of TSMC’s 3nm process capacity. However, because TSMC’s current 3nm process yield rate is only 55%, and there is still a distance from the normal yield rate, TSMC will only charge Apple for the real successful usable chip, not the standard wafer price way of charging.
Samsung’s yield rate
Samsung’s 4nm yield rate has been greatly improved from 35% to nearly 60% in mid-2022; it has been pushed to 75% in mid-2023.
Samsung’s 3nm yield rate is only 30% at its highest. In April 2022, the media revealed that Samsung’s GAA-based 3nm process yield rate was only between 10% and 20%, which was much lower than expected. However, some media said that in 2023, the yield rate has been pushed to 60%, and some media reports have even reported a figure as high as 65%.
In order to overcome the 3nm yield problem, the media reported that Samsung is seeking assistance from Silicon Frontline Technology to improve the 3nm GAA yield. But why Silicon Frontline Technology was choosed? The main purpose is to overcome the shortcomings of the production process in terms of water quality and electrostatic discharge prevention technology by using all the insight technologies of this company, so as to improve the yield of wafers.
Intel’s yield rate
In July 2020, Intel announced the second quarter 2020 financial report. The financial report revealed that due to the unsatisfactory 7nm process yield, Intel’s 7nm CPU products were delayed by about 6 months compared with previous expectations. This is Intel’s typical answer to the process yield rate, we have nowhere to know the exact number. The outside world only knows that the yield rate is not good, but Intel never released the actual number.
But everyone should pay special attention to this: Intel’s schedule and yield rate in the market will be skeptical at first, because Intel’s previous record is really not good──Intel’s 14nm process has been announced from successful trial production to Real customers can buy it in the market, and it has been delayed for 7 years (2014–2020). This is Intel’s biggest problem now!
The Importance of Yield to Wafer Manufacturing
Simply put, you can think of it this way: Yield equals profit!
Price speaks
What is the price of semiconductor foundry?
At present, the foundry price of advanced process wafers ranges from 7,000 to 15,000 US dollars, and the average price of mature process wafer foundries is about 3,200 US dollars.
TSMC has price power
My personal analysis believes that this has the most obvious impact on profits. This is why TSMC dared to announced in 2021 without any warning, it suddenly announced a 20% increase in foundry fees and implemented it immediately. And in May 2022, it was announced that the price will be increased by 5% to 8% from 2023 — This is the competitive “price power” that few companies can have.
Related articles
- “What’s TSMC DCF intrinsic value?How to calculate it quickly with a free tool?“
- “TSMC negative corp culture and management style are detrimental to its future and growth“
- “Four chip companies account for one-third of S&P 500 gains so far this year
- “Top five lucrative artificial lucrative intelligence listed companies“
- “What’s TSMC DCF intrinsic value?How to calculate it quickly with a free tool?“
- “How many fabs and houses does TSMC have currently and in the future?“
- “Comparison of TSMC, Samsung, Intel’s Yield and Advanced Process“
- “The TSMC cost, sell price, and R&D cost of chip foundry“
- “ASML, who dominate TSMC’s fate“
- “Comparison of TSMC, Intel, and Samsung’s new process roadmaps for future chips“
- “Two long-term threats to TSMC: US and SMIC“
- “Why is TSMC’s profit margin much greater than competitors?“
- “How does TSMC make money?“
- “Zyvex and sub-nanometer semiconductor processes, will Zyvex threat TSMC?“
- “TSMC gets emerging and serious challenges“
- “How does nVidia make money, Nvidia is changing the gaming rules“
- “The reasons for Nvidia’s monopoly and the challenges it faces“
- “Why nVidia failed to acquire ARM?“
- “Revisiting Nvidia: The Absolute Leader in Artificial Intelligence, Data Center, and Graphics“
- “How does Intel make money? and the benefits to invest in it“
- “Intel’s current difficult dilemma“
- “How does Texas Instruments make money? Amazing long term capital reward and company net profit margin!“
- “How AMD makes money? A rare case of turning defeat into victory“
- “Why is AMD’s performance so jaw-dropping?“
- “Qualcomm diversifies success, no nonger highly dependend on phone“
- “How does the ubiquitous Arm make money?“
- “Significant changes in Broadcom’s business approach“
- “Data center, a rapidly growing semiconductor field“
- “How does Applied Materials, lord of semiconductor equipment, make money?“
- “The lucrative semiconductor supply chain“
- “Global semiconductor chip market in detail, big dominators and markets“
- “6 common wrong semiconductor investment myths“
- “Gen 3 semiconductor“
- “Three EDA oligopoly vendors: Synopsys, Cadence, and Mentor Graphics“
- “How does, the EDA oligopoly, Cadence make money?“
- “How does Synopsis, the EDA oligopoly, make money?“
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
