The 2009 TSMC 40nm process crisis was a defining moment for the wafer foundry industry, offering pivotal lessons for the broader semiconductor sector. As TSMC founder Morris Chang prepares to release the second volume of his autobiography, this key chapter sheds light on the root causes, resolution strategies, and lasting impacts on major clients like Nvidia and AMD.
Critical yield struggles emerge
TSMC initiated 40nm process mass production in 2008, soon securing major clients including Nvidia, AMD, and Altera. By mid-2009, however, reports of low yield rates surfaced, creating serious market risks for Nvidia and AMD, whose high-performance computing products depended heavily on the process. Though such challenges were typical for foundries, their impact on these key clients was far-reaching.
When Chang resumed his role as TSMC's CEO, he immediately focused on resolving the crisis. Nvidia CEO Jensen Huang underscored the urgency, prompting Chang to spearhead focused internal discussions and devise a decisive solution.
In Silicon Valley, Chang met with Huang over a casual dinner, presenting a compensation package worth hundreds of millions of dollars with a 48-hour deadline. Huang agreed, quickly restoring their partnership and setting the stage for future collaboration on the 28nm process.
Nvidia emerges stronger
Despite significant losses during the 40nm incident, Nvidia recovered swiftly, aided by compensation and TSMC's stable supply. The company realigned its product strategy and leveraged the 28nm process to cement its market leadership. Since then, Nvidia has prioritized process maturity, emphasizing yield and production stability while steering clear of unproven technologies.
Looking ahead to 2025, Nvidia remains committed to using the 4nm process for its core products, favoring stability over more advanced technologies—a strategic choice in the wake of the 40nm incident. This approach underscores Nvidia's cautious planning and its deepened collaboration with TSMC, strengthened by overcoming past challenges together.
AMD's market position erodes
Unlike Nvidia's swift recovery, AMD emerged as the primary casualty of the 40nm incident. Having recently acquired ATI, AMD had aimed to leverage 40nm technology to challenge Nvidia in the GPU market. However, TSMC's process issues derailed its product roadmap, halting its market offensive and rapidly widening the gap with Nvidia.
AMD's GPU market share dropped sharply from 45% to below 20%. While Lisa Su's leadership drove a strong recovery in the CPU market, posing a serious challenge to Intel, its decline in the GPU sector remained irreversible. The 40nm incident highlighted the vital importance of technological stability in market competition and the severe repercussions of misaligned tapeout strategies for chip design companies.
Strategic impacts on foundry partnerships
The 40nm incident highlighted the critical role of strategic tapeout decisions. Nvidia and AMD took divergent paths: Nvidia experimented with Samsung's 8nm process for its RTX 30 series but, facing yield issues, ultimately returned to TSMC. Meanwhile, AMD's reliance on GlobalFoundries (GF) constrained its flexibility, regaining CPU market competitiveness only after Lisa Su shifted all sub-7nm production to TSMC.
This crisis highlighted the critical importance of selecting a reliable foundry partner for semiconductor design companies. For TSMC, it reinforced its position as the undisputed leader in process technology.
Evolving risk landscape
In his autobiography, Chang highlights that TSMC's current risk management challenges surpass those of the 2009 40nm incident. With advancing process technologies, foundries face increasing liabilities and market pressures, where a similar issue today could result in far greater compensation costs. TSMC's high service costs and technical risks further necessitate unwavering vigilance to ensure supply stability.
This incident offered valuable lessons in technology, management, and the competitive dynamics of the semiconductor industry. While technological leadership drives market success, stable yields, and trusted relationships form the foundation of sustainable growth. For TSMC, the 40nm incident underscored the importance of risk management, with its long-term leadership hinging on balancing innovation and production stability.
Legacy and industry implications
The 40nm incident illustrates the intricate balance between technological innovation and market realities in the semiconductor industry. Nvidia and AMD's contrasting outcomes highlight the pivotal role of tapeout strategies and foundries' far-reaching influence.
For TSMC, the lessons of the 40nm incident have likely been ingrained into its operations. However, in an era of rapid technological advancements and fierce competition, the risk of similar challenges persists. This episode serves not only as a case of crisis management but as a reminder that leadership in the fast-paced semiconductor industry demands constant refinement of technology, strategy, and management.
