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Chip foundry growth is likely to reach 20% in 2025, led mainly by TSMC and smaller rivals that have caught the AI wave, according to Counterpoint Research.

That projection shows growth slowing slightly from last year. The foundry segment of the chip industry in 2024 grew 22%, rebounding from a slump in 2023, Counterpoint said.

An expansion of AI in data centers and edge computing has driven demand for chips made at leading-edge nodes. TSMC captured the momentum by making 5/4-nm and 3-nm chips combined with advanced-packaging technologies, such as the company’s proprietary CoWoS technology.

“We expect overall foundry utilization to be around 80% in 2025, with advanced nodes maintaining higher utilization than mature nodes,” Counterpoint analyst Adam Chang told EE Times. “Chinese mature-node foundries are likely to see stronger demand compared to their non-China peers, driven by domestic localization efforts.”

Leading-edge nodes (5/4 nm and 3 nm) will remain at a 90%-plus industry utilization, as TSMC continues to benefit from premium smartphone demand and surging AI-related orders from hyperscalers, according to Chang.

Hyperscalers are companies like Amazon, Microsoft and Google that offer a variety of cloud computing and data services.

TSMC

In its quarterly results announced in January, TSMC forecast its 2025 sales will grow by as much as 26%.

Fab utilization for leading-edge nodes remains strong in 2025, driven by demand from AI leader Nvidia and smartphone chip designers Apple, Qualcomm and MediaTek, according to Counterpoint.

Utilization is a key indicator of profitability in the capital-intensive chip industry. Recovery for mature nodes, defined as 28/22 nm and above, is relatively sluggish due to weak end-market demand across consumer electronics, networking, automotive and industrial segments, Counterpoint said.

“Foundries with strong silicon-on-insulator capabilities, such as GlobalFoundries, Tower and TSMC, are well positioned to benefit from the growing silicon photonics market,” Chang told EE Times. “However, the scale of this business remains relatively small compared to mainstream semiconductor demand. We believe TSMC will remain the primary beneficiary of cloud AI demand, given its dominance in advanced nodes and advanced packaging.”

Co-packaged optics (CPO) is another key technology to watch, as it could become a major driver of silicon photonics for hyperscale data centers, Chang said. “CPO adoption is still in its early stages. Both TSMC management and Nvidia CEO Jensen Huang have indicated that widespread adoption is still several years away, with meaningful revenue contributions expected beyond 2026 or 2027.”

Intel

TSMC is the leader in advanced packaging, but it is not the only foundry benefiting.

Intel is also making gains, particularly with its EMIB and Foveros 3D packaging technologies. Foveros 3D stacking is mainly used in Intel’s own products like Meteor Lake, featuring chiplet-based architectures.

“Given the increasing complexity of semiconductor designs, Intel is expected to continue investing in advanced-packaging R&D, both to support its own product roadmap and to attract external customers,” Chang said.

Automotive in the slow lane

Counterpoint expects an inventory correction in automotive semiconductors to persist through the first half of 2025, delaying recovery. High inventory levels at global integrated device manufactures like Infineon and NXP are likely to result in reduced outsourcing to mature-node foundries, further pressuring utilization at mature nodes.

“While it’s true that semiconductor content per vehicle is increasing, driven by the trends of electric vehicles and advanced driver assistance systems, the automotive semiconductor market is currently facing a correction,” Chang said. “The auto market has been weak for several quarters, and high interest rates have further dampened demand since the sector particularly sensitive to macroeconomic conditions.”

Beyond 2025, the foundry industry is poised for sustained growth, with a projected compound annual growth rate slowing to 13-15% from 2025 to 2028, according to Counterpoint.

This long-term expansion will be anchored by advancements in leading-edge nodes, such as 3 nm, 2 nm and below, as well as the accelerating adoption of advanced-packaging technologies, including CoWoS and 3D integration, the report said. These innovations will remain the primary growth engines for the industry over the next 3-5 years, driven by increasing demand for high-performance computing and AI applications. TSMC is expected to continue its leadership, shaping industry trends and capitalizing on its technological edge, according to Counterpoint.

TSMC has more than 60% of the foundry business, followed by Samsung and Intel. The Taiwanese giant expects its 2025 capital expenditure to be in the range of $38-$42 billion in 2025, up from about $29.8 billion last year.

Chip equipment

Chip foundries will remain the leaders in semiconductor equipment purchases, according to industry association SEMI. The foundry segment this year is projected to increase capacity by 10.9% annually, rising from 11.3 million wafers per month in 2024 to a record 12.6 million in 2025, according to SEMI.

The memory segment had more modest growth of 3.5% in 2024 that is likely to slow to 2.9% in 2025, according to SEMI. Strong generative AI demand is driving significant changes in memory markets. Demand for high-bandwidth memory (HBM) is surging, creating a divergence in capacity growth trends compared with DRAM and NAND flash segments.

SK Hynix in January overtook memory industry leader Samsung in annual operating profit for the first time on strong sales of advanced memory chips, particularly HBM. SK Hynix is the sole HBM supplier to Nvidia. Memory rivals Samsung and Micron are still trying to launch HBM products.