A Taiwan Semiconductor Manufacturing Company sign at its headquarters in Hsinchu, Taiwan, August 31 2018. Picture: REUTERS/TYRONE SIU
A Taiwan Semiconductor Manufacturing Company sign at its headquarters in Hsinchu, Taiwan, August 31 2018. Picture: REUTERS/TYRONE SIU

Taiwan Semiconductor Manufacturing Company (TSMC) will pour as much as $28bn into capital spending in 2021, a staggering sum aimed at expanding its technological lead and constructing a plant in Arizona to serve key US customers.

Capital spending for 2021 is targeted at $25bn to $28bn, compared with $17.2bn the previous year. About 80% of the outlay will be devoted to advanced processor technologies, suggesting TSMC anticipates a surge in business for cutting-edge chipmaking. Intel, which on Wednesday announced a new CEO, is said to be contemplating a departure from tradition and outsourcing manufacture to the likes of TSMC.

The world’s largest contract chipmaker expects revenue of $12.7bn to $13bn this quarter, ahead of the $12.4bn average of analyst estimates. That will power mid-teens sales growth this year, though that’s roughly half the pace of the increase in 2020.

The scale of TSMC’s envisioned budget — more than half its projected revenue for the year — underscores its determination to maintain its dominance and supply its biggest American clients from Apple to Qualcomm. At 52% of projected 2021 revenue, the chipmaker’s planned spending would be the sixth-highest among all companies with a value of more than $10bn, according to data compiled by Bloomberg. The outlay may also ramp up pressure on Intel, whose budget for 2020 was roughly $14.5bn.

Net income in the quarter ended December climbed 23% to NT$142.8bn ($5.1bn), compared with the NT$137.2bn average of analyst estimates, the chipmaker said on Thursday. That contributed to a 50% increase in full-year profit, the speediest rate of expansion since 2010. Sales in the December quarter climbed 14% to a record NT$361.5bn, according to previously disclosed monthly numbers, helped in part by robust demand for Apple’s new 5G iPhones.

TSMC shares retreated on Thursday before the earnings results, snapping a 10-day rally that lifted its stock to a record high. Supplier ASML Holding jumped as much as 4% on Thursday.

The fourth-quarter results revealed increasing contributions from TSMC’s most-advanced 5nm process technology — used to make Apple’s A14 chips. That accounted for about 20% of total revenue during the quarter, more than doubling its share from the previous three months, while 7nm represented 29%. By business segment, TSMC’s smartphone business contributed about 51% to revenue, while HPC was at 31%.

As rivals such as United Microelectronics Corporation fall behind and Semiconductor Manufacturing International Corp. struggles with American sanctions, TSMC’s pivotal role is likely to expand in 2021. The company has been racing to meet demand from larger-volume electronics clients, worsening a severe shortage of automotive chips that is forcing firms including Honda Motor and Volkswagen to curtail production.

TSMC said the automotive industry had been “soft” since 2018 and demand only started to recover in the fourth quarter. The company is working with its automotive customers to address the capacity supply issues, CEO CC Wei said, though he didn’t elaborate when the bottlenecks that forced carmakers to cut production could be resolved.

Executives didn’t address reports about potential orders from Intel on Thursday, saying that they don’t discuss specific customers. The Santa Clara, California-based chipmaker had held talks with the Asian firm after a series of in-house technology slip-ups, people familiar have said, though it’s unclear whether the company may pivot after the appointment of a new CEO.

Construction on a planned $12bn plant in the southwestern US state of Arizona will begin in 2021, executives reiterated, without specifying how much of the planned budget for this year will be allocated to the project. The factory will be completed by 2024, with initial target output of 20,000 wafers per month, though the company envisions having a “mega scale production site” over the long term, chair Mark Liu said.

Even as TSMC grows, foundries such as TSMC, UMC and Globalfoundries are not expanding fast enough to meet the pandemic-induced spike in demand for gadgets. Those bottlenecks snarled the flow of chips not just to cars, but also Xboxes and PlayStations and even certain iPhones.

TSMC is by far the most advanced of the foundries responsible for making a significant portion of the world’s semiconductors, serving the likes of Qualcomm and NXP Semiconductors, which also supply the mobile and auto industries.

Bloomberg

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