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TSMC’s Price Advantage Highlights Difficulties for China’s Semiconductor Fund

ByYasmeeta Oon

Jun 11, 2024
TSMC's Price Advantage Highlights Difficulties for China's Semiconductor Fund

TSMC’s Price Advantage Highlights Difficulties for China’s Semiconductor Fund

In a clear demonstration of the challenges facing Beijing in bolstering its domestic semiconductor industry, the performance disparity between Taiwan Semiconductor Manufacturing Co. (TSMC) and China’s Semiconductor Manufacturing International Corp (SMIC) is approaching its largest margin in nearly two decades. This gap underscores the significant hurdles that China encounters in its quest to compete with global semiconductor leaders.

This year, TSMC has witnessed a remarkable surge in its stock value, climbing 48% in Taipei’s trading sphere. In stark contrast, SMIC has experienced a 7.5% decline, positioning the performance gap between the two companies to be the widest since 2005. The divergence in their fortunes is particularly striking given the aggressive attempts by China to elevate its semiconductor capabilities, primarily through the National Integrated Circuit Industry Investment Fund, commonly known as Big Fund III.

TSMC’s success can be attributed to its advanced technological capabilities, particularly in the area of chip manufacturing. The company is currently utilizing extreme ultraviolet lithography (EUV) equipment to produce 3-nanometre (nm) chips, which are among the most sophisticated semiconductors commercially available today. This technological edge has allowed TSMC to maintain a significant lead over its competitors, including SMIC.

On the other hand, SMIC has been grappling with technological limitations. While it has managed to produce 7nm chips, this technology is already two generations behind the cutting-edge 3nm chips produced by TSMC. Despite aspirations to advance to 5nm technology, SMIC faces obstacles due to U.S. export controls that prevent the sale of critical EUV lithography equipment to China.

Shen Meng, a director at Beijing-based investment bank Chanson & Co., emphasized the challenges SMIC faces: “Boosting SMIC’s technology is not something that can be achieved overnight, even with abundant funding.”

Bloomberg Intelligence analyst Charles Shum provided a stark assessment of the cost implications for SMIC: “Even if SMIC can produce chips using 5nm technology, the cost would be at least 10 times higher than those produced at TSMC without EUV machines. The technology gap isn’t just about reaching a certain level, it’s also about how effectively you can achieve it.”

Despite the daunting challenges, there is optimism surrounding the potential impact of Big Fund III. With few details unveiled about this latest installment of China’s semiconductor fund, market analysts anticipate that it could address some of the critical issues plaguing the sector.

Potential Focus Areas of Big Fund III

  • Wafer manufacturing
  • Packaging
  • Process control
  • Equipment materials

These areas are seen as crucial for advancing China’s semiconductor manufacturing capabilities.

Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co., highlighted the fund’s strategic focus: “The new fund is expected to concentrate on advanced technology, including wafer manufacturing, packaging, process control, and equipment materials.”

Furthermore, the fund might explore investments in AI chips, which are increasingly vital for various applications, according to Li Xun, an investment adviser at Guotai Junan Securities Co.

AspectTSMCSMIC
2023 Stock Performance+48%-7.5%
Chip Technology3nm with EUV7nm, aiming for 5nm
Technological CapabilitiesAdvanced EUV lithographyLimited by export controls
Future Investment FocusContinuing innovationBig Fund III support

The table above illustrates the stark differences in technological capabilities and market performance between TSMC and SMIC, highlighting the competitive edge held by TSMC.

The semiconductor industry remains a critical battleground for technological supremacy on the global stage. While TSMC continues to enhance its position through advanced technologies, SMIC and China’s broader semiconductor ambitions face a complex array of challenges that require substantial investments, time, and strategic planning to overcome. The success of initiatives like Big Fund III will be crucial in determining whether SMIC can close the technological gap with its formidable competitor, TSMC.


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Featured Image courtesy of DALL-E by ChatGPT

Yasmeeta Oon

Just a girl trying to break into the world of journalism, constantly on the hunt for the next big story to share.

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