TSMC warns of £426m hit from Fab 14B yield issue

Taiwan Semiconductor (TSMC) has warned investors that its guidance for the first quarter of its 2019 financial year is going to take a £426 million hit over bad materials supplied to its Fab 14B in Nanke earlier this year.

TSMC warned that its Fab 14B 16nm and 12nm process node production lines had seen a dramatic drop in yields back in January after an unnamed supplier - believed to be Shin-Etsu, JSR, or Dow Chemical - had provided substandard photoresist. In its latest statement, the company has gone into more detail: 'TSMC discovered that a batch of photoresist from a chemical supplier contained a specific component which was abnormally treated, creating a foreign polymer in the photoresist,' the company explains of the issue. 'The foreign polymer created an undesirable effect on 12/16-nanometer wafers at Fab 14B. This effect was detected later on when the wafers deviated from normal yield.'

At the time, TSMC estimated that while 10,000 wafers were affected it would be able to salvage at least some components; in its updated statement, however, the company warns that it has had to scrap a higher number of wafers than it had originally hoped - though it has not put a figure to that scrappage. What it has shared is the financial impact said scrappage will have on the company's expected revenue for the first quarter of its 2019 financial year: $550 million (around £426 million), which will drop the company's gross margin by 2.6 percentage points and its operating margin by 3.2 percentage points.

TSMC has confirmed it plans to make up wafer quantity in the second quarter, which will come as welcome news to 16nm and 12nm customers including Nvidia, HiSilicon, and MediaTek. 'Since TSMC discovered the yield issues caused by the problematic material, it has maintained constant communication with affected customers and has worked out replacement and delivery schedules with each of them,' the company confirms. 'TSMC has taken action to strengthen inline wafer inspection and tighten control of incoming material to deal with the increasing complexity of leading-edge technologies.'

The faulty photoresist marks the second time production has been severely impacted at TSMC facilities in less than a year, after a virus infection halted production at several facilities in August 2018.