TSMC’s ‘Chip-for-Vaccine’ Swap To Delay Integrated Circuit Chip Production

By Ramish Zafar  / 

Chipmaker Taiwan Semiconductor Manufacturing Company (TSMC) has agreed to manufacture automobile processors at an expedited rate. TSMC's decision comes after governments in several continents requested the Taiwanese authorities to ask the chipmaker to increase this production - as a global shortage of the products start to emerge as a thorn in the side of the economic recovery of many countries that house automobile manufacturers affected by this shortage.

Following the request, Taiwan's Minister of Economic Affairs Ms. Mei-Hua Wang convened a meeting that involved representatives from Germany, TSMC and other semiconductor companies and the dean of Taiwan's Economic Research Institute to discuss the shortage and how Germany and other countries could help Taiwan in return for providing the aforementioned chips.

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TSMC's Auto Chip Production Ramp To Help Taiwan Secure Virus Vaccines

The meeting took place earlier this week on Wednesday, and a key item on the agenda was how countries including Germany could help the island in return for TSMC agreeing to step up its vehicle chip output. Specifically, the participants stressed on the need for Taiwan to procure vaccinations for the ongoing pandemic and whether nation-states could help the island in this regard.

Following this, the dean of the Taiwan Economic Research Institute stated that he was already in discussions with TSMC and that the chipmaker had agreed to cooperate to provide chips in return for the vaccines. Subsequently, TSMC confirmed on the following day that it would speed up the process for manufacturing automotive chips, with the confirmation coming soon after a second rumored price increase had been reported by The Nikkei Asian Review on Tuesday.

Sources inside the chip ecosystem report that in order to bring its supply on par with the increased demand for automotive chips, TSMC will employ what is referred to in the industry as a Super Hot Run. This practice sits at the top of a triple-tiered manufacturing approach, with the other two approaches, in descending order being a Hot Run and a Normal Run.

The Dean of Taiwan's Economic Research Institute Dr. Chien-Yi Chang.

Super Hot Production Run To Delay Orders For Other TSMC Customers

The practice of a Super Hot Run in chip fabrication is not often employed in the chipmaking sector as it comes with several risks. Some of these include a drop in yields of the products, possible damage to equipment and a substantial rise in costs that companies ordering the products have to share with the manufacturer.

Additionally, and demonstrating the complexities of manufacturing chips, despite the fact that TSMC has agreed to engage in the Super Hot Run, the entire process will take at least three months to churn out the products to supply the automakers.

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Shedding light on non-monetary costs of the decision, the new production run will also cause TSMC to delay some of its existing chip orders. While sources do not provide details about the specific customers who might see their orders delayed, and getting this information out of TSMC is not possible either since it does not publicly comment on individual customers' affairs, it is believed that the displaced orders will be for integrated circuits.

Given the nature of automotive chips and the fact that they are rarely fabricated using leading-edge process nodes such as the 5nm process used by Cupertino tech giant Apple Inc for its iPhone lineup's processors, it's unlikely that the latest chips from either Apple or Advanced Micro Devices, Inc (AMD) will be affected unless TSMC also diverts manpower from fabrication facilities dedicated to these customers.

A big question surrounding the entire affair is the capital injection required to start this production run. Generally, it is the fab's customers who pay this price, but for the time being it is uncertain whether automakers will be willing to foot the bill. In any case, this might not be a decision that they get to make given the current chip shortage and how national economic recoveries depend on every bit of help that they can get - a factor that then paves the way for additional government involvement as well.

The author has no position in any of the stocks mentioned. NewAgeAds LLC has a disclosure and ethics policy.
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