Author: Chake
The coronavirus epidemic has severely damaged many companies, but the global semiconductor giant TSMC made a lot of money last year. The company has fully increased the price of wafer and OEM this year, and is also preparing to invest up to US$44 billion (S$59.3 billion) to expand and upgrade production capacity. It seems that it will usher in another bumper harvest.
This semiconductor manufacturing plant established in Taiwan in 1987 has developed rapidly in recent years and has a bright future. This is inseparable from the fact that there is a global shortage of chips. It is also related to the company's leading technology research and development and advanced business layout. TSMC's cooperative relationship with major brands such as , apple, , etc. has put it on the fast track of development.
TSMC's corporate logo at its headquarters in Hsinchu, Taiwan. (Reuters)
Apple reportedly accepted TSMC's price increase
Taiwan's "Business Times" reported yesterday (17th) citing supply chain industry sources that Apple's new generation A16 application processor has completed the design finalization and will use TSMC's 4-nanometer N4P process chip. , is expected to begin production at TSMC in the second half of the year.
TSMC will increase its foundry prices across the board this year. According to industry sources, the price of TSMC semiconductor products has increased by an average of 8% to 10% compared with last year. Because Apple is TSMC’s largest customer, the increase will be lower than that of other customers. The specific price is currently Not yet announced.
TSMC has not raised prices for Apple before, but the supply of chips produced by the company exceeds demand. In order to ensure sufficient production capacity, Apple has reportedly accepted the price increase and contracted TSMC's 120,000 to 150,000 4-nanometer chip production capacity.
received large orders at the beginning of the year, and TSMC’s share price soared on the Taiwan Stock Exchange today. During the session, it reached 688 yuan per share ( NT$ , 33.6 Singapore dollars), an increase of 2.38%, a record high. It fell back to 683 yuan per share at the close of trading.
If we estimate that TSMC founder Zhang Zhongmou held 125,000 shares without selling a single share when he retired, and TSMC's closing price on the day of retirement was NT$229, TSMC has risen by more than NT$459, and Zhang Zhongmou's net worth has soared by NT$57.375 billion since his retirement.
Eye-catching report card
Last Thursday (13th), TSMC held the first online corporate briefing of the new year to explain its performance in 2021 and this year’s layout.
TSMC’s financial results are impressive. (TSMC official website)
The company performed extremely well last year. The financial report shows that TSMC’s revenue in the fourth quarter of 2021 reached US$15.74 billion, a year-on-year increase of 21.2%, and quarterly revenue hit a new high.
This is the sixth consecutive quarter in which TSMC’s revenue growth has continued to reach new highs. Looking at the whole year of 2021, TSMC’s revenue was US$56.82 billion, with revenue increasing 24.9% year-on-year.
Based on such strong growth last year, the company will reach a higher level this year. TSMC President Wei Zhejia predicted at the performance briefing that the chip foundry manufacturing industry will have an average growth rate of about 20% this year, and TSMC will outperform the average and last year's performance, growing by 25% to 29%. He predicts that TSMC’s US dollar revenue will grow at a compound annual growth rate of 15% to 20% in the next few years.
Demand surges Global chip shortage
Why is TSMC growing so rapidly and so confident for the future? One of the reasons is that the global market is currently facing a shortage of chips and demand exceeds supply. TSMC has endless business right now.
Not only high-end mobile phones such as Apple need chips, but also game consoles, medical equipment, agricultural machinery, network equipment, etc. The COVID-19 epidemic has upended people's daily lives. With the rise of home-based trends such as remote working and online learning, global demand for new mobile devices, personal computers and data center upgrades has soared. With the continuous popularization of new technologies such as 5G, autonomous driving, virtual reality, and , the demand for chips will naturally increase.
Semiconductor chips produced by TSMC. (Bloomberg)
While demand is increasing, production capacity is being hampered. Since 2020, due to the impact of the epidemic, supply chains have been blocked and factories have been closed, which has had a negative impact on chip shipments.Although most chip manufacturers have now resumed production, they are still struggling to meet the surge in demand during this period.
Moreover. Chip manufacturing itself also requires components. Parts arriving late at the factory means the waiting time for chip delivery is extended. Gelsinger, CEO of TSMC's competitor Intel , said at the company's earnings conference call at the end of October last year: "Believe me, if it were not restricted by other parts supply chains in the industry, our shipments would be higher. Big." Gelsinger expects the chip shortage to last until 2023.
Merchants who need chips have long seen the hidden danger of insufficient supply of chips, and have stocked up in advance. This move will undoubtedly make the "shortage of chips" situation worse.
The problem of chip shortage cannot be solved in a short time. Deloitte 's latest research report estimates that the chip shortage will continue in 2022, and chip delivery will be delayed by about 10 to 20 weeks, and the situation will not be alleviated until early 2023.
Against this background, even if TSMC raises product prices, it is not afraid of losing business. The outstanding results last year were mostly due to the strong market demand.
Leading in technology research and development
However, TSMC is not the only semiconductor manufacturer in the world. It can attract so much business because of its leadership in technology research and development.
For comparison, Mainland China’s semiconductor leader SMIC has reached a 12nm process in chip manufacturing, while TSMC has announced that it will mass-produce 3nm chips in 2022. The two are still several generations away.
Picture of semiconductor wafers in the TSMC Hsinchu Innovation Museum. (Bloomberg)
TSMC revealed at a performance briefing that the 5-nanometer N5 process has proven to be the most competitive technology in the industry. The company’s new 4-nanometer (N4P) process has improved performance by 11% compared to 5-nanometer. The consumption was reduced by 22% and the density increased by 6%. The first product designs are finalized and production is expected to begin in the second half of this year.
TSMC CEO Wei Zhejia said: "In 2022, our capital budget is expected to be between 40 billion and 44 billion US dollars. 70% to 80% of capital expenditures in 2022 will be used for advanced process technologies, including 2nm, 3nm, 5nm and 7nm; 1 0% will be used for advanced packaging, and 10%-20% will be used for professional technology. "
Bloomberg published a comment on January 13 that TSMC's two major competitors are South Korea's Samsung and the United States' Intel. Both companies have their own shortcomings in chip manufacturing. For example, in addition to chips, Samsung also produces other products such as displays, memory cards, etc., so the funds are divided. Intel, on the other hand, lags far behind TSMC in chip technology.
Intel’s rival is Advanced Micro Devices (AMD). Unlike Intel, which can produce its own chips, AMD outsources most of its chip production to TSMC. As a result, this is a double whammy for Intel.
TSMC’s emphasis on technology research and development is also related to the leadership of the soul figure Zhang Zhongmou. Zhang Zhongmou has always attached great importance to the company's technological innovation. When he gave a speech at the 20th Anniversary Celebration Conference and Forum of the Taiwan Yushan Technology Association on October 26 last year, he said that he is from a technical background and it is important to continue to improve technology. He emphasized that in the technology industry, it is probably best for both managers and CEOs to have technical backgrounds.
TSMC’s emphasis on technology research and development is related to the leadership of the soul figure Zhang Zhongmou. (Reuters)
In a speech at the Taiwan Judicial Yuan in December last year, Zhang Zhongmou said that Samsung is still a strong competitor of TSMC when assessing the competition among the industry leaders. The main reason is that Taiwan and South Korea have similar industrial advantages, both through a large number of outstanding talents. Win with managers.
As for the challenges between the United States and mainland China, Zhang Zhongmou analyzed in his speech in April last year that the unit cost of setting up factories in the United States is higher than that in Taiwan. Even government subsidies cannot make up for the long-term competitive disadvantage.He also said that although mainland China's wafer manufacturing industry has received tens of billions of dollars in government subsidies after 20 years of development, semiconductor manufacturing is still more than five years behind TSMC, and logic semiconductor design is one to two years behind the United States and Taiwan. "So Mainland China is not a rival yet."
Signed a contract with Apple
Since its establishment, TSMC has focused on production and concentrated on improving its own semiconductor technology. In 2009, after the subprime mortgage crisis occurred in the United States, TSMC founder Zhang Zhongmou decided to increase investment and establish a cooperative relationship with Apple Inc. in order to meet the requirements of customers, despite the opposition of analysts.
By 2015, Apple's iPhone 6s OEM orders were handled by Samsung and TSMC. TSMC was the first to achieve a stable mass production system, proving its technical strength.
Since then, all production of the central processor of the iPhone 7 has been undertaken by TSMC, which has also enabled TSMC's profits to reach a new high in 2017.
TSMC’s rapid development is related to signing Apple as a major customer. (Reuters)
According to the information disclosed in TSMC’s latest financial report, TSMC’s main source of revenue in 2021 will still come from smartphones, accounting for 44% of its revenue.
Apple's own business is also booming. It launches new models of mobile phones every year, and the market responds enthusiastically. This naturally drives the business of its chip manufacturer TSMC.
TSMC can establish a relationship with Apple, a major customer, which not only brings orders to the company, but also endorses the company's product quality and business capabilities, attracting more major customers.
Against the background of the global chip shortage and the company's technological leadership, it is expected that TSMC's performance this year has reached a new high and it continues to be several steps ahead of its opponents.
