Economics describes the hog cycle as periodic fluctuations in supply and market price. If a product is in short supply and the price is therefore attractive, many people enter the market and want to make a profit. In the case of pork, for example, many barns are expanded and more new pigs are reared. When all these pigs come onto the market, the market price starts to fall again. Only those who were the first to get in and have planned their exit earn a lot - before the ruinous price war starts all over again.
The semiconductor market is also extremely cyclical. AI and HPC (High Performance Computing) and, more recently, smartphones are driving demand for semiconductors, as is the desire for de-risking vis-à-vis China. On the other hand, more than 40 new semiconductor plants are under construction and will go into production between 2025 and 2028. The situation is complicated by the conflict between the USA and China, as well as the conflicts in the Middle East and Ukraine.
Market slump in 2023 to be followed by recovery in 2025
Stagnating sales of smartphones, PCs and tablets caused the market slump in 2023. As a result, global deliveries of silicon wafers shrank significantly by -14.3% in 2023 (Fig. 1). This year, too, it is expected to decline by a further -2% to 12,174 million sqi (MSI). SEMI does not expect a strong recovery phase of 10% to 13,328 MSI until 2025. The capacities installed in the new chip plants in the USA, Japan and Europe will enter the market from 2025 and increase from 2026/2027.
Fig. 1: Global wafer deliveries in million sqi (MSI) 2022 - 2027 forecast (data: SEMI 10/25)
Fig. 2: Ratio chip die area versus structure width and technology, normalized to 55 nm semiconductor (data: Semi)
Performance increase through smaller structure widths
If the technology node shrinks from 55 nm to 3 nm, both the chip size and the power consumption decrease significantly. For example, at 55 nm the chip size and power consumption are highest (normalized to 1), while at 3 nm the chip size drops to 0.026 and the power consumption to 0.015 (Fig. 2/3)
This demonstrates the efficiency gains achieved with advanced manufacturing nodes, as more advanced processes enable more compact, low-power chip designs that are critical for modern applications such as AI, HPC or smartphones.
TSMC, the world's largest chip foundry, had an excellent third quarter with over 30% year-on-year growth (Fig. 4). The drivers were IoT with +35%, the resurgent smartphone market with +16% and HPC with +11%. High Performance Computing (HPC) had by far the largest share of sales in the third quarter at 51%, followed by smartphones at 34%. The high-growth IoT share of sales is comparatively low at 7%, as is the comparatively low-growth automotive sector with a 5% share of sales.
Fig. 3: Chip size compared to total power consumption in various structure widths and semiconductor technologies (data: Semi)
Fig. 4: Sales growth by sector at TSMC Q3 24 vs. Q3 23 (data: TSMC)
TSMC revenue focus =/< 7 nm
Fig. 5: TSMC revenue by industry in Q3 2024 (Data: TSMC)The share of structure widths in revenue at global foundry market leader TSMC is impressive. 79% of revenue in the third quarter of 2024 was generated with structure widths =/< 7 nm (Fig. 5). Chips with structure widths of 7 nm accounted for 17%, the focus with 32% were 5 nm chips and already 20% were achieved in the current technological top product with 3 nm.
No wonder, given a foundry sales price per wafer of approx. 25,000 $ with a structure width of 2 nm for the top product.
Wafer prices rise similar to e-function
The chart shows TSMC's wafer prices by process node, with a clear upward trend as node size shrinks.
The 90nm node costs $1,650 per wafer, while the 2nm node, which is the most advanced, costs $24,570 per wafer (Fig. 6). This reflects the increasing complexity and cost associated with advanced semiconductor nodes due to higher precision and advanced technology requirements.
Prices increase significantly after the 7nm node, highlighting the challenges of achieving smaller node sizes, with the most expensive nodes being 5nm, 3nm and 2nm.
2 nm chip: test production started
Test production of 2 nm chips has started at the Baoshan plant in Hsinchu in northern Taiwan, according to TSMC. Mass production of 2 nm chips is scheduled to start in 2025. According to a report in the 'Commercial Times', the price of 2 nm wafers could double compared to 4/5 nm (Fig. 6)
While the yield of Intel and Samsung's advanced structure widths is rumored to be relatively low, the rising price of 2nm wafers reflects TSMC's market monopoly and strong pricing power. However, the R&D investments for 2 nm chips are immense. According to estimates by TrendForce, they will amount to more than 4 billion dollars.
Fig. 6: Foundry wafer prices by structure width in $ (Data: TSMC)
To the point
- Following the sharp downturn in the chip industry in 2023 with -14.3% less wafer area, wafer production will fall by a further -2.4% in 2024 according to SEMI. Growth of 9.5% is not forecast until 2025.
- The progress in development on current 3 nm structures can be found, for example, in the new Apple iPhone 16 Pro, which uses the A 18 chip.
- The growth drivers at the world's largest foundry TSMC in Taiwan are the IOT segment with +35%, smartphones with +16% and high performance computing with 11% in Q3-2024 compared to the previous year.
- HPC and smartphones account for 85% of sales in Q3 d. J.
The market for semiconductors has already been volatile in the past. Today, however, forecasts are also made more difficult by political interventions and crises. The 'economic war' between the USA and China for the pool position in the world is just as much a factor as the war in Ukraine and the conflict in the Middle East. Government investment programs in the high double-digit billion range are creating new chip capacities for de-risking reasons - and not because demand is exploding. The fear of a conflict between China and Taiwan is justified. It is hard to imagine what this would mean for the supply of the global economy if the Taiwanese were to destroy their semiconductor production in the event of war.
Let's remain optimistic and work to get our country back on the road to success.
Best regards
Yours
Hans-Joachim Friedrichkeit
