Taiwan Semiconductor Manufacturing Company, or more commonly known in our circles as TSMC, is the world’s largest contracted semiconductor maker, and it’s going to get bigger. In recent a recent TSMC meeting, the Board of Directors approved a budget of $1.13B USD to expand the company’s 65 and 95 nanometer process, 300 millimeter wafer fabrication plants.

TSMC makes chips for top semiconductor companies such as ATI, NVIDIA, VIA, Marvell and Broadcom. The news of expansion falls in line with TSMC’s schedule to ramp up 65nm production in 2007. Graphics companies ATI and NVIDIA have large interests in TSMC and may benefit from the expansion.  NVIDIA recently announced that it has shipped its 500 millionth product manufactured at TSMC and that 65nm process GPUs are planned after the New Year. ATI is also expected to start 65nm production in 2007, which carries over to the Xbox 360 “Xenos” GPU, slated for a 65nm die-shrink in spring 2007.

While TSMC has not revealed where it plans to build the expansion, company chairman Morris Chang was reported by DigiTimes as saying that expansions will be focused in Tainan over the next three to four years. Chang reasoned that it is easier to recruit employees from Tainan rather than TSMC’s main headquarters in Hsinchu.

Signs also point to TSMC expanding its 65 and 95nm capabilities at its Shanghai, China, location. Chang said during the opening of the plant in China that the main intent of TSMC’s move into Shanghai was to serve the Chinese market directly, adding that there weren’t significant cost savings in making chips inside China for export until around 2009. However, improvement in manufacturing processes along with changing economic and social conditions may allow TSMC to realize cost advantages in China earlier than expected.

The projected increase in 65nm production capabilities is especially important for NVIDIA, which relies heavily on the production capabilities of its manufacturing partners. With ATI now sitting under AMD’s wing, it has the option of eventually taking its chip production in-house, though AMD does not currently have the anywhere near the capacity to handle both CPU and GPU production.

The second foundry option for fabless chipmakers is TSMC’s top rival, United Microelectronics Corporation (UMC). Founded in 1980, seven years before TSMC, UMC operates a similar number of fabs as TSMC despite having a just a little more than a fifth of its competitor’s $51.67 billion market cap.

ATI employs UMC’s services, which delivered more than one million 90nm RV516 chips as of mid-July 2006. ATI also used TSMC to produce the identical chip, but gave it the RV515 code to differentiate the place of fabrication.

NVIDIA also has a history with UMC, where the foundry made NV2A GPUs for Microsoft’s original Xbox, and more recently some of NVIDIA’s lower-end parts. It has been reported that NVIDIA would be splitting its 80nm graphic chip production between the two Taiwanese fabs in a similar fashion that ATI has done, citing weaknesses in TSMC’s production of high-end chips.

With UMC’s announcement in June on its positive results with its 65nm process, ATI and NVIDIA may once again choose to straddle its production across the two manufacturers when it launches its new chips in 2007.

UMC recently said that it has successfully produced functional 45-nanometer SRAM chips that feature a bit cell size of less than 0.25µm². The ICs, produced using UMC's independently developed logic process, used immersion lithography for its 12 critical layers and incorporated advancements such as ultra shallow junction, mobility enhancement techniques, and ultra low-k dielectrics (k=2.5).

45nm SRAM chips were already demonstrated as working by Intel earlier this year. The real key is to have 45nm capabilities in time for 2008. TSMC has already readied its plans for 45nm, which is slated for around this time next year. ATI says that it expects to produce 45nm parts at TSMC in 2008.

However, all is not beer and Skittles in the foundy industry. TSMC has accused China’s largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC), of breaking the terms of a 2005 settlement that ended a patent dispute between the companies. TSMC says in its filed complaint, “SMIC's continuing misappropriation of TSMC's trade secrets ... allows SMIC unlawfully to build a reputation that SMIC does not deserve.” TSMC is seeking monetary compensation for damages and injunctive relief in the case.

SMIC recently returned fire with a countersuit of its own, accusing TSMC of unfair competitive tactics. “Rather than competing fairly in the marketplace, [TSMC] have undertaken a concerted effort to infringe SMIC’s legal rights unfairly," SMIC’s filing reads. SMIC also seeks an injunction to stop TSMC from trash talking any further, profits TSMC made from its ‘harmful’ actions, plus a public apology.

SMIC, which grew from a $50M USD startup to a billion dollar company in a little over two years is currently the world's 5th largest foundry behind TSMC, UMC, IBM and Chartered.  With five companies breaking the billion dollar barrier of entry into the 65nm production market, 2007 is poised to to be one of the more exciting years in processor manufacturing.