Neon and TSMC

Techcet comments: TSMC is hoping to strengthen supply chain but not build an entirely new source of supply

Nov. 10, 2023

TSMC to Build Neon Supply Chain After Russia Decimated Global Supply

As the world’s largest contract maker of chips, TSMC requires steady and high-volume supply of materials (e.g., chemicals, wafer subtrates, etc.) to meet customer. The company faced major challenges dealing with the global chip shortage in 2020 – 2022, which increased its costs and required it to hike prices for its customers.

But in a bid to make its supply chain more resilient, TSMC is now looking forward to localizing a part of its supply chain, notably production of high-purity gases like neon. This is not particularly easy as neon is a byproduct of steel manufacturing.

“We have a concrete plan to work with suppliers to localize some neon gas supplies and are currently in the process of buying equipment,” Lin told Nikkei. “The idea is to have more sources to increase the level of supply chain safety. However, our plan is not to build all the supplies locally. That is not realistic and very costly.”

Earlier this year TSMC faced major turmoil after Russia destroyed Cryoin and Ingas, two major producers of high-purity neon, in Odessa and Mariupol in the first days of war. These two companies shipped 360,000 m^3 of high-purity Grade 5.0 neon last year and 75% of their output went to chipmakers. They controlled around 50% of semiconductor-grade neon in 2021, it was revealed earlier this year.

The semiconductor business is a major global industry, and it is impossible to localize the whole supply chain in one country. The company sources production equipment from the Netherlands and the U.S.; buys raw materials from Europe and Japan and then uses local companies to build fabs. 

ArF immersion lasers used to make sophisticated chips that require deep ultraviolet (DUV) lithography use a mixture of neon, fluorine, and argon gases. Neon accounts for over 95% of the blend; meanwhile, modern production tools feature neon recycle systems that reduce actual consumption by over 90%. But while each ArF rs in use worldwide and all of them need neon, fluorine and argon gases, so demand for these noble gases is strong.

While demand for chips is slowing right now, TSMC’s revenue continue to increase. The company posted October revenue of NT$210.3 billion ($6.673 billion), which is up a whopping 56.3% from NT$134.5 billion ($4.267 billion) in October ’21, reports Bloomberg. TSMC will likely be among the last chip companies to report revenue drop due to demand slump, but will be the first chipmaker to benefit from demand rebound in 2023 ~ 2024. So it makes a great sense for the foundry to invest in its supply chain

TSMC to Build Neon Supply Chain After Russia Decimated Global Supply