Next-generation AI computing power "revolutionary technology", TSMC bets on "silicon photonics chips", is there an opportunity for the chip industry to "overtake on a curve"?

The world's largest chip manufacturer is making a big bet on the emerging field of silicon photonics.

According to media reports, a research and development team of about 200 people has been formed, targeting the upcoming silicon photonics ultra-high-speed chip business opportunity next year. The company is not only actively promoting silicon photonics technology, but also negotiating with major customers such as Broadcom and Nvidia to jointly develop applications centered around this technology.

The report states that this collaboration aims to produce the next generation of silicon photonics chips, with process technologies ranging from 45nm to 7nm. It is expected that large orders will start to come in as early as the second half of 2024.

Yu Zhenhua, Vice President of System Integration Exploration, previously stated:

"If we can provide a well-integrated silicon photonics system... we can solve the key issues of energy efficiency and computing power for AI. This will be a new paradigm shift. We may be at the beginning of a new era."

He said that a better and more integrated silicon photonics system is the driving force behind the powerful computing capabilities required for running large language models (supporting chatbots such as ChatGPT and Bard) and other artificial intelligence applications.

What is silicon photonics technology?

Silicon photonics technology is an optical communication technology that uses laser beams instead of electronic semiconductor signals to transmit data. It is a new generation technology based on silicon and silicon-based substrate materials, developed and integrated using existing CMOS processes. Its biggest advantage lies in its high transmission rate, which can achieve data transfer speeds 100 times faster or even higher between processor cores. It also has high power efficiency, making it considered as the next generation semiconductor technology.

In the development of chip technology, as the chip process continues to shrink, various effects caused by interconnects have become important factors affecting chip performance.

Chip interconnects are one of the current technological bottlenecks, and silicon photonics technology has the potential to solve this problem.

Interconnects are like streets and highways inside microelectronic devices, connecting various components such as transistors, resistors, and capacitors, and interacting with the outside world. As chips become smaller, interconnects need to be finer, and the shrinking distance between interconnects and the parasitic effects between electronic components will increasingly affect circuit performance. Common interconnect materials include aluminum, copper, carbon nanotubes, etc., and these materials' interconnects undoubtedly face physical limits.

Optical interconnects, on the other hand, do not have these limitations.

Moreover, with the computerization and networking of information technology, there is a growing demand for functional devices and systems with faster processing speeds, larger data storage capacities, and higher transmission rates. The silicon integrated circuit technology that relies solely on electrons as information carriers is no longer able to meet these requirements.

With the rapid development of cloud computing, big data, and artificial intelligence, there is a continuous increase in society's demand for information acquisition and processing efficiency. However, as Moore's Law approaches its limit, silicon photonics technology, with its outstanding advantages in high transmission rates, high energy efficiency, and ultra-low latency, has become another competitive track in the semiconductor field.

Not a Newly Emerging Technology

In fact, silicon photonics technology is not a newly emerging technology.

As early as 1969, S.E. Miller from Bell Labs in the United States first proposed the concept of integrated optics. However, due to the high loss and outdated process of InP waveguides, this technology did not make a significant impact at that time.

It was Intel that later developed and popularized this technology.

At the beginning of the 21st century, leading companies and academic institutions such as Intel and IBM started to focus on the development of silicon chip optical signal transmission technology, hoping to replace the data circuits between chips with optical paths to continue Moore's Law.

In 2010, after Intel developed the first 50Gb/s short-range silicon-based integrated optical transceiver chip, silicon photonics entered the industrialization stage. Subsequently, a group of traditional integrated circuit and optoelectronic giants from Europe and the United States quickly entered the field of silicon photonics through acquisitions to seize the high ground. Currently, Intel is also the most comprehensive company in the field of silicon photonics.

In terms of manufacturing processes, although photonic chips and electronic chips are similar in terms of process and complexity, the requirements for the structure of photonic chips are not as strict as those for electronic chips, generally in the range of hundreds of nanometers. This greatly reduces the dependence on advanced processes and alleviates the bottleneck in the development of current chips to some extent.

Industry insiders divide the development of silicon photonics technology into three stages:

The first stage is to use silicon to produce the underlying devices of optical communication and achieve process standardization.

The second stage is the evolution of integration technology from coupled integration to monolithic integration, achieving partial integration, and then integrating different chips through the combination of these devices.

The third stage is the integration of optoelectronics, achieving full integration of optoelectronics.

Currently, silicon photonics technology has reached the second stage.

Explosive Growth Expected as Early as 2024

Analysts believe that like the microelectronics technology in the 1970s, the silicon photonics industry is in the early expansion stage and is expected to become an industry comparable to the massive scale of integrated circuits, driving a trillion-dollar market.

Therefore, well-known semiconductor and information technology companies such as Intel, IBM, Oracle, and ZTE are investing a large amount of manpower and financial resources to promote the industrialization of silicon photonics.

A significant event in this regard is the launch of the silicon photonics platform Fotonix by GlobalFoundries, a wafer foundry company that focuses on economies of scale. The platform, launched in March 2022, includes the 90WG and 45CLO process nodes and packaging processes. The platform partners include three out of four top photonics transceiver suppliers, four out of five top networking companies, three out of four leading EDA and simulation companies, as well as some promising photonics-based startups.

According to reports, with the development of silicon photonics and co-packaged optics (CPO) technologies by international semiconductor giants such as Intel, NVIDIA, and Broadcom, it is expected that the market will experience explosive growth as early as 2024. According to industry insiders, optoelectronic packaging is expected to be the fastest-growing field, with Co-Packaged Optics (CPO) being the most promising technology. According to market research firm CIR, the revenue of the Co-Packaged Optics market is projected to reach $5.4 billion by 2027.

In addition, according to the Semiconductor Equipment and Materials International (SEMI), the global silicon photonics market is estimated to grow from $1.26 billion in 2022 to $7.86 billion in 2030, with a compound annual growth rate of 25.7%.

A Highly Competitive Field

Silicon photonics has become a heavily invested area in the semiconductor industry, with many technology companies exploring its potential applications in various fields such as data centers, supercomputers, network equipment, autonomous vehicles, and defense radar systems.

Not only Intel, Cisco, and IBM, but NVIDIA also made its largest acquisition to date in 2021 by acquiring fiber interconnect technology provider Mellanox Technologies for $6.9 billion in cash.

NVIDIA has been investing in silicon photonics technology development for many years, including establishing a research base in Longbridge, UK.

Looking at the global development of silicon photonics, the United States was the first to rise and is currently the most advanced country in this field.

China began large-scale research on silicon photonics around 2010, with previous research mainly focused on academia. The late start has put China behind the United States in terms of commercializing silicon photonics. However, China's massive investment in talent and funding for silicon photonics research and development has narrowed the gap between domestic and foreign industries.

In 2017, China's silicon photonics industry experienced rapid development.

In terms of the industry chain, the global silicon photonics industry chain has gradually matured, with representative companies involved in basic research and commercial applications.

Among them, US companies such as Intel, Cisco, and Inphi dominate the shipment volume of silicon photonics chips and modules, leading the industry.

Domestic manufacturers mainly include Zhongji Xuchuang, Xilian Opto, Huagong Tech, Xinyisheng, Gigalight, Borchip, and HTGD Optoelectronics.

Although domestic manufacturers entered the field relatively late and have a relatively small market share, they have been rapidly catching up with foreign manufacturers in terms of technology in recent years.

Applications of Silicon Photonics

The main application scenario for silicon photonics is in the field of optical communication.

Currently, the industry has established a series of silicon photonics communication product solutions for markets such as data centers, optical fiber transmission, 5G backhaul networks, and optical access. Among them, data center optical communication is the largest market for silicon photonics, with over 40% of Microsoft's internal data center interconnects based on silicon photonics chips.

In the data center scenario, CSPs and cloud providers (such as Facebook, Apple, Tencent, etc.) are shifting towards large-scale data centers, with increasing Capex spending to support customers' high-bandwidth demands. Communication speeds are iterating from 100G, 200G to 400G, 800G, 1.6T, and 3.2T, with shorter iteration cycles. In this context, traditional pluggable optical modules are already "struggling" in terms of cost-effectiveness and power consumption, while highly integrated high-speed silicon photonics chips, due to their significant advantages in potential price reduction and power consumption, have become a superior option.

Industry analysis suggests that high-speed data transmission currently relies on pluggable optical components. As transmission speeds rapidly advance into the era of 800G and beyond, such as 1.6T to 3.2T, power loss and heat management will become major challenges. The solution proposed by the semiconductor industry is to integrate silicon photonics optical components and application-specific chips (ASICs) for switches into a single module using CPO packaging technology. This solution has already been adopted by major companies such as Microsoft and Meta and applied to next-generation network architectures.

However, even though CPO technology is expected to enter mass production soon, the initial production costs remain relatively high. As advanced processes progress to the 3nm node and AI computations drive the demand for high-speed transmission, further reshaping of high-speed network architectures is anticipated. It is predicted that CPO technology will become indispensable and will enter the market in large quantities after 2025.

Furthermore, in the 5G backhaul market, silicon photonics technology represents another growth opportunity with the deployment of 5G fronthaul (telecom-side optical modules). Intel has already released a 100G transceiver for 5G fronthaul with an extended operating temperature range of -40°C to 85°C, supporting a 10km link through single-mode fiber.

Although it is difficult to determine the pace of penetration, the certainty of the silicon photonics trend is beyond doubt. Intel, as a leading company in the field of silicon photonics, has already captured over 40% of the market share in silicon photonics communications. Cisco, Marvell, Broadcom, and other leading companies in the communication optical module sector have also established their presence in the silicon photonics module business through mergers and acquisitions.

Among domestic companies, Huawei, Hisense Broadband, Innolight, HTGD, and Accelink have successively launched silicon photonics communication modules. Innolight has established a dedicated business unit for silicon photonics and has experienced rapid development, while HTGD has formed a joint venture with Rockley Photonics from the UK, called "HT Rockley," to expand its silicon photonics product portfolio.

In addition, a large number of start-up companies, such as Xilinx, Saleae, Xihetech, and Rain Photonics, have also entered the silicon photonics field. However, the high-speed communication application market is still in the process of maturing, especially for higher-speed modules such as 1.6T.

In the field of optical sensing, there are numerous application scenarios that are rapidly evolving, indicating tremendous potential for silicon photonics development.

Currently, silicon photonics chips for autonomous driving LiDAR and consumer health monitoring and diagnostics are expected to be important growth drivers.

With the demise of Moore's Law, attention has turned to optical computing and the concept of silicon photonics.

In the short term, chip-to-chip optical interconnects and on-chip optical interconnects will be the first commercially successful applications for improving computing power.

Currently, Intel's data centers have adopted chip-to-chip optical interconnects to enhance computational efficiency, and Nvidia is also collaborating with Ayar Labs to apply optical I/O to AI/HPC architectures. Ayar Lab is a major startup in the field of optical interconnects, with continuous financing of over $200 million. The Series B valuation is $1.1375 billion, and the estimated Series C valuation exceeds $2 billion. Investors include Intel, NVIDIA, Global Foundries, and others.

According to reports, Xizhi Technology, a startup in optical computing, launched its first data center optical interconnect hardware product, Photowave, at the 2023 Global Flash Memory Summit (FMS) held in August this year. Photowave is compatible with PCIe and CXL protocols, and a live demonstration of the memory expansion optical interconnect solution was also presented.

In addition, optical quantum computing is also within the scope of optical computing. However, the optimistic estimate for the practical application of optical quantum computing is still around 5-10 years, and it cannot drive the development of the silicon photonics industry in the short term.

Industry insiders analyze that the silicon photonics industry is the general trend, and the market potential on the application side is exciting. However, returning to the essence of the manufacturing industry, the foundation of the silicon photonics industry lies in the silicon photonics ecosystem. To promote the implementation of a trillion-dollar industrial market, it not only requires the drive from the application side but also the construction of the underlying process ecosystem.

Currently, the key issues facing the silicon photonics industry are the immaturity of the process platform, the difficulty in realizing silicon-based active devices, and the lack of convergence in nanoscale silicon photonics technology paths, especially the crucial importance of process platform construction.