TSMC invests in new capacity despite forecasts chip demand will ease

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Taiwan Semiconductor Manufacturing Co. plans to increase its capital expenditure by about a third this year as the world’s largest contract chipmaker defies analyst warnings of slowing demand for technology gadgets.

TSMC expects capital expenditures to reach $44 billion this year, up 32 percent from the $30 billion it spent in 2021 and triple the amount in 2019, the company said on Thursday.

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The push underscores that beyond classical electronics products, semiconductors are coming to play a role in goods ranging from cars to factory equipment. It also reflects TSMC’s dominance in global chip manufacturing.

The scale of TSMC’s spending will also “put a limit on Samsung’s ambitious plans”, TSMC’s closest rival in contract chipmaking, and Intel, which has also entered the foundry business to challenge the Taiwanese company’s leadership, said Semianalysis. Dylan Patel said.

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“Intel and Samsung are going to have a tough time keeping up with the scale that TSMC is planning,” Patel said in a research note on Thursday.

TSMC has built a massive manufacturing plant, or fab, in southern Taiwan for advanced 3 nanometer chips, a technology level at which production is set to begin later this year. It is also building a new fab for production at 5 nanometers, the most advanced technology level currently in production in the US.

The company said the expansion was needed because demand for its chips will continue to grow by double-digit margins in the coming years, even though some analysts have predicted a slowdown after a spurt in growth over the past two years.

“We see market demand slowing down in terms of units, but silicon content is increasing,” said TSMC chief executive CC Wei. “So even if there is a slowdown, we believe it could be less volatile for TSMC. So we expect our capacity to be very tight during 2022.

The company has forecast at least 25 per cent growth in its revenue this year. If TSMC meets that goal, it will outperform the growth of the broader contract chipmaking industry by at least 5 percentage points and triple the momentum of the broader semiconductor market.

Many analysts have warned that growth in tech demand will slow down, especially in the smartphone segment which accounts for the lion’s share of TSMC’s revenue.

Christine Lau, associate at Third Bridge, a technology consultancy, said: “2021 was certainly a very high point, even if we look at the last decade.”

The recently lower forecast for demand from Chinese smartphone brands this year will affect both MediaTek, the Taiwanese chip design house that supplies most Chinese smartphone makers, and TSMC, he said.

TSMC’s bullish forecast comes as the company posted a 16.4 percent increase in net profit for the fourth quarter of 2021 to NT$166.2 billion ($6 billion) from a year earlier on a 21.2 percent increase in revenue. registered.

“this is [market] Share profit, it’s pricing, it’s unit growth,” said V of TSMC.

TSMC announced a year ago that it believes the chip industry is entering a multi-period of structurally high growth, driven by the proliferation of semiconductors and increased computing densities in various industries and areas of human life. was doing.

These trends, which were reflected in the introduction of 5G telecommunications services, the use of artificial intelligence in everything from entertainment to factory automation, and autonomous driving, were driving demand for TSMC’s chips to such an extent that it was designed to create more capacity. was required, the company said.

The pandemic provided additional momentum by creating unexpected demand for the tech equipment needed to work from home. Due to global manufacturing and logistics disruptions, as well as plan lapses due to the pandemic, that demand surge has led to persistent chip shortages that have given TSMC even greater leverage on the market.

The company has raised prices and required many of its customers to pre-pay to secure capacity, a practice rarely used until last year. Chief Financial Officer Wendell Huang said US$6.7 billion was received in such prepayments in 2021 and expects the amount to increase further this year.

Driven by strong demand and full capacity utilisation, TSMC’s gross margin hit 52.7 per cent in the December quarter and was expected to rise above 53 per cent this year, a level that management said could be maintained over the long term.

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