TSMC’s Soaring 2-nanometer Costs Can Affect Budding Market For A.I. Chips

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With 2023 coming to a close, the Taiwan Semiconductor Manufacturing Company (TSMC) is gearing up to see increased costs for its leading-edge semiconductor manufacturing processes. TSMC’s most advanced process in mass production is the 3-nanometer semiconductor design technology and a fresh report quoted in the Taiwanese press speculates that the 3-nanometer and 2-nanometer nodes will see significant cost increases moving into the future.

This bit of news comes just as markets remain closed for the Holiday Season of 2023, and analysts report that these potential cost increases could affect Apple, Inc.’s margins for its high- and low-end technology gadgets.

TSMC’s 2-nanometer Wafer Can Cost As Much as $30,000 A Piece Say Analysts

Today’s report is a rather interesting one since it repeats a wafer cost estimate from 2022 of 3-nanometer chips that the Taiwanese chip maker sells. The 3-nanometer manufacturing process is the most advanced in the world in production right now, and when it comes to TSMC, the bulk of its latest products make it to Apple. Back in 2022, a report from DigiTimes had shared that TSMC’s 3-nanometer wafers would cost roughly $20,000, and this was followed up by multiple media reports claiming that the cost per wafer could either rise to as much as $25,000 or drop below $20,000.

Considering that the end of 2023 marks a vastly different semiconductor world looking to understand the impact of a potential pickup in demand for artificial intelligence processors, cost calculations coupled with investment horizons for expensive chip-making facilities should be on the mind of every business planner.

A.I. has pushed NVIDIA Corporation’s valuation to record-high levels, and firms like TSMC, which have seen their revenues drop due to a tough macroeconomic environment, have nevertheless maintained their value.

Image Source: AMD

While the report from IBS shares that the biggest impact of a 50% price jump in 2-nanometer products will be on Apple, should the current A.I. wave fully materialize three years from now, then companies including AMD and NVIDIA could also see their budgets tighten. In fact, NVIDIA is already selling A.I. products built on TSMC’s powerful 5-nanometer node, and if the experience is anything to go by, then Team Green will be looking at the chance to churn out 3-nanometer (if not more advanced) products by then.

Unconfirmed rumors have suggested that NVIDIA’s next-generation GPUs will use the 3-nanometer process, leaving the burden of high chip costs to fall squarely on Apple’s shoulders for the first wave of 2-nanometer production. Since their processors and GPUs have higher power and are designed for heavy workloads, AMD and NVIDIA are often insulated against the high wafer costs of the initial mass production of advanced chip technologies.

Yet, supply and demand dynamics in the semiconductor market could very well mean that prices for A.I. chips also jump. A $20,000 3-nanometer wafer might become more expensive if its demand outstrips installed capacity – a caveat somewhat unique to the chip industry. Firms like TSMC and Samsung have fixed capacities, and if they are convinced that demand will outstrip supply, then the initial cost of investing in new facilities is often passed on to the customer as well.

TSMC, in particular, will think twice before over-expanding production after the bullwhip nightmare it had to endure last year. Not only has it revised revenue estimates multiple times in 2023, but in 2022, the Taiwanese firm had to deal with over-optimistic customer expectations amidst a broader chip slowdown.

A translated graphic of TSMC’s 2024 capital expenditure projections made by the investment bank Goldman Sachs according to a China Times, Group report. Untranslated image: https://www.ctee.com.tw/news/20230918700026-439901

This hesitancy was also apparent in a report from Goldman Sachs quoted by the China Times that downgraded TSMC’s capacity utilization rates for the 3-nm and 2-nm processes. The Goldman report cut TSMC’s share price target and lowered the utilization estimate to 36% for 3-nm in 2023. Perhaps this is why 3-nm per wafer costs have not consistently been reported to have dropped below $20,000 a wafer in over a year.

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