Taiwan's TSMC, the world's largest contract chipmaker, has outsourced part of its advanced chip packaging work to rival Intel, according to industry reports. The move appears to be a rare appeal to a competitor as surging demand for artificial intelligence chips has outstripped advanced packaging supply.
Taiwan's Economic Daily News reported on the 18th, citing industry sources and export data, that TSMC had shifted part of its back-end orders for its advanced packaging technology, chip-on-wafer-on-substrate (CoWoS), to Intel's plant in Malaysia. The newspaper added that TSMC appears to have broken with industry practice and outsourced back-end work to a competitor after a flood of orders left CoWoS capacity unable to meet demand.
The shift also showed up in export data. According to figures from semiconductor consultancy SemiAnalysis, about $1.3 billion worth of high-bandwidth memory (HBM) that had been slated for Taiwan was instead shipped to Malaysia. Meanwhile, HBM volumes entering Taiwan fell sharply to less than $3 billion. Industry watchers said Intel's local plant is the only facility in Malaysia with the scale and capability to assemble HBM into chip products, lending weight to the claim that TSMC has outsourced part of its advanced packaging back-end work to Intel's Malaysian plant.
CoWoS is a technology that places graphics processing units (GPUs) or logic chips — non-memory semiconductors that handle computation and logic — horizontally close together with HBM on a single substrate to boost data transfer speeds, making it essential to manufacturing AI accelerator chips. The shortage of AI accelerator chip production through TSMC's CoWoS has been a bottleneck for several years.
TSMC has responded with aggressive outsourcing. TSMC Chairman C.C. Wei has repeatedly stressed that the company is focusing on front-end advanced packaging and hopes more firms will provide capacity to add flexibility where back-end supply falls short. At the company's earnings announcement in July, Wei again emphasized that TSMC welcomes other companies entering packaging or expanding the outsourcing ecosystem, and that it hopes they will take on some of the volume.
TSMC has recently broadened the scope of its outsourcing from mainly back-end work to include front-end processes, according to reports. The front-end process, in which semiconductor chips are placed onto a silicon substrate, is regarded as the core step in advanced packaging. This expansion also helped keep volume from flowing to competitors such as Intel and Samsung Electronics and reinforced the TSMC ecosystem. Intel has recently moved to strengthen its advanced packaging business. It is challenging TSMC's dominance with its own advanced packaging technology, EMIB-T, which cuts costs to about half those of CoWoS. EMIB-T is expected to reach mass production starting next year.
Behind TSMC's decision to entrust volume to competitor Intel, rather than an outsourcing partner, lies a supply shortage that remains severe. Wei told the company's June shareholders' meeting that this year's planned production of AI accelerator chips using CoWoS was fully sold out. Lead times currently run 52 to 78 weeks, meaning that even an order placed now would not be delivered until after mid-2028.
The long-standing business relationship between the two companies, which are at once competitors and partners, also played a role. TSMC currently produces all of Intel's sub-7-nanometer product wafers. Intel CEO Lip-Bu Tan said on a conference call in April last year that retired TSMC founder Morris Chang and Chairman Wei were his old friends, and that the two companies had recently met to look for areas where they could cooperate for a win-win outcome.
