TSMC's New R&D Fab in Taiwan
Sorry that it took so long for me to get this one out onto the newsletter. I have been super busy and I have been tired recently.
Also, there is a new video coming today. I think you’ll find it fun at an atomic level.
The big question that I left viewers with at the end of the video was: “How can TSMC be so ‘productive’ with their R&D when their spend trails that of other companies?”
The comments on the video point out a few things:
First, the lower cost of living and real estate in Taiwan. I don’t buy this as much as the other reasons. Some of these houses in Hsinchu cost as much as a condo in wider LA County - $1+ million USD.
Other companies like Intel cover more of the spectrum than TSMC. Intel has to do design and other stuff in addition to the manufacturing. They are also making GPUs, TPUs, etc. TSMC “just” does lithography, packaging, and PDK development.
And to add about Google, Amazon, etc. Those FANG bros are using R&D spend to build software, which lack the patentability of “hard” processes. So patents - already a flawed metric - are ever more so.
TSMC benefits from R&D spending across its ecosystem. I like that idea, but is there that much crossover between their fabless partners who are staying up in the “design” area?
On July 28th 2023, TSMC held a ceremony to inaugurate its newest R&D center out in Hsinchu, Taiwan.
The whole thing made the news here in Taiwan so I thought that I should do a short video about it, TSMC's newest "fab".
Bell Labs
TSMC calls the new building the Global R&D center and it is their version of Bell Labs.
It will be where the company experiments with the various processes and operations for its coming leading edge nodes - N2, N1.4 and so on.
Once the R&D fab masters the recipe, they roll it out to one of the big wafer fab centers in Taichung or Tainan. N2's big rollout will be in Hsinchu and Taichung. I think N1.4 is planned for Longtan, Taoyuan.
They are calling this building the Global R&D Center. I mean, that is what is on the sign. But semiconductor factories are built over phases. So I have seen this building also be referred to as Fab 12, Phase 8. Fab 12 being the previous R&D fab.
TSMC's current plan is to add seven more factories around the R&D center - all of them leading edge. The first will be the upcoming N2 fab - Fab 20.
I actually visited the construction site in July 2023. Right now it is just a steel shell. It is scheduled to go high volume some time in 2025.
TSMC will continue building out the R&D Fab. It doesn't look like everyone has moved in yet and crews have not yet finished the work of moving in all the equipment.
Baoshan
The new manufacturing zone will cover the area of Baoshan.
Baoshan is a hilly suburb adjacent to the main Hsinchu area. It is a township covering 10 villages. The land used to host a century-old Hakka village: Daqi Village, formerly home to about 2,000 residents and a temple.
TSMC started acquiring the land in 2019. This acquisition required the company to relocate all of the villagers, the temple, and a local cemetery. Many of the villagers protested, demanding a higher price for their land and it took some time to get that all sorted out.
They did not break ground on the fab until 2020, but it would not open until three years later due to pandemic delays and the difficulty of the construction.
As you can see, the design is very striking. It is reminiscent of the design of their big Nanjing Giga-fab. And also kind of like a spaceship.
The Baoshan land is very hilly. In order to make the land suitable for a fab, TSMC basically leveled the mountains and hills. Near the construction sites you can see huge piles of dirt from that work.
Right now the infrastructure and the roads are still being built out. They will need to expand the roads to prevent big traffic issues, but people are already starting to make the area their home. I can see expensive-looking houses on the distant hills.
Chang's Remarks
Morris Chang, TSMC's legendary 92-year old founder and long-time Chairman, showed up to the commencement event.
According to Taiwanese media, it was the first company-affiliated event he has attended since his retirement in 2018. Though I have heard that he still sometimes goes to the company offices.
Side note. I heard that Morris Chang recently announced at his birthday party that he had completed the second volume of his autobiography. Looking forward to reading it.
Anyway, as he started his speech, some women standing on the balcony cried out "Grandpa I love you!" I thought that was cute. Morris is really loved here in Taiwan.
Chang's speech hit on a few key points. First, he thanked the TSMC R&D team for their contributions to the semiconductor industry. He also noted that their contributions have put TSMC into the thoughts of many military planners. He then drily mused aloud whether that part actually deserved a thanks.
Second, he emphasized that TSMC continue to internally and independently produce its own techniques and technologies.
Chang recalled that back in the early days, Philips - TSMC's big co-investor - asked TSMC to adopt their CMOS technologies.
TSMC licensed those for 5-10 years as a patent umbrella, but insisted on developing their own. It took 30 years for TSMC to turn that technological independence into technological leadership, marked by their 7 nanometer node.
His remarks on this also reminded me of the early 2000s, when a legendary six-man R&D team at TSMC worked to produce the company’s own variant of copper interconnect technology. This eventually allowed TSMC to be the first in the industry to ship a working 130 nanometer process node.
Third, Chang emphasized that R&D and manufacturing needed to work closely together. It is not enough that a team produces innovations. Scale is what matters. Which company will be the first to bring their innovations to high volume production?
And finally, he cautioned the company to never slacken in its efforts. He told a story from his Texas Instruments days about how the British Navy was once seen throughout the 19th century as the world's most powerful.
Then in the 20th century, the navy inaugurated a massive new building - the Admiralty extension. Little did they know it, but the building marked the Navy's historical high point. So with this in mind, Chang said:
> 別像英國海軍，有了大樓就開始沒落
> Don't be like the British Navy, starting to decline once they got a big building
Conclusion
In 2022, TSMC spent about $5.5 billion in R&D investment.
This represents a little over 7% of the company's 2022 revenues.
It sounds like a lot. But it greatly lags the R&D spend of the big tech companies in America like Alphabet - which spent $34 billion - or Apple - $23.5 billion - or Amazon - a staggering $46.5 billion.
And just in case you are curious. In 2022, Intel spent about $17.5 billion for R&D.
Compared to those guys, TSMC doesn't spend all that much. But they do seem to be quite productive with that smaller spend. Statista finds that in 2022, TSMC received 3,024 US patents - third most after Samsung and IBM. Intel had about 2,418 patents.
It makes me wonder a few things. Like whether R&D spend as reported by these big American tech companies is comparable to the R&D spend reported by TSMC. It's probably not. I wonder maybe because of tax incentives?
I wonder how much of TSMC's technological advantages are rooted in Taiwan’s lower costs of living and just paying those R&D workers less. It's what everyone in the West (and YouTube) thinks about first.
But personally, I think that though that factor is significant it is probably not overwhelming. Instead, there seems to be other things at work here like automation, scale, fast cycle time, or accumulated unspoken knowledge.
And finally, I wonder just how resilient TSMC’s independent approach can remain in the face of the intense economic, technological, and geopolitical competitions that lie ahead in the semiconductor industry's future. That question remains open.