Power Semiconductors Analysis: Why is TSMC Exiting the GaN Business While Infineon Fully Enters?

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TSMC's decision to withdraw from the GaN market is causing quite a stir in the industry in Asia. After the initial shock, it is gradually becoming clear what factors may have led TSMC to this step.

The world's largest contract manufacturer for semiconductors intends to close GaN production lines by July 2027, spokespeople from the Taiwanese company TSMC announced. Part of it is to be retooled for an expansion of the company's increasingly profitable packaging business, they said. TSMC's decision to exit the business is in stark contrast to Infineon's strategy. The German chip manufacturer from Munich reaffirmed just at the beginning of this month that it intends to further consolidate its "position as the leading integrated device manufacturer (IDM) in the GaN market".

Infineon continues to see "growing demand" for this third generation of chip technology and, at least according to current trends, this is probably undisputed. However, and this may be the main reason for TSMC's withdrawal, this demand is increasingly being met by very low-cost Chinese manufacturers.

Thanks to their improved energy density, chips based on gallium nitride have a number of advantages over conventional silicon semiconductors. In e-mobility - which is currently experiencing a very strong boom, particularly in China - they enable more powerful DC-DC converters, onboard chargers (OBC) and motor controllers, for example. Compound semiconductors made from the material also enable bandwidths in satellite communication to be tripled or significantly more powerful 6G networks to be created.

Growing Competition

While the demand for GaN chips is growing due to applications in a number of future industries, competition with Chinese companies is also increasing. TSMC no longer sees the margins in the GaN business that it needs for a financially sustainable business, say analysts in Taiwan.

Instead of engaging in a price war with Chinese GaN producers, TSMC has now opted for a "strategic exit" from the market, writes the Chinese-language Commercial Times in Taipei, among others, in an analysis. In the People's Republic of China, whose manufacturers, like Infineon, can now move into the gap in the market left by TSMC's exit, investments in GaN technology are not just a question of technology or profitability, but also a political issue.

SiC Valley and GaN Investments

Since the USA has been trying to slow down China's economic rise with chip and technology boycotts, the communist state and party leadership in Beijing has been increasingly focusing on promoting the "third chip generation". Since then, many billions in subsidies have been flowing into a new "SiC Valley" in the Yangtze River delta and also into GaN producers.

These industrial policy megatrends have been changing the semiconductor industry in Asia for years. Recently, however, the aggressive trade policy of the US government under Donald Trump has created further uncertainties, which may also have influenced TSMC's "exit" from the GaN business. "China currently controls around 98 percent of the global supply of gallium nitride (GaN). Against the backdrop of tense trade relations between the US and China, reliance on a Chinese-dominated material poses significant strategic risks and supply chain vulnerabilities," comments EETimes.

For TSMC, leaving the GaN supply chain not only means foregoing future price wars with Chinese manufacturers such as Innoscience or CorEngery (Jiangsu Nenghua). It also means saying goodbye to the new uncertainties in a particularly politically sensitive part of the industry. TSMC notoriously plans for the long term, is currently expanding its footprint in the USA for a lot of money and uncertainties linked to China and geopolitics are the last thing the company needs.

Technological Disadvantage

Insiders in both the People's Republic and Taiwan are also unanimously convinced that IDMs such as Infineon or its fast-growing competitor Innoscience are better placed to benefit from the GaN boom than foundry companies such as TSMC due to their business model. The technical differences between GaN power devices and other semiconductors mean that foundry companies such as TSMC cannot generate sufficient margins, said Innoscience CEO Luo Weiwei in a recent interview with Trendforce. (sb)