TSMC predicts 50% gross profit margins after global chip shortage

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Taiwan Semiconductor Manufacturing Company said it could achieve a gross profit margin of 50% or more in the long run, as customers became more willing to pay higher prices amid a prolonged global chip shortage.

The world’s largest contract chipmaker reported net income of NT $ 156.3 billion ($ 5.6 billion) in the three months to September 30, up 13.8% from compared to last year and 16.3% compared to the previous quarter. The results exceeded average analyst estimates of an 11.2 percent revenue increase from the second quarter as the company’s capacity increased to meet strong demand.

“We expect our capacity to remain limited in 2021 and throughout 2022,” CEO CC Wei told investors after forecasting annual revenues would increase by 24%.

TSMC admitted that demand for smartphones and PCs, two products in which its chips are used, has weakened and customers may be cutting inventories.

But Wei said that was in part due to component shortages. He added that if there was an inventory correction, the company would be less affected than in the past as the number of chips needed in products ranging from smartphones to cars increased.

In response to the continuing shortage of semiconductors, especially in special applications such as the automotive industry, TSMC announced that it will build a new manufacturing plant, or fab, in Japan.

Construction of the facility, which will manufacture 22 and 28-nanometer chips – a technology older than the 5-nanometer chips made in TSMC’s newer factories – will begin next year and production is expected to start in late 2024. Wei said the company had received a “strong commitment” to support the project, a statement referring to heavy subsidies from the Japanese government.

In a press conference Thursday, Fumio Kishida, the Japanese Prime Minister, said the government will include TSMC investment support of around 1 billion yen ($ 8.9 billion) when compiling of its economic package. “We hope this will strengthen the indispensable character and autonomy of our semiconductor industry, and greatly contribute to our economic security,” he said.

Sony, which makes image sensors for smartphones, and auto parts maker Denso are potential partners for the new plant, but no details have been agreed, according to a person familiar with the discussions. Both companies declined to comment.

TSMC is also building a plant in Arizona, for which it expects US federal and state authorities to provide subsidies to alleviate higher operating costs compared to Taiwan, its main manufacturing base.

The new plant in Japan was not included in the estimate the company released in January that it would make $ 100 billion in capital investments over the next three years.

TSMC’s decision to invest in mature production capacity in Japan departs from its traditional focus on the most advanced manufacturing technology. Its market share – around 60% of the global custom chip market – is highest in the most recent processing technology, where it exceeds 90%.

TSMC said it does not plan to allocate more of the capital expenditure to older production technology, but is focusing on customer needs. The global shortage is most pronounced in 28-nanometer chips.

Governments in the United States and Europe continued to rely on TSMC to help alleviate bottlenecks. Wei said the supply shortage was “significantly reduced” for TSMC customers in the third quarter, but end users, such as automakers, could take a few months to feel the impact.

“TSMC’s role in the global automotive market [semiconductor] market is only about 15 percent, ”he said. “We are doing our part, but we cannot solve the problem for the whole industry.”

This article has been modified since its publication to indicate that TSMC is considering building a plant in Arizona rather than Wisconsin.


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