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Market/Business Summary

TSMC Achievements

In 2012, TSMC maintained its leading position in the total foundry segment of the global semiconductor industry, with an estimated market segment share of 45%. TSMC achieved this result amid intense competition from both established players and relatively new entrants to the business.

Leadership in advanced process technologies is a key factor in TSMC’s strong market position. In 2012, 77% of TSMC’s wafer revenue came from manufacturing processes with geometries of 0.13μm and below; 62% of TSMC’s wafer revenue came from 65nm processes and below.

With TSMC’s focus on customer trust, the Company continuously strengthened its Open Innovation Platform® (OIP) initiative in 2012 with additional innovative services. During the 2012 TSMC Technology Symposium and the 2012 Design Automation Conference of IEEE/ACM, the Company revealed TSMC 20nm Reference Flow, CoWoS™ Reference Flow, the fourth revision of radio frequency (RF) reference design kit, and 20nm Custom Design Reference Flow, to highlight the success of design enablement through OIP. The OIP Ecosystem Forum, which was held in October 2012 at San Jose, California, was well attended by both customers and ecosystem partners to demonstrate the value of collaboration through OIP to foster innovations.

TSMC continued to advance the semiconductor roadmap in 2012. Examples of technologies the Company either developed or rolled out include:

In addition, TSMC further strengthened its comprehensive development of specialty technologies in 2012, including the release of 0.5μm ultra high voltage power IC technology, 90nm/65nm smartcard, 40nm automotive and Backside Illumination CMOS Image Sensor (BSI CIS), which successfully migrated to 65nm from 0.11μm and to volume production in 12-inch fabs. In 2012, TSMC offered a motion sensor 3D modular MEMS (Micro Electro Mechanical Systems) with 30μm thick MEMS structure and wafer level bonding for hermetic seal of the MEMS device. These first wave customers have adapted the modular MEMS structure with separate ASIC driver chip for accelerometer application and are now in production. TSMC will offer fully integrated CMOS 3D modular MEMS with design rule in the first quarter 2013 as a general offering. These specialty technologies are key differentiators from our competitors and provide customers more added value.

Market Overview

We estimate that the worldwide semiconductor market in 2012 reached US$308 billion in revenue, a 2% decline compared to 2011. Total foundry, a manufacturing sub-segment of the semiconductor industry, generated total revenues of US$34 billion in 2012, or 16% YoY growth.

Industry Outlook, Opportunities and Threats

Industry Demand and Supply Outlook

Following 5% growth in 2011, foundry segment growth accelerated significantly by 16% in 2012, mainly driven by fabless market share gain over IDM and process technology advancement.

We forecast total semiconductor market to grow 3% YoY in 2013. Longer term, increasing semiconductor content in electronics devices, continuing market share gain of fabless, and increasing in-house ASIC from system companies, foundry sales are expected to display much stronger growth than the projected 4% compound annual growth rate (CAGR) for the total semiconductor industry from 2012 through 2017.

As an upstream supplier in the semiconductor supply chain, the condition of the foundry segment is tightly correlated with the market health of the 3Cs: communications, computer and consumer.

The communications sector, particularly the handset segment, posted a modest 5% growth in unit shipments for 2012. Smartphones, which have much higher semiconductor content, have been leading the growth of the sector.

The continuing transition to 4G/LTE handsets will bring positive momentum to the market. Smartphones with increasing performance, lower power and more intelligent features will continue to propel the buying interest of new handsets in 2013. The growing popularity of low-end smartphones in the emerging countries is also a new catalyst driving the growth of the sector.

Low power IC is an essential requirement among handset manufacturers. The System-on-Chip (SoC) design for more optimized cost, power and form-factor (i.e. device footprint), plus the appetite for higher performance to run complicated software, will continue to accelerate the migration to advanced process technologies in which TSMC is already the leader.

The computer sector’s unit shipment growth declined 3% YoY in 2012 after a close to flat year in 2011. Cautious spending in developed countries and budget competition from tablet products were among the factors causing the weak demand.

Moving into 2013, PC market will decline. While pessimism regarding the economic outlook will overhang the sector, new innovative features and form-factors such as detachable keyboard, hybrid notebook and the introduction of the new Windows 8 operating system are expected to stimulate PC demand.

Requirements of lower power, higher performance and integration for key computer components such as CPU, GPU, Chipset, etc., should drive product design demand for leading process technologies.

After flat sales in 2011, the consumer sector lost momentum in 2012 with a decline of 2% in aggregated unit shipment growth YoY. Economic uncertainties have stifled buyers’ appetite for consumer electronics products, and the growth of mobile computing devices has also impacted the consumer electronics sales.

Moving forward, new product launches such as the introduction of a new generation of game consoles will stimulate new interest in video games. Low-priced, large screen TVs will kindle end-consumer buying interest. And, government subsidy programs in multiple countries should drive the adoption of DTV.

Meanwhile, increasing innovations in the consumer sector have also encouraged new usage models, such as integration of touch sensing, motion recognition, high-resolution and 3D display. Besides the need for advanced technologies, “More-than-Moore” technologies such as CMOS Image Sensor (CIS), High-Voltage (HV) drivers, embedded memory, micro-controller and MEMS are becoming prominent requirements. With its comprehensive technology portfolio, TSMC will be able to capitalize on these trends.

Emerging Applications

Emerging new applications such as tablets are increasing contributions to foundry segment revenue. Led by Apple’s iPad, around 155 million tablets shipped in 2012 compared with 68 million units in 2011. The strong sales momentum will continue in 2013 as more models are introduced by other OEMs. We forecast the tablet market will grow with a 23% CAGR from 2012 through 2017, and become a strong growth driver for both the semiconductor industry and foundry segment.

Supply Chain

The electronics industry consists of a long and complex supply chain, the elements of which are highly dependent and correlated with each other. At the upstream IC manufacturing level, it is important for IC vendors to have sufficient and flexible supply to support the dynamic market situation. The foundry vendors are playing an important role to ensure the health of the supply chain. As a leader in the foundry segment, TSMC provides leading technologies and large-scale capacity to complement the innovations created along the downstream chain.

TSMC Position, Differentiation and Strategy

Position

As the leader in the semiconductor foundry segment, TSMC commanded a 45% share of this segment in 2012, with total consolidated revenue of US$17.1 billion. In terms of geographic distribution of net sales, 69% came from companies headquartered in North America; 14% from the Asia Pacific region, excluding China and Japan; 9% from Europe; 5% from China; and 3% from Japan. By end product application, 19% of TSMC’s net sales came from the computer sector, 50% from communications, 9% from consumer products, and 22% from industrial and standard products.

Differentiation

TSMC’s leadership position is based on a trinity of key differentiating strengths: technology leadership, manufacturing excellence, and customer trust. As a technology leader, TSMC has consistently been first among pure-play foundries in developing the next generation of leading-edge technologies. As a manufacturing leader, TSMC is renowned for its yield management, and offers best-in-class designer/developer support services to expedite time-to-market and time-to-volume. As to customer trust, TSMC works closely with its customers on end-to-end collaboration to optimize design and manufacturing efficiencies. And as a pure-play foundry, TSMC does not compete with its customers. TSMC continually builds on this trinity of strengths to provide the best overall value to its customers.

Strategy

TSMC is confident its differentiating strengths will enable it to leverage the attractive growth opportunities in the foundry sector going forward. TSMC works constantly to ensure that these strengths are maintained and improved. For example, TSMC is intensively working on the leading-edge 20nm and 16nm FinFET technologies to maintain its technology leadership position. Numerous efforts are also underway to ensure manufacturing excellence, such as continuing enhancement of Design-For-Manufacturing (DFM) support services to increase yield and efficiency. TSMC also expanded its Open Innovation Platform® initiative, a set of ecosystem interfaces and collaborative components initiated and supported by TSMC that efficiently empowers innovation throughout the supply chain to enhance timely innovation. TSMC conducted customer reviews and surveys throughout 2012 to better understand customer needs and wants, and accordingly may adjust its offerings in response, thereby further strengthening its relationship with customers.

To address the dual challenges of falling wafer prices and fiercer competition from other semiconductor manufacturing companies, TSMC continually strengthens its core competitiveness and properly deploys its short-term and long-term technology and business development plans in order to enhance its Return on Investment (ROI) and growth objectives.

  1. Substantially ramp up the business and sustain market segment share of advanced technologies with further investment in capacity.
  2. Maintain market segment share of mainstream technology by expanding business into new customer and market segments with off-the-shelf technologies.
  3. Grow business with IDMs by establishing a closer relationship on technology development.
  1. Continue developing the leading edge technologies consistent with Moore’s law.
  2. Broaden “More-than-Moore” business contribution by further developing derivative technologies.
  3. Further expand TSMC’s business and service infrastructure into emerging and developing markets.