TSMC founder and industry icon Morris Chang says that customers have approached him to build up to ten new fabs for AI processors, an incredible request that speaks to an insatiable demand. The request isn't entirely surprising, as the demand for processors used for AI applications is booming, and it is well known that market leader Nvidia cannot satisfy it. Meanwhile, the amount of AI compute performance available to companies like OpenAI appears insufficient, which is why companies are demanding more processors from existing suppliers, and some are even planning to build their own silicon.
"They are not talking about tens of thousands of wafers," said Morris Chang, the founder of TSMC, at a conference in Japan, reports Nikkei. "They are talking about fabs, [saying] 'We need so many fabs. We need three fabs, five fabs, 10 fabs.' Well, I can hardly believe that one." The report says Chang predicts demand for AI processors to be in the middle, "between tens of thousands of wafers and tens of fabs."
TSMC is one of a few companies on the planet that builds semiconductor manufacturing facilities that have a production capacity of around 100 thousand wafer starts per month. These 'Gigafabs' tend to produce processors using a variety of advanced process technologies. Running such large plants allows TSMC to reuse expensive wafer fab equipment for different process nodes, which greatly optimizes utilization rates and costs.
But a Gigafab costs a lot of money: a large 3nm-capable fab may cost well over $20 billion when fully built and equipped, and it requires years of construction. Meanwhile, TSMC's 2024 capital expenditure (CapEx) budget is between $28 billion and $32 billion, so the company isn't building multiple Gigafabs every year. Building ten leading-edge fabs would have cost well over $200 billion, and that does not include the cost of supporting the supply chain and infrastructure. Such a huge sum is significantly beyond TSMC's investing capabilities.
This is perhaps why we are hearing rumors that Sam Altman, chief executive of OpenAI, is trying to raise trillions to build a network of fabs to be run by leading chipmakers that would produce a sufficient amount of AI processors. While the plan looks rather fantastic itself, it would hardly be economically viable.
Developers of advanced processors for AI and HPC tend to use leading-edge process technologies for their parts, and typically, these processors are produced for two or three years. After that, they move to new nodes. If companies like TSMC build an excess of leading-edge capacity just to meet immediate demand from the AI sector, they might end up with an excess of advanced capacity that has not been fully depreciated (and it is impossible to depreciate a fab in just a few years) several years later, which will lead to losses in the foundry sector.
Contract makers of chips certainly know that, so it isn't likely we'll see 10 new leading-edge fabs built just for AI chips any time soon. However, we can expect that production will increase within rational limits.
