Taiwan Semiconductor will exit mature processes

The leading foundry Taiwan Semiconductor Manufacturing Company (TSMC) is fully committed to advanced processes and advanced packaging. Industry sources indicate that TSMC will gradually outsource some 40-90 nanometer orders to its subsidiary, World Advanced. In addition to announcing the shutdown of its 6-inch wafer fab in Hsinchu Science Park and a gradual exit from gallium nitride (GaN) foundry services within two years, TSMC has previously sold some machinery and equipment to World Advanced and the joint venture VSMC established with NXP in Singapore. TSMC's focus on higher-margin businesses is now clear.

"TSMC will strive to sell the value we should have, and the long-term gross margin target of 53% remains unchanged," said TSMC Chairman and CEO C.C. Wei, perfectly encapsulating the recent news of TSMC's comprehensive price increases for advanced processes. TSMC is not only raising prices for advanced processes to dilute the gross margin impact of overseas factories but also hints at "eliminating the weak and retaining the strong," fully sprinting towards higher-margin advanced processes and advanced packaging. However, what will happen to the original mature process business? Industry insiders have indicated that TSMC's gradual transfer of mature process business to World Advanced has become a foregone conclusion.

This year, TSMC has already announced the shutdown of its 6-inch wafer fab in Hsinchu Science Park and a gradual exit from gallium nitride (GaN) foundry services within two years, and has also sold some equipment to World Advanced.

Jake Lai, a senior analyst at Counterpoint Research, stated that TSMC's strategy in recent years has clearly shown a gradual exit from low-margin process nodes and a concentration of resources on high value-added processes. With strong growth in AI demand, TSMC is focusing on expanding capacity for 3-nanometer and more advanced nodes as well as advanced packaging. In this process, the company is accelerating its shift towards advanced processes and advanced packaging through manpower and capacity redistribution, ensuring the optimization of overall operational efficiency and profit structure.

TSMC stated that as overseas wafer fabs gradually move towards mass production, in the next five years, mass production at overseas wafer fabs will dilute gross margins, with initial estimates indicating an annual impact on gross margins of about 2 to 3 percentage points, which may further expand to 3 to 4 percentage points in the coming years.

Although TSMC previously pointed out in its earnings call that its gross margin for the third quarter of this year was 59.5%, surpassing external predictions and shocking the industry, it can be expected that gross margins will still be affected by overseas wafer fabs in the coming years. This also forces TSMC to abandon lower-margin businesses and fully focus on developing higher-margin advanced processes.

The revenue share of TSMC's various processes also reveals clues. In the first quarter of 2024, the revenue share of advanced processes at 7 nanometers and below accounted for 65%, but within just one year, by the first quarter of 2025, it had increased to 73%, with slight increases to 74% in the third and fourth quarters.

Jake Lai pointed out that as the 6-inch wafer fab's second plant faces insufficient economies of scale and a long-term capacity utilization rate below 60%, it is expected that TSMC will gradually exit by 2027. If the future 8-inch production line cannot further increase capacity utilization to above 80%, it may again face similar structural consolidation and production cuts. At the same time, World Advanced, as a subsidiary of TSMC, also has the opportunity to gain more outsourcing orders. Overall, this series of actions reflects that TSMC is consolidating its core high-margin business through organizational and process structure adjustments while maintaining overall operational efficiency and market competitiveness As TSMC gradually shifts its focus to advanced processes, it will also suggest that customers transfer some mature process orders to its subsidiary, World Advanced. TSMC is enabling World Advanced to take on some of the lower-margin mature process orders released by TSMC through technology licensing and the sale of 12-inch mature process equipment.

TSMC is Increasing Prices for Advanced Nodes

TSMC is accelerating the capacity enhancement of its most advanced manufacturing process nodes. However, as TSMC adjusts prices to cope with rising production costs and the ongoing global demand for cutting-edge chips, the world's largest chip manufacturer will have to pay a premium to access this new technology.

Industry analysts expect TSMC to raise chip prices for processes below 5 nanometers starting in January 2026. According to TrendForce sources, the company notified its major customers last September. The average price is expected to rise by 3% to 4%, but reports from Taiwan indicate that the price increase for the most advanced process nodes could be as high as 10%.

Additionally, starting in January 2026, prices for the 2nm process node will increase for four consecutive years. By 2030, the cumulative increase for the most advanced process nodes could reach double digits, impacting the costs of cutting-edge chips used in artificial intelligence, high-performance computing, and other high-demand applications.

The surge in manufacturing costs is driven by the ongoing demand from large tech companies and AI startups for new accelerators. The supply shortage of high-performance GPUs and other advanced chips remains a concern, and TSMC clearly anticipates that this situation will worsen in the near future.

TSMC has begun to increase the capacity of its most advanced N2P process to meet the demands of Apple and other major customers. Analysts initially expected the price increase to apply only to chips produced at the company's U.S. factories, but the latest reports indicate that this price hike will affect the entire chip manufacturing industry in Taiwan.

Worse still, TSMC is concentrating more resources on process nodes below 5 nanometers, reallocating a significant amount of manpower, equipment, and other assets from older process nodes. Mature 6nm and 7nm process nodes may face bottlenecks, which could impact customers whose designs do not require the most advanced technology.

If predictions hold true, the world's largest chip manufacturer will soon face a significant increase in manufacturing costs. Whether due to inflation, market demand, or fluctuations brought about by the AI boom, companies like NVIDIA and Qualcomm may pass most of the cost increases onto consumers, raising prices for consumer products.

Source: Semiconductor Chip News, Original Title: "TSMC Will Exit Mature Processes"


Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk