TSMC Expects Wafer Capacity to ‘Remain Tight’ in 2022, Says CEO

Taiwan Semiconductor Manufacturing Co. expects the chip industry’s supply chain “to maintain a higher level of inventory” in 2022, compared with “historical” trends, due to “the industry's continued need to ensure supply security,” said CEO C.C. Wei on a Q4 call Thursday. TSMC had Q4 revenue in U.S. dollars of $15.74 billion, up 5.8% sequentially. The stock closed 5.3% higher Thursday at $139.19.

Though the short-term demand-supply imbalance “may or may not persist, we continue to observe the structural increase in long-term semiconductor demand underpinned by the industry megatrend” of 5G and high-performance computing applications, said Wei. “We also observed the higher silicon content in many end devices, including automotive, PCs, servers, networking and smartphones. As a result, we expect our capacity to remain tight throughout 2022.” The rising deployment of 5G smartphones “will fuel a massive requirement for computation power,” he said.

TSMC is working closely with customers “to plan our capacity and investing in leading-edge and specialty technology to support their group demand,” said Wei. “At the same time, we are committed to achieve a sustainable and proper return.” The company more than doubled capital expenditures the past three years, to $30 billion in 2021 from $14.9 billion in 2019, “as we invest in anticipation of the growth that will follow,” he said.

As TSMC invests in “leading-edge and specialty technology” to support customers' demand, “we continue to face manufacturing cost challenges,” said Wei. Contributing to the headwinds are the “increasing process complexity” of leading-edge nodes, new investments in mature nodes, expansion of TSMC’s global manufacturing footprint and rising materials and basic commodity costs, he said.

TSMC will continue “to work closely with our customers to support their growth,” said Wei. Pass-along price increases to mitigate the higher production costs “will remain strategic, not opportunistic, to reflect our value creation,” he said. “We will also work diligently in our own fab operation and with our suppliers to deliver on cost improvement.”

TSMC’s 5-nanometer (N5) process technology contributed 23% of wafer revenue in the fourth quarter, with N7 contributing 27%, said Chief Financial Officer Wendell Huang. TSMC defines advanced technology nodes as N7 processes and below, he said.

As TSMC enters the third year of its N5 ramp, demand continues to be very strong, said Wei. A derivative of TSMC’s 4-nanometer process, called N4P, renders an 11% “performance boost” compared with N5, and is on the production schedule for second-half 2022, he said. N3 technology development is “on track,” with “complete platform support,” he said. “N3 production will start in the second half of 2022.”

In Q&A, Wei danced around the question of how TSMC navigates its relationship with Intel as an important customer, but also as a looming competitor, with its creation last year of Intel Foundry Services to support downstream U.S. customers that are totally dependent on foreign wafer supply sources (see 2109240043). “Let me emphasize that we always operate in a good space and support all our customers openly and fairly,” said Wei, avoiding mention of Intel by name. TSMC knows its “good customer” has its “own plans for future insourcing, and we already have taken this into our capacity planning consideration,” he said.