Opinion: 5nm capacity is at risk of overcapacity

In April this year, TSMC’s 5nm process process was ahead of Samsung’s entry into mass production. However, in the early stages of mass production (the second and third quarters of this year), capacity is still relatively limited, in an absolute state of oversupply, and can only meet the needs of its two largest customers, Apple and Huawei Hyse. In March,media reported that TSMC was planning to start mass production of the 5nm process chip, and said the plant was full of capacity and could not accept any orders in the short term.

At the same time, TSMC’s 7nm process process and production capacity has entered an excellent state, has been in a full-load state, in the short term, there is no possibility of large surplus capacity. The 5nm is a new process after 7nm, which to some extent shares the pressure of a portion of the 7nm production capacity. Some analysts said that this year TSMC 5nm process production line revenue, will account for about 10% of the overall revenue.

This year, the 5nm chips that are sure to be available are Apple’s A14, as well as the A14X application processor. In addition is Heist’s Kirin 1020 (also said to be The Kirin 1000), while the Kirin 1020 is not necessarily the name of The iA’s next generation Ofire chip, the official model and related information may be announced at the IFA 2020 (2020 Consumer Electronics Show in Berlin, Germany) in September this year. Separately, according to a report by MyDrivers, Mr. HiSilicon will mass produce two 5nm chips this year, but Huawei has yet to give details.

In addition to Apple and Huawei Hys, from the end of this year, AMD’s Zen 4 architecture CPU, as well as the RDNA 3 architecture GPU, Qualcomm’s new 5G mobile phone chip SnapDragon875 and X60 baseband chips, Nvida’s next-generation Hopper architecture GPU chip, and MediaTek and Sares, among other customers, will also start using TSMC 5nm system to produce corresponding chips. In addition, the industry is widely known that Intel will also become TSMC 5nm customers.

Opinion: 5nm capacity is at risk of overcapacity

Variables

However, huawei’s overseas sales of mobile phones have been greatly affected by the outbreak of Xinguan pneumonia, as well as the U.S. blockade and crackdown, which led directly to the company’s lower sales forecast for the second half of this year to launch a new flagship phone, which has affected shipments of the Heiskirin 1020 chip.

However, TSMC has always been very important to Thesea this big customer, but also make every effort to meet customer needs, 5nm production capacity to protect Huawei Kirin 1020. TSMC is reported to have urgently accepted orders of up to $700 million from Huawei, which will be shipped before the U.S. ban takes effect in mid-September, mainly involving 5nm and 12nm processes, of which about 25,000 wafers in the 5nm process, at a price of $15,000 each, the order is worth $375 million.

There are also supply chain sources that HiSilicon has under built TSMC 5nm and 7nm chips about 20% of the production capacity. However, the capacity released by Mr HiSilicon this year will soon be eaten by apple and AMD, which could ship 5nm chips by the end of the year.

It is reported that The 5nm production capacity of Heath Cut single was taken down by Apple, apple also asked TSMC in the fourth quarter to add 10,000 pieces of 5nm chip production capacity. In addition, TSMC customized a 5nm process-enhanced version for AMD, which has been put forward by AMD for more than 20,000 12-inch wafers per month, and plans to be in place in the fourth quarter of this year. Apple’s need for an additional 10,000 pieces of production is likely to follow.

For HiSilicon, whether it is a cut,or a temporary addition to the 5nm process chip order, is helpless, is to deal with the U.S. crackdown passive measures.

TSMC previously announced that the 5nm process yield reached 80%, which is a very high level in the initial stage of mass production. And as the third and fourth quarters gradually increase, the rate of improvement will steadily increase. These are increasing opportunities for chip makers looking to get 5nm process capacity as soon as possible, especially in 2021, when more manufacturers will consider entering the 5nm process gate.

Just last week, NXP announced it had joined TSMC’s 5nm process capacity battle. The company’s next-generation automotive chips will use TSMC 5 nm process (N5P), which is expected to deliver the first 5nm process samples to NXP’s main customers by 2021.

This seems to be a signal that in 2021, in addition to the previously mentioned chip manufacturers will follow up tSMC 5nm process, it is likely that more manufacturers will join the ranks, thus filling the maturing and improving 5nm production capacity. So, will it go on with the script? The answer is not necessarily.

Uncertainty

We know that TSMC’s most profitable processes are 7nm, 16nm and 28nm respectively. It is reported that TSMC bucked the trend in the first quarter of 2020, achieving a net profit of T$119 billion, a record high. Revenue in the first quarter reached T$310.6 billion, up 42% year-on-year. Among them, 7nm process revenue accounted for up to 35%, 10nm accounted for only 0.5%, 16nm accounted for 19%, 16nm and more advanced process accounted for 55%. The next 5nm process will further consolidate this situation.

In this context and development momentum, TSMC will continue to improve the mature 7nm process to further increase production to expand the 7nm process to more midrange chip customers. At present, TSMC 7nm production capacity is in short supply, after further upgrades, its development prospects in the next few years are still optimistic. And will this form a competitive relationship with the 5nm capacity to some extent? After all, 5nm is the world’s most advanced production process process, its price is very expensive, can withstand the manufacturerist is after all a few, 7nm, 6nm is also very advanced process, are a good choice.

In addition, the new crown pneumonia outbreak and U.S. trade barriers are significant and future uncertainty factors, the future application trend of advanced process will have a subtle impact.

At the recent TSMC shareholders’ meeting, there were shareholders to ask whether it would have an impact on next year’s performance if it could not take the Huawei Seas order, TSMC Chairman Liu Deying responded that if there is no HiSilicon order, whether at the level of capacity, order or mobile phone market share, many customers want to fill the gap, but do not know how long to fill, to see the industry dynamic, industry agility;

Liu’s answer may also show that there is uncertainty about capacity utilization of 5nm next year. Even companies with huge influence, such as TSMC, are helpless, in the event of a global situation and strong non-market factors.

For the progress of advanced process process, Liu Deyin said that the 5nm process is expected to achieve large-scale mass production next year, the enhanced version of the 5nm process will be mass production in 2022, is currently developing the equivalent of the third version of the 5nm process 4nm technology, is expected to be mass production in 2023. All three devices are common.

However, in terms of macroeconomic conditions, Mr Liu believes that a V-shaped reversal in the economy in the future is unlikely, possibly a U-type or L-shaped. This shows that the economic recovery is a relatively long process, which also to a certain extent restricts the popularization of advanced processes, because the market demand is probably not so large.

Turning to the capacity and demand of the 5nm process, JPMorgan did a statistic over the weekend, as shown in the figure below. The agency believes TSMC’s 5nm capacity utilization could decline from the fourth quarter of this year if trade barriers persist, and there will be no gaps for large customers other than Apple.

As can be seen from the figure, Huawei’s 5nm chip orders are still impressive, second only to Apple. And in 2021, due to trade barriers, the figure predicted that the amount of 25k-35k wafers per month may no longer exist (we certainly hope this does not happen), and then the customer demand for 5nm capacity is limited, although there will be more than one customer to eat Off Heath, but it seems not enough, by then, whether the supply-demand relationship will be as in 2020, to draw a question mark.

Furthermore, in order to maintain technological advancement and leadership, TSMC said capital expenditures for the full year 2020 will not change. Especially in the development of 7nm and 5nm advanced processes, the company is still constantly under the single EUV lithography machine. In addition to ASML’s lithography machine, EUV-related hoods and modules are also frantically placing orders.

At the same time, ASML has announced a new EUV technology, the first generation HMI multibeam detector HMI eScan1000, which is suitable for 5nm and more advanced processes and is said to increase the manufacturer’s production capacity by 600%.

HMI eScan1000 is a high-tech monitoring system based on HMI multi-beam technology that specializes in the quality of wafers. The HMI eScan100 is capable of producing and controlling nine electron beams simultaneously, greatly reducing the time-consuming time-consuming cost of wafer quality analysis and increasing throughput by up to 600% compared to a single electron beam inspection tool.

What is the concept of 600% promotion? For example, in the first half of this year, TSMC’s 5nm process capacity reached 10,000 wafers/months, although the impact of the epidemic in the early stage, but it is expected that the peak of shipments will be in Q3, with the support of new EUV equipment, production capacity will be increased to 7-80,000 wafers/ month. Of course, a 600% increase in capacity is only a theoretical data, before the completion of wafer detection, there are purification, coating and many other processes, each link will affect the final capacity efficiency.

If such capacity improvement efficiency is released in 2021, there will be considerable capacity of 5nm by then, and there is a great deal of uncertainty as to whether there will be enough customer demand to fill it.

Finally, Samsung is also an important consideration.

Because by 2021, Samsung’s 5nm production capacity will also be released, so that the overall 5nm chip manufacturing capacity on the market will be increased by a large block.

Some time ago, Samsung announced that its 5nm process line had snapped up orders from Qualcomm and Nvito. However, it is widely believed that Samsung wafer foundry’s 5nm production capacity and yield in the second half of the year will still be difficult to catch up with TSMC, TSMC is confident that this year will be the only wafer foundry that can provide 5nm production.

In May, Samsung announced plans to increase wafer foundry capacity at its Pyeongtaek plant in South Korea, where a new wafer foundry line will build 5G, high-performance computing (HPC) and artificial intelligence (AI) chips based on a 5nm process. The company hopes the new contract line will be fully operational by the second half of 2021.

Currently, the chips made using Samsung’s 5nm process consist mainly of Samsung’s new processor, the Exynos 1000, which will be released by the end of this year or early next year. In addition, google’s self-developed SoC “Whitechapel” is expected to be used on the Pixel family of phones.

In addition, Qualcomm’s 5G chip orders, especially the baseband chip X60, may be partly produced by Samsung in addition to TSMC.

In summary, TSMC 5nm process capacity this year is in short supply, but by 2021 is not necessarily, there is a lot of uncertainty.