TSMC to Spend $100B to Boost Customers' Chip 'Supply Certainty,' Says CEO

Taiwan Semiconductor Manufacturing Co. plans to invest $100 billion the next three years to increase capacity and support “the manufacturing and R&D of leading-edge and specialty technologies,” said CEO C.C. Wei on a Q1 earnings call Thursday. The world’s largest pure-play chip foundry expects the increased capacity to “improve supply certainty for our customers and help strengthen confidence in global supply chains that rely on semiconductors,” he said.

TSMC is in close touch with customers to be sure their long-term demand will be there when the new capacity comes online, said Wei. It also has commitments from its equipment suppliers to tool the new capacity without the risk of bottlenecks, he said. Recruiting top “talent” to staff the additional capacity “is one of our top priorities,” with the Taiwan government's “strong support,” he said.

The “structural increase” in long-term demand is combining with “short-term imbalance” in the supply chain to drive the industry-wide semiconductor capacity shortage that’s posing “challenges” to virtually all TSMC customers, said Wei. “We are witnessing a structural increase in underlying semiconductor demand as a multiyear megatrend” of 5G, and applications involving high-performance computing “are expected to fuel strong demand for our advanced technologies in the next several years,” he said.

COVID-19 “has also fundamentally accelerated the digital transformation, making semiconductors more pervasive and essential in people's lives,” said Wei. The need to “ensure supply security” is putting additional stress on the supply chain, as are “uncertainties brought about by geopolitical tensions,” he said.

TSMC expects its customers and the supply chain “to gradually prepare higher levels of inventory throughout the year as compared to the historical seasonal level,” said Chief Financial Officer Wendell Huang. “We expect this to persist for a period of time given the industry's continued need to ensure supply security.” TSMC fab capacity is expected “to remain tight throughout the year supported by strong demand for our industry-leading advanced and special technology,” he said.

If there’s any glimmer of good news it’s in the expectation that semiconductor shortages in the automotive sector will be “greatly reduced for TSMC's customers by the next quarter,” said Wei. “The automotive supply chain is long and complex with its own inventory management practices,” he said. “From chip production to car production, it takes at least six months with several tiers of suppliers in between.”

TSMC announced in January that “capacity support for automotive customers” would be its “top priority,” said Wei. “We have worked dynamically with our other customers to reallocate our wafer capacity to support worldwide automotive industry,” but supply “further deteriorated due to the unexpected snowstorm in Texas,” he said.

First quarter TSMC revenue was $12.92 billion, up 25.4% year over year and 1.9% sequentially from Q4. Smartphone revenue declined 11% quarter over quarter to account for 45% of total Q1 sales. High-performance computing revenue increased 13% for a 35% share. TSMC drew 14% of its Q1 revenue from 5-nanometer process technology, while 7-nanometer accounted for 35%m said CFO Huang. "Advanced technologies, which we now define as 7-nanometer and below, accounted for 49% of wafer revenue."