“Chip makers are seeing the light. And it is costing them,” writes The Wall Street Journal (Nov. 6, 2019). Companies like Taiwan Semiconductor Manufacturing (TSMC), Intel, and Samsung are racing to produce smaller and faster processors. But the latest manufacturing processes, which require new types of production tools, are pushing the bounds of physics. These include systems that use extreme ultraviolet light, or EUV, to produce chip circuitry at a much thinner width than was possible with more commonly used light sources. This requires special equipment for testing and process control– and means investments are reverberating through technology supply chains..
EUV tools are expensive—especially if one has to equip an entire semiconductor fabrication facility with them. ASML, the largest supplier of EUV lithography tools for chip makers, saw revenue of $827 million from the sale of just 7 EUV systems in the last 3 months. That works out to about $118 million per machine. Such systems also require other types of equipment for process control and testing. All told, the cost of building a new leading-edge chip-fabrication facility is now well into the billions. TSMC disclosed plans two years ago to spend $20 billion on just one new fab.
So it is little surprise that chip makers are cracking open their wallets. TSMC plans to spend $14-$15 billion this year in capital expenditures—nearly 40% above its stated target. Intel says its $16 billion capital expenditure (capex) target this year is a company record—and 36% above what it spent just two years ago. Samsung said it plans to spend about $20 billion this year on total semiconductor capex.
Classroom discussion questions:
- Why is chip making such a capital intensive business?
- What is a “fab”?