TSMC invests in new capacity despite forecasts chip demand will ease

Taiwan Semiconductor Manufacturing Firm plans to boost its capital expenditure by virtually a 3rd this yr because the world’s largest contract chipmaker defies analyst warnings of softening demand for know-how devices.

TSMC expects capital expenditure to succeed in $44bn this yr, a 32 per cent improve from the $30bn spent in 2021 and triple the quantity in 2019, the corporate mentioned on Thursday.

The push underscores the outsized function semiconductors are coming to play in items far past classical electronics merchandise, from vehicles to manufacturing unit gear. It additionally displays TSMC’s dominance of worldwide chip manufacturing.

The size of TSMC’s spending may even “put a ceiling” on formidable plans from Samsung, TSMC’s closest rival in contract chipmaking, and Intel, which has additionally entered the foundry enterprise, to problem the Taiwanese firm’s management, mentioned Dylan Patel of Semianalysis.

“Intel and Samsung are going to have a tough time maintaining with the sheer scale that TSMC is planning for,” Patel mentioned in a analysis word on Thursday.

TSMC has constructed a large fabrication plant, or fab, in southern Taiwan for superior 3 nanometre chips, a know-how stage at which manufacturing is scheduled to start later this yr. It’s also constructing a brand new fab for manufacturing at 5 nanometres, essentially the most superior know-how stage presently in manufacturing, within the US.

The corporate mentioned the growth was wanted as a result of demand for its chips would proceed to extend by double-digit margins for years to come back, though some analysts have predicted a slowdown after a progress spurt previously two years.

“We observe end-market demand might decelerate when it comes to models, however silicon content material is growing,” mentioned CC Wei, TSMC chief government. “So even when there’s a slowdown, we imagine it may very well be much less unstable for TSMC. So we count on our capability to stay very tight all through 2022.”

The corporate forecast its income to develop by at the very least 25 per cent this yr. If TSMC met that focus on, it might outperform broader contract chipmaking trade progress by at the very least 5 share factors and would develop at triple the tempo of the broader semiconductor market.

Many analysts have warned that tech demand progress will stage off, particularly within the smartphone phase that accounts for the lion’s share of TSMC’s revenues.

Kristine Lau, affiliate at Third Bridge, a know-how consultancy mentioned: “2021 was undoubtedly a really excessive level, even when we have a look at the previous decade.”

She added that latest decrease forecasts for demand this yr from Chinese language smartphone manufacturers would influence each MediaTek, the Taiwanese chip design home that provides most Chinese language smartphone makers, and TSMC.

TSMC’s bullish forecast comes as the corporate reported a 16.4 per cent improve in internet revenue to NT$166.2bn ($6bn) for the fourth quarter of 2021 in contrast with a yr earlier on a 21.2 per cent improve in revenues.

“It’s [market] share beneficial properties, it’s pricing, it’s unit progress,” TSMC’s Wei mentioned.

TSMC introduced a yr in the past that it believed the chip trade was getting into a multiyear interval of structurally larger progress charges pushed by the proliferation of semiconductors all through varied industries and spheres of human life and the rise of computing density.

These traits, which have been mirrored within the begin of 5G telecom companies, the usage of synthetic intelligence in every part from leisure to manufacturing unit automation, and autonomous driving, have been boosting demand for TSMC’s chips to such an extent that it wanted to construct extra capability quicker, the corporate mentioned.

The pandemic added additional momentum by creating surprising demand for tech devices wanted for working from dwelling. Along with international manufacturing and logistics disruptions in addition to planning misses as a result of pandemic, that demand bounce led to a persistent chip scarcity that has given TSMC much more leverage over the market.

The corporate has raised costs and required a lot of its prospects to pre-pay to safe capability, a observe not often used till final yr. It acquired US$6.7bn in such prepayments in 2021 and anticipated that quantity to extend additional this yr, mentioned Wendell Huang, chief monetary officer.

Pushed by the robust demand and full capability utilisation, TSMC’s gross margin hit 52.7 per cent within the December quarter and was anticipated to rise above 53 per cent this yr, a stage that administration mentioned may very well be maintained in the long run.


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