Weekly News | Supply chain trends in Semiconductor industry #174

174th of weekly news

01

According to the news of Wall Street Journal and China Times, TSMC is postponing construction of its second chip plant in Kumamoto, Japan, partly because it is prioritizing investing more funds in the project in Arizona, USA, to respond to the looming risks of new tariffs imposed by Trump’s possible return to power. The construction of TSMC’s second plant in Japan was originally scheduled to start in early 2024, but its construction is uncertain due to traffic congestion and strategic adjustment. The Japanese government promised to subsidy more than USD8bn for the USD20bn project earlier, and it is still maintaining confidence in the project's capacity and schedule. A spokesman for TSMC also said that TSMC will not comment on market rumors. TSMC’s global manufacturing expansion strategy is based on customer needs, business opportunities, operational efficiency, government support, and cost-economic considerations. TSMC's investment plans in the USA will not affect its existing investment plans in other areas. 

At the same time, the One Big Beautiful Bill Act to be introduced will raise the investment tax credit to 35% before the 2026 deadline, which prompts TSMC to speed up its construction of the plant in Arizona and to build as many as nine wafer plants in the future. This shows that its global layout strategy is being significantly shifted due to US policy.

TSMC’s postponing in building its Japanese factory and making more efforts to build its US project is a microcosm of the geopolitical influence on the reorganization of the global supply chain of semiconductors. The USA has introduced higher tax credits and set the deadline for building factories, creating a strong effect of “attracting investment”, thus driving TSMC to leave neutral and reliable Japanese projects aside, which may cause impact on Japan's national strategy of “semiconductor rejuvenation”. The same thing applies to Samsung: Its plant in Texas has been repeatedly delayed due to cost, management and policy coordination. This resource allocation game in cross-border expansion of semiconductor companies reflects that they are more and more “policy driven” rather than “market oriented”. 

In the future, if the companies want to set up plants in the USA, EU, Japan and other countries, they not only need to consider technology and supply chain issues but also have to focus on the “policy window period”. However, to invest in a country with high political risks may also amplify the uncertainty associated with policy changes, so related companies should maintain a delicate balance between short-term dividends and long-term stability.

02

Recently, Belgian imec and Japanese equipment giant Tokyo Electronics (TEL) announced to start a five-year joint R&D plan to develop the core technology of sub-2nm process. The two parties will focus on three technology fields - the next-gen photo-lithography technology (High-NA EUV patterning optimization), the deposition/etching process of the revolutionary CFET transistor architecture, and 3D integration technology. The cooperation between the two sides is based on their long-term accumulation of cutting-edge equipment (such as etching and deposition equipment). By deeply binding the R&D platform and the industry leaders, they will accelerate the transformation of technology in labs into production lines. The results will directly drive the evolution of AI and HPC chips. At the same time, the cooperation will showcase the strategic layout of the international giants in disruptive technology competition and provides a key technology anchor for the global semiconductor ecosystem.

Belgian Interuniversity Microelectronics Centre (imec) and Tokyo Electronics (TEL) launched a new five-year joint R&D alliance, marking a new stage of cooperation in the field of cutting-edge semiconductor technology. In the past, the collaboration between imec and TEL achieved significant results in high-precision patterning and defect control. The in-depth cooperation is expected to further optimize the material system and process collaboration and accelerate the commercialization of sub-2nm process technology. For the global semiconductor industry, this will not only increase the technological reserves of advanced processes but also lay a foundation for the leaping forward development of chip performance, energy efficiency, and integration level, especially in the context of the continued growth in demand for AI, HPC and mobile devices.

03

Recently, the US tariff policy imposed on Taiwan has driven Taiwan's semiconductor industry to speed up investing overseas and reshaping layout. The 90-day grace period for US equivalent tariffs is set to expire on July 9, 2025. Although the US and Taiwan made some progress in the second round of tariff negotiations on June 25, Taiwan companies are still facing tremendous uncertainty. 

TSMC and other Taiwan semiconductor giants have accelerated their investment in the USA. TSMC, with its advanced process technology, can still pass its costs to downstream customers even when facing a tariff of 32%. “Five electronic giants” including Hon Hai Precision Industry Co., Ltd., Quanta and others have also invested in the US to meet the demand for semiconductor production capacity in the US market. Apart from US, Southeast Asia and Mexico have also become important destinations of Taiwan semiconductor industry to transfer the production capacity. Although Southeast Asian countries, such as Vietnam, are imposed a tariff of 46%, the industries such as low- and mid-level automotive components and tool machines are likely to move from Southeast Asia to Mexico. The semiconductor industry of Taiwan investing overseas has also led to the division of the industry chain. High-margin industries, such as advanced chips and automotive components, are gradually moving the USA and Mexico, while low- and middle-level products remain staying in Taiwan or Southeast Asia.

Under the pressure of high US tariffs and changes in the global supply chain, Taiwan companies are facing many challenges. In particular, traditional industries have to address multiple structural pressures in the face of higher operating costs. In addition, the pattern of Taiwan's long-term dependence on exports from the market of Chinese mainland cannot be reversed quickly. Although Taiwan hopes to reduce dependence on Chinese mainland, it is faced with many difficulties in practice. The way out for Taiwan businesses may be that they have to find more flexible methods to address supply problems in the global supply chain, adjust the industrial structure, and find new growth points based on the needs of different markets. However, how to maintain competitiveness in an uncertain international situation is a topic that Taiwan businesses have to tap continuously. 

04

President Trump announced a 50% tariff on imported copper products and plans to impose high tariffs on imported semiconductors and pharmaceuticals. With this move, he hopes to increase the production of metals in the US to promote the development of electric vehicles, military hardware, power grids and other industries. Trump also threatened 200% tariffs on pharmaceuticals and gave manufacturers one year or one and a half year to make adjustment. This tariff policy targets not only copper but also bulk commodities such as chips, which may lead to a global supply chain adjustment. Trump also gave tariff warnings to several countries to pressure them to reach trade agreements. It is expected that the new tariffs will be implemented at the end of July or on August 1. 

After the news was released, copper futures on the New York Mercantile Exchange (NYMEX) rose sharply, with the most-traded COMEX copper September contract expanding its gains rapidly, surging 17.3% within the trade day, hitting a record of intraday gain in New York since 1988. However, US pharmaceutical stocks plumped due to the rampant market concerns. The pharmaceutical industry is concerned that Trump’s tariffs may increase the risk of medicine shortage and reduce patients access to medicines. The global chip supply chain has become fragile due to the COVID-19 pandemic and geopolitical issues. The new tariffs will further drive up chip prices and postpone the recovery of the global technology industry. 

Trump's tariff policy will have a major fallout on the semiconductor industry. As the US is an important market of the global semiconductor industry, if the steep tariffs kick in, they will drive up the costs and affect the competitiveness of local American businesses. In particular, in the contest of the global supply chain tensions and semiconductor shortages, this move will enhance the uncertainties of the market. For the global semiconductor industry, tariff policies may encourage more production bases to return to the US, but at the same time it may lead to higher industrial costs, affecting the price and supply stability. In addition, Trump's tariff policy may trigger reactions from trading partners, exacerbate international trade frictions, and affect economic relationship with countries such as China and EU.

05

Recently, Shenzhen NDRC released “Several Measures of Shenzhen City on Promoting the High-quality Development of Semiconductor and Integrated Circuit Industry”, and proposed 10 specific measures to promote the high-quality development of semiconductor and IC industry, focusing on seeking breakthroughs in terms of high-end chips, support chip design & taping out, EDA tool promotion, tackling key problems related to core equipment, supporting parts, and packaging materials, and promoting high-end packaging capability and the development of compound semiconductors. 

In order to ensure the implementation of these new policies, Shenzhen has set up an RMB5bn “Semiconductor Private Equity Fund”, which was jointly initiated by Shenzhen Major Industry Investment Group Co., Ltd., SCGC and other parties, and the registration of the fund was completed in May. The fund will focus on investing in Shenzhen's local key semiconductor projects, key links in the industrial chain and top enterprises in the sub-sectors, aiming to build a better local industrial ecology and improve the overall competitiveness of the industry.

06

Recently, Xiamen Newway Photomask Making Co., Ltd. held the foundation laying ceremony for its advanced high precision photomask project at Xiang’an District, Xiamen, marking a major breakthrough in the “bottleneck” field of high-end photomask. The project is invested by Shenzhen Newway Photomask Making Co., Ltd. The total planned investment of the project amounts to RMB2BN, with a gross floor area up to 53,740 square meters. In the future, the project will focus on R&D and production of G8.6 and below AMOLED, LTPO, LTPS and other high-precision photomask products. 

The project will interact with Chengdu G11 production line and Suzhou semiconductor mask base to create a domestic mask supply network covering all-generation display technology and advanced semiconductor process nodes. Chairman Du Wubing said that Xiamen Newway is not only a manufacturing base but also will become an innovation engine of enterprises. In the future, Newway will continue to increase investment, improve its global competitiveness, strengthen the security of the national electronic information industry chain.

07

The Ministry of Commerce of China announced to include eight Taiwan entities into the export control list. The measure was implemented according to the Export Control Law of the People’s Republic of China, Regulations on the Export Control of Dual-use Items of P.R.C. and other regulations, aiming to safeguard national security and benefits and fulfill the international duties like nonproliferation. The eight entities on the control list include Aerospace Industrial Development Corp., GEOSAT Aerospace & Technology Inc., National Chung-Shan Institute of Science & Technology, JC Technology Inc., CSBC Corporation, Taiwan, Lungteh Shipbuilding Co., Ltd., and Gong Wei Co., Ltd. 

The control measures include the prohibition of export of dual-use items the above-mentioned entities and immediately suspend of the relevant export activities in progress. In special circumstances, application should be made to the Ministry of Commerce. A spokesman of the Ministry of Commerce pointed out that these entities work with “Taiwan separatists” to “seek independence by force” and seriously threaten China’s sovereignty and territorial integrity. The news aroused widespread concern. On the one side, the export control won the support of many businesses and industry insiders; on the other side, some companies will reassess their business with these entities to ensure they are in compliance with the new policy requirements. This action once again highlights the important role of export controls in maintaining China’s national security and fulfilling international obligations and also reminds all businesses to comply strictly with relevant laws and regulations when conducting cross-border operations.