Navigating the Shifts in Semiconductor Manufacturing

In a surprising move that's set to reshape the landscape of semiconductor manufacturing, Taiwan Semiconductor Manufacturing Company Ltd (TSMC) has announced its decision to cease GaN foundry production by the end of July 2027. This strategic pivot is indicative of broader industry trends and sparks important discussions about the future of semiconductor manufacturing. Source

Strategic Exit: Why TSMC is Phasing Out GaN

TSMC's decision came against the backdrop of increasing price competition from Chinese competitors in the GaN market, which has traditionally been characterized by limited scale and profitability. The Taiwanese financial newspaper, Commercial Times, highlighted these rising pressures as a significant factor behind TSMC’s exit. Furthermore, TSMC's monthly output of GaN devices was relatively small — only between 3000–4000 6-inch wafers — suggesting that GaN was a lower priority in their vast portfolio.

Shifting Focus to Advanced Silicon and AI

In place of GaN, TSMC is redirecting resources toward advanced-node silicon development — a sector experiencing rapid growth due to AI advancements. By repurposing its Hsinchu Fab 5, previously dedicated to GaN, TSMC aims to focus on technologies like chip-on-wafer-on-substrate (CoWoS), wafer-on-wafer (WoW), and wafer-level system integration (WLSI). These technologies are crucial for the burgeoning AI applications that require cutting-edge processing power.

This shift is not only a response to external pressures but also a strategic repositioning to capitalize on the booming AI industry, which substantially contributes to its revenue streams and future growth prospects. Source

Partnership and Supply Chain Diversification

Navitas Semiconductor Corp, which heavily relies on TSMC for GaN production, has announced a strategic partnership with Powerchip Semiconductor Manufacturing Corp (PSMC) to transition its production. PSMC will begin producing 100V GaN products on 200mm silicon wafers by the first half of 2026, creating a more resilient supply chain for Navitas. Over the next 12 to 24 months, Navitas plans to move its 650V GaN production from TSMC to PSMC.

In light of TSMC's exit, Navitas is also actively identifying other potential suppliers to diversify its supply chain, ensuring operational flexibility and continued capacity to meet market demand.

Market Analyst Insights

From a broader industry perspective, this transition illustrates the shifting sands of semiconductor manufacturing priorities. According to Taiwan-based TrendForce, this move aligns with TSMC's long-term vision of advancing silicon technology, leaving behind less profitable and lower-trending markets like GaN. The industry is witnessing a digital transformation wave that emphasizes high-tech components such as those used in AI, making it a fertile ground for companies investing in cutting-edge technologies.

Conclusion

TSMC's decision to withdraw from the GaN sector and concentrate on advanced silicon signals a significant shift in the semiconductor industry. While it may present challenges for companies like Navitas in the short term, the strategic focus on high-growth areas like AI offers fresh opportunities and highlights the dynamic nature of the sector. As the industry continues to evolve, keeping an eye on how companies adapt their strategies to meet emerging trends will be critical to understanding future market landscapes.