[Taiwan Chip News] Legacy Processes Becoming 'Money Eaters', Only TSMC Thrives... What Is Samsung's Counterattack Card?

Legacy Process Demand Weakness Continues to Pressure Price Declines
TSMC's Unrivaled Advantage... Advanced Processes Serve as a Shield

In the semiconductor market, the polarization between legacy (older) processes and advanced processes of 7㎚ (nanometers, one billionth of a meter) or less is becoming increasingly pronounced. While legacy processes continue to struggle amid unrecuperated demand and price decline pressures, advanced processes are enjoying a boom driven by strong demand based on artificial intelligence (AI) technology. Advanced processes led by TSMC are delivering outstanding results, and along with major foundry companies in Taiwan and China, Samsung Electronics is also facing difficulties with legacy processes.

According to industry sources on the 5th, legacy processes are experiencing increasing price decline pressures due to weak demand for key products such as power management chips (PMIC) and driver integrated circuits (IC). Taiwan's major foundry companies, including Taiwan's second-largest Microelectronics (UMC), TSMC affiliate Vanguard International Semiconductor Group (VIS), and Taiwan's third-largest PSMC, have been unable to defend prices for legacy process products and have shown a downward trend since the fourth quarter. Experts predict that prices for older processes are likely to be cut by single-digit percentages, and this downward trend may continue until the first quarter of next year.

Semiconductor wafer [Image source=Reuters·Yonhap News]

Unlike Taiwan, Chinese foundry companies maintain their stance of no further price cuts, as they already offer prices lower than those of Taiwanese companies. An industry insider explained, "Legacy processes have become oversupplied, making price negotiations even more difficult," adding, "Without securing a certain volume, even price negotiations are challenging." Some foundry companies offer single-digit percentage discounts if orders exceed a certain volume to attract customers.

Samsung Electronics is also unable to withstand the foundry legacy process market. Samsung has suspended some equipment operations at the P2 and P3 lines of its Pyeongtaek plant and postponed the groundbreaking of the P4 plant in Pyeongtaek and the second foundry plant in Taylor, Texas, USA. Some in the market speculate that part of the production lines at the Pyeongtaek plant may be converted to memory chip production. There are also opinions that Samsung's entire expansion plan could be delayed due to the decline in semiconductor demand. The Pyeongtaek plant is the world's largest semiconductor factory, designed to handle both memory chip and foundry services simultaneously. The first phase of this plant has already been completed and is operational, but construction from the second to the fourth phases, which was scheduled to start this year, has been postponed, and orders for equipment and infrastructure have also been delayed.

In advanced processes, TSMC is standing out due to the surge in AI semiconductor demand. TSMC's 3㎚ process is experiencing demand exceeding supply thanks to continuous orders from major clients such as Apple, Qualcomm, and MediaTek. TSMC has expanded its 3㎚ production capacity more than threefold this year. Some 5㎚ equipment is also being utilized for the 3㎚ process to respond to demand. In this way, advanced processes serve as a shield against the sluggishness of legacy processes.

TSMC is scheduled to announce its earnings on the 17th. Domestic and international institutional investors expect TSMC to set another record high in sales for the fourth quarter. They also anticipate that TSMC will present a positive outlook for next year's performance. There is analysis suggesting that the production capacity of the 2㎚ process will surpass that of the 3㎚ process.

With the U.S. Federal Reserve's (Fed) interest rate cuts expected to bring capital inflows into emerging markets, investors are strengthening investments in companies like TSMC. The Fed lowered the benchmark interest rate by 0.5 percentage points last month, which is expected to have a positive impact on companies like TSMC.

Taiwan Economic Daily News = Reporter Zhong Huiling and Reporter Zhang Jingyuan / Translation = Asia Economy