TSMC Buys AUO Fabs for $1.2B to Expand Advanced Packaging

Taiwan Semiconductor Manufacturing Co. finalized terms on Nov. 4 to acquire two display fabrication plants from AUO Corp. for NT$38.8 billion ($1.2 billion), repurposing cleanroom capacity for artificial intelligence chip packaging.

The transaction transfers ownership of AUO's Phase 2 manufacturing site in the Central Taiwan Science Park in Taichung. The property sits directly adjacent to TSMC's existing Fab 15 advanced wafer manufacturing facility.

The facility contains 429,030 square meters of registered floor area, translating to roughly 166,000 ping of usable industrial floor space. The price matched independent valuations from two real estate appraisal firms, according to regulatory filings.

AUO expects an estimated pre-tax disposal gain of NT$18.5 billion ($576 million) after factoring in transaction costs. The disposal will contribute approximately NT$2.45 in post-tax earnings per share, AUO Chairman Paul Peng said.

The purchase targets severe bottlenecks in TSMC's proprietary Chip-on-Wafer-on-Substrate advanced packaging technology, known as CoWoS. Surging demand for machine learning accelerators has stretched production lead times for tier-one customers up to eight months.

Nvidia Corp. and Advanced Micro Devices Inc. consume the majority of TSMC's advanced packaging volume. Industry estimates project TSMC's total CoWoS wafer output will rise from 106,000 units in 2026 to 227,000 units in 2027.

Acquiring ready-built cleanrooms allows TSMC to bypass lengthy zoning, permitting and foundational civil engineering works. Converting an existing industrial structure shortens production commissioning schedules by nine to 12 months compared to greenfield developments.

Display fabs provide large column-free floor plates, high ceiling clearances and stringent structural vibration dampening. Those physical parameters match the equipment requirements of heavy backend lithography steppers, bonding apparatus and automatic wafer transport systems.

The acquired site will support TSMC's Advanced Backend Fab 5, located within the same science park complex. The AP5 plant currently handles mass production of CoWoS-L packaging modules for next-generation artificial intelligence accelerators.

TSMC affiliate Xintec Inc. will support backend processing steps as part of the broader packaging expansion. TSMC holds an equity stake of approximately 41% in Xintec, which generates over 70% of its revenue from foundry contracts.

The transaction marks TSMC's second major purchase of display manufacturing assets in Taiwan within three years. TSMC acquired Innolux Corp.'s Fab 4 in the Southern Taiwan Science Park for NT$17.14 billion in August 2024.

That earlier Tainan purchase was converted into Advanced Backend Fab 8 to expand packaging throughput. Together, the two transactions represent a cumulative capital commitment of NT$55.94 billion dedicated to converting legacy panel fabs into packaging cleanrooms.

The divestment accelerates a structural realignment across Taiwan's flat-panel display manufacturing industry. Domestic display producers have faced margin erosion as mainland Chinese competitors increased their dominance in global liquid crystal display output.

The Phase 2 site contains two manufacturing facilities, designated as the L7A and L5C fabrication lines. The Gen 7.5 L7A line produced 43-inch and 50-inch television panels, while the Gen 5 L5C line manufactured laptop displays.

Competitors BOE Technology Group, HKC Corp. and Innolux will capture panel supply orders displaced by the plant closures. Mainland Chinese manufacturers currently control roughly 70% of global production capacity for television-grade LCD panels.

AUO is repurposing capital toward automotive displays, industrial applications and micro-LED technology platforms under an asset-light corporate strategy. Non-display business lines accounted for more than 50% of AUO's aggregate revenue during the second quarter.

AUO had previously divested three color filter facilities in southern Taiwan to Micron Technology Inc. for NT$8.1 billion in 2024. Micron utilizes those Tainan facilities to expand testing and fabrication for high-bandwidth memory chips.

AUO also terminated an earlier preliminary agreement to sell its Huaya facility in northern Taiwan to Quanta Computer Inc. The parties failed to reach consensus regarding physical plant specifications and equipment delivery schedules, AUO said.

AUO will continue operating existing display lines at the Taichung site while transferring product qualifications to other manufacturing facilities. The company expects final operational handoff and legal closing to conclude by late 2027, management said.

Facility engineering contractors estimate structural cleanroom modifications could begin as early as the second quarter of 2027. Preliminary technical reviews completed in October confirmed the site's utility systems meet semiconductor cleanliness standards.

The regulatory filings do not specify the precise packaging variant or tool configuration allocated to the new facility. TSMC has not published an equipment procurement budget or commercial production start date for the site.

Administrative filings require final environmental and property registration approvals from the Central Taiwan Science Park Bureau before construction begins. The transaction will clear through the Taiwan Stock Exchange upon formal transfer of deed title.