TSMC’s 3nm Production Capacity Nearly Maxed Out by 2026, Analysts Predict; Conversion of Older Node Production Lines Boosts Gross Margin Above 60%

Being the sole dominant player in the semiconductor manufacturing industry comes with its challenges, particularly with the immense demand for technology. Taiwan Semiconductor Manufacturing Company (TSMC) is currently experiencing such pressure, driven by significant orders from major companies like NVIDIA, Apple, Qualcomm, and MediaTek. Analysts are forecasting that TSMC’s production capacity for the highly sought-after 3nm technology may almost reach its maximum by next year. In response, TSMC is adapting its manufacturing strategies; however, they are still anticipated to face supply limitations.

Customers Paying Up to 100% More for 3nm Orders

According to a report from Commercial Times, analysts at JPMorgan have indicated that TSMC is taking steps to navigate various operational challenges to meet this substantial demand. This includes repurposing production lines originally assigned to 4nm technology. One of the facilities is expected to increase its production by approximately 25, 000 wafer units monthly, while some plants are set aside for TSMC’s upcoming 2nm N2 and A16 technologies. Furthermore, there are plans to convert idle N6 and N7 production lines to support the 3nm back-end processing, potentially adding 5, 000 to 10, 000 wafer units to their output.

Previously, it was reported that TSMC’s 3nm process was enjoying a successful phase in mass production, with projections estimating monthly wafer output could soar to around 160, 000 units by 2025. However, the latest data suggests that TSMC may only be able to achieve an output of between 140, 000 and 145, 000 units by the end of 2026, even as NVIDIA has urged its manufacturing partner to increase capacity to meet the original target of 160, 000 units. Although this production predicament poses challenges, it may ultimately prove beneficial for TSMC.

The survey conducted by JPMorgan revealed that to ensure timely delivery, certain customers are willing to pay “hot run”prices, which are significantly inflated—by 50% to 100% higher compared to standard rates—even though these rush orders comprise merely 10% of TSMC’s overall capacity. This surge in desperation has enabled TSMC to push its gross margin above 60%.Moreover, TSMC anticipates implementing price increases of up to 10% due to escalating demand. While managing these 3nm production challenges, TSMC must also turn its attention to its 2nm process line, with mass production slated to begin by the end of 2025.

For more information, see the report by Commercial Times.

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