Taiwan Semiconductor Manufacturing Company plans to increase its capital spending by almost a third this year, as the world’s largest contract chip maker resists analysts’ warnings of mitigating demand for technology devices.
TSMC expects capital expenditures to reach $ 44 billion this year, a 32 percent increase from the $ 30 billion spent in 2021 and triple that amount in 2019, the company said Thursday.
The pressure underscores the large role that semiconductors play in goods far beyond classical electronic products, from automobiles to factory equipment. It also reflects TSMC’s dominance of global chip manufacturing.
The scale of TSMC’s spending will also “put a ceiling” on ambitious plans from Samsung, TSMC’s closest rival in contract chip manufacturing, and Intel, which also joined the foundry business, to challenge the Taiwanese company’s leadership, Dylan said. Patel of Semianalysis said.
“Intel and Samsung are going to find it difficult to keep up with the sheer scope that TSMC is planning for,” 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 scheduled to begin later this year. It is also building a new 5-nanometer production plant, the most advanced technology currently in production, in the US.
The company said the expansion was necessary because demand for its chips would continue to increase by double-digit margins for years to come, even though some analysts had predicted a slowdown after a growth spurt over the past two years.
“We see end-market demand may slow in terms of units, but silicon content is increasing,” said CC Wei, TSMC’s CEO. “So even if there is a slowdown, we believe that it can be less volatile for TSMC. We therefore expect our capacity to remain very tight throughout 2022. ”
The company predicted that its revenue would grow by at least 25 percent this year. If TSMC reaches that target, it will outperform the broader growth of the contract chip manufacturing industry by at least 5 percentage points and will grow at three times the pace of the broader semiconductor market.
Many analysts have warned that growth in demand for technology will level off, especially in the smartphone segment, which accounts for the bulk of TSMC’s revenue.
Kristine Lau, an associate at Third Bridge, a technology consulting firm, said: “2021 has certainly been a very high point, even if we look at the past decade.”
She added that recent lower forecasts for this year’s demand from Chinese smartphone brands will affect both MediaTek, the Taiwanese chip design house that supplies most Chinese smartphone makers, and TSMC.
TSMC’s bullish forecast comes as the company reported a 16.4 percent increase in net profit to NT $ 166.2 billion ($ 6 billion) for the fourth quarter of 2021, compared to a year earlier at 21.2 percent increase in revenue.
“It is [market] share gains, it’s pricing, it’s unit growth, ”said Wei of TSMC.
TSMC announced a year ago that it believes the chip industry is entering a perennial period of structurally higher growth rates driven by the proliferation of semiconductors through various industries and spheres of human life and the increase in computer density.
These trends, reflected in the advent of 5G telecommunications services, the use of artificial intelligence in everything from entertainment to factory automation, and autonomous management, boosted demand for TSMC’s chips to build more capacity faster, said the company.
The pandemic added extra momentum by creating an unexpected demand for technological devices needed to work from home. Together with global manufacturing and logistical disruptions as well as planning failures due to the pandemic, that demand jump led to a persistent chip shortage that gave TSMC even more leverage across the market.
The company has raised prices and required many of its customers to pay in advance to secure capacity, a practice that was rarely used until last year. It received US $ 6.7 billion in such prepayments in 2021 and expected that amount to increase further this year, said Wendell Huang, chief financial officer.
Driven by strong demand and full capacity utilization, TSMC’s gross margin reached 52.7 percent in the December quarter and is expected to rise above 53 percent this year, a level that, according to management, can be maintained in the long term.