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TSMC's post-pandemic future in a world short of chips? New factories, more revenue

It's not all bad news for some

Taiwan Semiconductor Manufacturing Co. has a clear vision of its post-pandemic reality: more demand for chips, and even more profits from it.

The contract chip manufacturer's boss CC Wei on Thursday said the company is expanding capacity to meet the growing demand for chips in equipment related to 5G, high-performance computing and automotive products.

"COVID-19 has ... fundamentally accelerated the digital transformation making semiconductors more pervasive and essential in people's lives," Wei said, during an earnings call. "TSMC is better positioned to capture the course from its favorable industry megatrend."

For one, TSMC said it will construct a new factory in Japan to fabricate chips using the older 22- and 28-nanometer nodes. The factory will go live in 2024, but TSMC didn't mention the type of chips the facility will produce.

"We don't rule out the possibility of building a fab in other areas that include Europe. However, we do emphasize when we build up a new capacity for 28-nanometer is almost all to serve the specialty technologies," Wei said. These cover a "broad range of applications, including mobile devices, automobile electronic systems, medical systems, wearables, and the Internet of Things, that enrich our lives," he said.

Contract chip manufacturers including GlobalFoundries are investing in new factories on older manufacturing nodes to make chips for cars and other equipment, said Jim McGregor, principal analyst at Tirias Research.

TSMC is reportedly considering building a fab in Germany, and is building a fab in the state of Arizona in the US.

TSMC's reported third quarter revenue was $14.9bn, a 22.6 per cent increase compared to same quarter last year when calculated in US dollars. The company is expecting fourth-quarter revenue between $15.4bn to $15.7bn. That would be an increase from $12.68bn in revenue in last year's fourth quarter.

The Taiwanese titan counts chip heavyweights that include Apple, Intel and Qualcomm as its customers. A chip shortage has put pressure on TSMC to ramp up production, and Wei isn't worried about a "correction" if the supply of chips is higher than demand.

Wei said that chip supply will remain soft through 2022, and in responding to an analyst question on a possible market correction, he said "you've asked me to predict, I cannot give you a very accurate prediction."

The company previously said it would invest $100bn over the three years to increase capacity to support the manufacturing and R&D of leading edge and specialty technologies. The company raised its chip prices by up to 20 per cent, which will fund expansion plans.

The price hikes of chips could trickle down to devices, but that's only a part of the story, said Jim McGregor, principal analyst at Tirias Research.

"There are supply constraints in substrates and silicon wafers, and the company has to pay higher prices for those. Limited capacity and materials have increased costs of making chips," McGregor said.

TSMC makes computing chips on cutting edge nodes. The revenue opportunity is strong in chips for non-computing areas like auto and manufacturing, which is why TSMC is building new factories on older nodes, McGregor said.

"TSMC's participation in the global automotive IC market is only about 14%, and we are doing our part to support our automotive customers with what they need. However, we cannot solve the entire industry's supply challenge," Wei said on the call. ®

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