Chip Talk > TSMC's Exit from Gallium Nitride (GaN) Foundry Business by 2027: Technical Analysis and Business Impac
Published July 08, 2025
aiwan Semiconductor Manufacturing Company (TSMC), the world’s leading foundry vendor, has announced its decision to phase out its gallium nitride (GaN) wafer foundry services by July 31, 2027. This strategic move has sent ripples through the semiconductor industry, particularly affecting customers like Navitas Semiconductor, Rohm, and STMicroelectronics, who relied on TSMC for GaN chip production. This blog post provides a detailed technical analysis of TSMC’s GaN operations, explores the reasons behind its exit, evaluates the business implications, and discusses the broader market and competitive landscape, drawing on recent industry developments.
Gallium Nitride (GaN) is a wide bandgap semiconductor material composed of gallium and nitrogen. Unlike traditional silicon-based semiconductors, GaN offers superior electrical properties, including:
GaN is a third-generation semiconductor, alongside silicon carbide (SiC), and is used in two primary sub-segments:
TSMC has historically produced GaN devices using its 6-inch (150mm) and 8-inch (200mm) fabrication facilities (fabs), primarily employing GaN-on-Silicon (GaN-on-Si) technology. This approach leverages silicon substrates to reduce costs compared to more complex alternatives like GaN-on-QST (used by Vanguard International Semiconductor, VIS). TSMC’s GaN portfolio catered to customers like Navitas (100V and 650V GaN power ICs), STMicroelectronics, and Rohm, serving applications in power electronics and RF.
TSMC’s decision to exit the GaN foundry business is driven by a combination of market dynamics, competitive pressures, and strategic priorities. Below are five key reasons, supported by technical and business insights:
China’s aggressive investment in GaN technology, backed by government subsidies, has significantly lowered global GaN chip prices. Chinese foundries like Innoscience, Sanan IC, and CR Microelectronic’s Runxin Micro have scaled up production, particularly using cost-effective GaN-on-Si processes. This has eroded profit margins in the GaN market, making it less attractive for TSMC, which prioritizes high-margin segments like advanced logic processors for AI and high-performance computing (HPC). For instance, TSMC’s HPC segment, driven by clients like Nvidia, accounted for 59% of its revenue ($15 billion) in Q1 2025, dwarfing GaN’s contribution.
While the GaN market is growing, its scale remains modest compared to TSMC’s core markets. According to Yole Group, the power GaN market is projected to grow from $260 million in 2023 to $2.01 billion by 2029, and the RF GaN market from $1.1 billion to $2 billion over the same period. In contrast, TSMC’s HPC market alone generates significantly higher revenue. The GaN market is also maturing, with increasing consolidation as larger players acquire smaller ones, and new entrants, particularly from China, intensify price competition. This maturing market dynamics reduces the long-term strategic value of GaN for TSMC.
TSMC is heavily investing in advanced process nodes, such as its 2nm technology, set to ramp up in the second half of 2025. These nodes require substantial capital expenditure and offer higher margins than specialty processes like GaN. The company’s focus on AI-driven HPC, where it holds a 75% foundry market share by 2026, underscores its strategic pivot toward high-growth, high-margin segments. Exiting GaN allows TSMC to reallocate resources, including repurposing its Fab 5 in Hsinchu, Taiwan, for advanced packaging technologies like CoWoS (Chip-on-Wafer-on-Substrate) to meet AI chip demand.
The GaN foundry market is becoming increasingly crowded, with players like Powerchip Semiconductor Manufacturing Corporation (PSMC), VIS, Xfab, IGSS GaN, Polar Semiconductor, and GlobalFoundries competing for market share. Many of these foundries, particularly in China, offer lower-cost GaN-on-Si production, leading to a potential price war. TSMC’s 6-inch GaN production lines are less competitive as the industry transitions to 8-inch (200mm) wafers, which offer better economies of scale. Investing in 200mm GaN production would require significant capital, with limited returns given the competitive landscape.
TSMC holds a 27.55% stake in Vanguard International Semiconductor (VIS), a Taiwanese foundry offering 200mm GaN-on-QST technology. By exiting GaN, TSMC can redirect potential GaN customers to VIS, maintaining influence in the market without direct investment. This strategic hand-off simplifies TSMC’s portfolio while leveraging VIS’s expertise in specialty processes, making the exit decision more palatable.
TSMC’s GaN-on-Si technology is cost-effective but faces competition from alternative approaches like GaN-on-QST (used by VIS) and GaN-on-Sapphire, which offer different performance trade-offs. GaN-on-Si leverages existing silicon fab infrastructure, reducing costs, but its performance in high-voltage applications (e.g., 650V) is less optimized compared to GaN-on-QST, which provides better thermal and electrical properties. The industry’s shift to 200mm wafers further disadvantages TSMC’s 6-inch GaN lines, as larger wafers improve yield and cost-efficiency.
TSMC’s GaN production occurs at its Fab 5 facility in Hsinchu, Taiwan, which processes 3,000–4,000 6-inch wafers per month. Post-exit, TSMC plans to repurpose this facility for advanced packaging, a high-demand area driven by AI chip production. Advanced packaging technologies like CoWoS and wafer-level system integration (WLSI) require cleanroom facilities that align with TSMC’s existing infrastructure, enabling a seamless transition. This move optimizes fab utilization and aligns with TSMC’s focus on high-margin, high-volume markets.
TSMC’s exit requires its GaN customers to transition to new foundries, which involves requalifying processes and ensuring supply chain continuity. For example:
The transition period, supported by TSMC’s last-time-buy (LTB) option, allows customers to secure supply until July 2027, but requalification on new foundry processes could introduce delays and costs.
TSMC’s exit from GaN is unlikely to significantly affect its financial performance, as GaN constitutes a small fraction of its revenue. The company forecasts 24–26% revenue growth in 2025 (in USD terms), driven by HPC and advanced nodes, unaffected by the GaN exit. By focusing on AI, 2nm processes, and advanced packaging, TSMC strengthens its position in high-growth markets, maintaining its 75% foundry market share by 2026. Repurposing Fab 5 for advanced packaging further enhances TSMC’s competitiveness in AI chip production.
TSMC’s exit creates a supply gap that competitors like PSMC, Innoscience, and VIS are poised to fill. The global GaN market is projected to grow significantly:
Infineon’s entry into 300mm GaN wafer production by Q4 2025 positions it to dominate the market, leveraging economies of scale and existing infrastructure. The GaN market’s growth, driven by AI, EVs, and 5G, suggests that TSMC’s exit may benefit competitors with specialized GaN expertise.
TSMC’s phased exit, supported by LTB options, ensures a smooth transition for customers, minimizing supply disruptions. Navitas and STMicroelectronics have secured alternative foundries, while Rohm’s delay in announcing a partner could lead to competitive disadvantages. The GaN market will see increased competition, particularly from Chinese foundries, potentially driving further price reductions.
TSMC’s exit may accelerate consolidation in the GaN foundry market, with larger players like Infineon and PSMC capturing market share. The repurposing of Fab 5 for advanced packaging aligns with TSMC’s focus on AI, potentially increasing its dominance in HPC. The GaN market’s growth trajectory remains strong, driven by demand for energy-efficient solutions in AI data centers, EVs, and 5G infrastructure. However, price pressures and geopolitical risks, particularly involving Chinese suppliers, could challenge market stability.
TSMC’s strategic retreat highlights a broader industry trend: leading foundries prioritizing high-margin, high-volume markets like AI and advanced nodes over specialty processes. This shift could prompt other foundries to reassess their GaN strategies, potentially leading to a shakeout among smaller players. Meanwhile, Singapore’s new National Semiconductor Translation and Innovation Centre for GaN (NSTIC) and Infineon’s 300mm fab underscore global efforts to advance GaN technology, filling the gap left by TSMC.
TSMC’s decision to exit the GaN foundry business by July 2027 reflects a calculated move to prioritize high-margin, high-growth markets like AI and advanced nodes. Driven by Chinese competition, a maturing GaN market, and strategic resource allocation, the exit poses challenges for customers like Rohm but opens opportunities for competitors like PSMC and Infineon. The GaN market’s growth trajectory remains robust, but price pressures and supply chain transitions will shape its future. TSMC’s focus on advanced packaging and HPC ensures its financial resilience, reinforcing its position as the world’s leading foundry.
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