Two Contrasting Trends Emerge in Wafer Foundry Industry

AI industry has been driving semiconductor industry to advance forward. Benefited from the surge in AI-driven demand for advanced process chip, foundry industry is experiencing a gradual turnaround, while demands for consumer chip and automotive chip have not yet fully recovered, and competition remains fierce in the mature process chip sector, representing a stark contrast within the wafer foundry industry.

Financial Results Indicate Strong AI Development but Weak Automotive Terminal Demands

Recently, several major foundries released their Q2 financial reports and shared outlook on future market conditions.

For the second quarter ending June 30, TSMC reported consolidated revenue of approximately USD 20.82 billion, up 32.8% YoY and 10.3% QoQ, which was attributed to strong demand for its 3nm and 5nm technologies.

As per the financial report, revenue from advanced technologies (7nm and below) accounted for 67% of TSMC’s total wafer revenue in 2Q24. In terms of application areas, HPC has replaced mobile business as the core driver of the company’s growth, contributing 52% of revenue.

Additionally, although TSMC’s automotive electronics revenue grew 5% QoQ, the company warned of a potential downturn in the automotive market this year.

UMC reported Q2 revenue of TWD 56.8 billion, up 4% QoQ. UMC expected customer inventories in the communications, consumer electronics, and computer sectors to return to seasonal levels as usual in the second half of this year, and to reach healthy levels by the end of the year.

However, demand in the automotive end market remains weak, which may extend the period of inventory adjustment, with healthy levels anticipated only by the first quarter of next year.

On August 6, GlobalFoundries released its latest financial report.

In the second quarter of this year, the company achieved revenue of USD 1.63 billion, a year-on-year decrease of 12% and a quarter-on-quarter increase of 5%. Net profit was USD 155 million, a year-on-year decrease of 35% and a quarter-on-quarter increase of 16%.

Industry sources cited by the report from WeChat account DRAMeXchange believe that during the pandemic, customers in sectors such as IoT, mobile device, and data center accumulated high inventory, which impacted GlobalFoundries’ revenue.

Moreover, the company is experiencing a cyclical downturn due to soft demands in the automotive, industrial, and other sectors.

Advanced Processes Continue to Thrive while Mature Processes Face Intense Competition

The adoption of AI generative models keeps on the rise, driving high demand for AI chip. In this context, advanced processes have been well-received, leading to price increase and production expansion.

TrendForce’s survey in June showed that TSMC is seeing full capacity utilization in its 5/4nm and 3nm nodes due to strong demand from AI applications, new PC platforms, HPC applications, and high-end smartphones.

Its capacity utilization is expected to exceed 100% in the second half of the year, with visibility extending into 2025. Given cost pressures from overseas expansion and rising electricity prices, TSMC plans to raise prices for its advanced processes, which are experiencing strong demand.

TSMC is seeing full capacity utilization in its 5/4nm and 3nm nodes due to strong demand from AI applications, new PC platforms, HPC applications, and high-end smartphones. Its capacity utilization is expected to exceed 100% in the second half of the year, with visibility extending into 2025.

Given cost pressures from overseas expansion and rising electricity prices, TSMC plans to raise prices for its advanced processes, which are experiencing strong demand.

As per other sources cited by the same report, TSMC informed customers of a price increase for 5/3nm process products in 2024 at the beginning of this year.

In late July, TSMC notified several customers that due to rising costs, prices for 5/3nm process products will increase again starting January 2025, and the increase will range from 3-8%, depending on the tape-out plan, product, and partnership.

Meanwhile, the surge in demand for advanced packaging driven by AI will also lead to higher CoWoS prices.

To seize the significant opportunities brought by AI, many companies are actively investing in advanced processes. Currently, the 3nm process is the most advanced in the industry.

Meanwhile, TSMC, Samsung, Intel, and Rapidus are vigorously promoting the construction of 2nm fabs. Previously, TSMC and Samsung intended to produce 2nm chip at scale in 2025, while Rapidus planed to start trial production in 2025.

Following 2nm, 1nm chip will be the next goal for these fabs. According to their plans, the industry is likely to see the mass production of 1nm chip from 2027 to 2030.

Unlike the rising prices and volume in advanced process chip, mature process chip faces some uncertainty due to weaker-than-expected recovery in end-user demand, and sees more intense competition among manufacturers.

TrendForce’s survey reveals that the capacity utilization rates of PSMC and Vanguard is expected to improve more than anticipated in the second half of the year. However, overall demand for mature processes remains weak, with average capacity utilization still around 70–80%—indicating no significant shortages.

TrendForce further pointed out that in 2024, concerns over global inflation and weak recovery in end-demand may result in inconsistent momentum in replenishing inventory. Many foundries might offer price incentives to attract customers and boost capacity utilization, leading to a decline in overall ASP.

Furthermore, a significant amount of new capacity is expected to come online in 2025, including TSMC JASM, PSMC P5, SMIC’s new Beijing/Shanghai plants, HHGrace Fab9, HLMC Fab10, and Nexchip N1A3.

This increase in mature process capacity could intensify competition and impact future pricing negotiations.