Moore’s Law challenged as TSMC doubles down

The semi-conductor (or “chip”) industry is in a worldwide, and well-understood, chip shortage following higher-than-expected demands during Covid-19 and a temporary shutdown at most manufacturing plants.

Chips are an essential component at the heart of economic growth, security, and technological innovation.

As technologies such as 5G, driverless cars, IoT and Artificial Intelligence roll-out more widely, chip demand has run red hot.

Taiwan Semiconductor Manufacturing Corporation (TSMC) is the leading manufacturer in the industry, with a 51.5 per cent market share in the sector; but it also produced the most advanced chips in the world. TSMC was supported by the US and China; but recently the Taiwanese firm severed ties with Huawei.

As a result, the recent shortage placed the chip industry front-and-centre of a major geopolitical issue. Semi-conductor supply has even been labelled the “new oil” in the digital age.

Semiconductor contract manufacturers by market share – Total foundry revenue stood at US$85.13 billion ($110.6 billion) in 2020

The gap between the world’s top two chip companies, TSMC and Samsung Electronics of South Korea, has extended over the last year in terms of market capitalisation. And in the news this week, TSMC has a few breakthrough announcements that might widen that gap even more:

• TSMC has begun construction in Arizona of a US$12 billion ($15.6 billion) computer chip factory. Volume production of its 5-nanometre chips will start 2024.
• Japan has signed off on a US$338 million ($439 million) semiconductor R&D project to develop cutting-edge chip technology with TSMC. Focus will be on 3D chip assembly. The project is due to kick off in 2022.
• TSMC, the National University of Taiwan (NTU) and Massachusetts Institute of Technology (MIT) have jointly announced that a significant breakthrough was made in the development of 1-nanometre (nm) chips.

While the construction of new chip factories is a significant step in expanding supply and distribution channels, this is more a longer-term solution rather than an immediate chip shortage solution.

That brings us to the third announcement; the joint announcement of a 1 nm semiconductor. Semiconductors are measured in node size indicated by a nanometre. Chips with 14 and 10 nanometres are currently in use.

TSMC is currently producing 7 nm and 5 nm node sizes. TSMC says its 5nm production capacity will double this year; 4nm is running ahead of schedule, and it already finished construction of its first 3 nm factory last November. Production of the 3 nm chip will start in the second half of 2022. The most advanced chips being produced now are 5 nm ones used for the iPhone.

There is a well-known phenomenon known as Moore’s Law, which holds that the number of transistors per unit area doubles about every two years; hence, increasing the speed and capability of computers every couple of years. Chip-makers do this by placing more transistors onto even smaller surfaces. The development of 2 nm and 1 nm semiconductors is where TSMC is currently at, but it is fast approaching what some call the “end of Moore’s Law.”

The reason for this is because chips are made from silicon, which has its limitations. There had been a search for 2D materials that can replace silicon, to enable manufacturing below 1nm, but nothing came of it. An announcement this week, however, opens up a whole new world.

Scientists at TSMC, NTU and MIT have released a research paper which shows that semi-metal bismuth can be used to manufacture chips smaller than 1 nm. The production of a 1 nm chip will likely lead to power-saving and higher speeds for future electric vehicles, artificial intelligence, and other new technologies.

TSMC’s continued unrivalled success in a sector that continues to grow at a rapid pace is remarkable. The company enjoys a monopolistic position but knows competition is just around the corner. For that reason, TSMC continues to grow at a faster pace to keep ahead of China’s SMIC, Samsung Electronics and Intel.

It is safe to say that TSMC’s place in the future of chips cannot be argued. However, the stock trades on massive multiples compared to its peers and generates revenue of around US$25.5 billion (+31.4% year-on-year). According to analysts’ estimates, TSMC is expected to grow revenues considerably in the near future, from US$45.5 billion in 2020 to about US$80 billion in 2024.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.