TSMC Boosts CapEx on Strong 5G, HPC Demand

Taiwan Semiconductor Manufacturing Co. (TSMC) has increased its capital expenditure plan for this year by about $1 billion to an amount ranging from $16 billion to $17 billion on the improved expectation that demand for 5G phones and high-performance computing (HPC) products will boost sales in 2020 and for the next few years.

In the third quarter of 2020, the world’s largest chipmaker by market valuation expects strong orders from customers such as Apple and MediaTek for its 5nm and 7nm products, driven by applications in 5G smartphones, HPC and IoT.

In the near future, the company that’s a bellwether for the electronics industry still faces headwinds. The coronavirus pandemic will continue to disrupt consumer demand, and TSMC expects weakness in smartphone shipments compared with a year ago. Moreover, a ruling from the U.S. Department of Commerce to halt TSMC’s sales to China’s Huawei will probably crimp demand during the rest of this year.

The overall semiconductor market will be flat to slightly up during the rest of 2020, according to TSMC. During 2020, growth for the foundry segment that TSMC dominates will be in the mid to high-teens percentage range, while TSMC will outperform its peers with revenue growth exceeding 20 percent, the company said.

CC Wei

“In the mid to long term, we believe the underlying megatrends of 5G and HPC applications remain intact,” said TSMC Chief Executive Officer CC Wei in a Taiwan event to announce the company’s 2020 second-quarter results. “The supply chain can adjust and rebalance.”

The company is optimistic that the U.S. government will relax its restrictions on chipmakers that use U.S. equipment and design tools to supply semiconductors to Huawei subsidiary HiSilicon, which has been blacklisted by the administration of U.S. President Donald Trump.

No new orders from Huawei
TSMC has been caught in the middle of the trade war between the U.S. and China, TSMC Chairman Mark Liu said about a month ago. Those restrictions apply equally to TSMC and competitors such as Samsung of South Korea and Semiconductor Manufacturing International Corp. (SMIC) of China.

TSMC has not taken any new orders from Huawei since May 15 this year, and it doesn’t plan to ship any silicon wafers made for the Chinese telecom giant after Sept. 15, TSMC Chairman Liu said today.

The company’s guidance for this year is an indication that TSMC should be able to fill the shortfall from Huawei with new orders from other customers, he said. As of May, Huawei accounted for about 15 percent of TSMC’s overall sales.

Huawei may remain an indirect customer of TSMC.

Current Commerce Department regulations do not prohibit sales of general chip products to Huawei, according to Liu. He said Huawei may choose to stay in the smartphone business by using standard products supplied by third parties.

TSMC said that it cannot rule out the possibility of an inventory correction as Huawei and other companies in its ecosystem cut orders after stockpiling chips in expectation of the U.S. Department of Commerce crackdown.

In the meantime, TSMC has started 5nm production and continues to improve yields from its extreme ultraviolet (EUV) tools. The company expects a strong ramp of 5nm during the second half of 2020 driven by demand for 5G and HPC applications. TSMC forecast that 5nm will contribute to about 8 percent of its overall revenue this year.

The company said it will introduce 4nm early in 2021 as an extension of its 5nm node, with compatible design rules and highly competitive cost advantages compared with 5nm. Volume production of 4nm will start in 2022.

TSMC plans to start volume production of its new 3nm node in the second half of 2022.

No updates on Arizona fab
The company had no updates on its plan to build a 5nm chip plant in Arizona with support from that state and the U.S. federal government.

The facility is expected to have a 20,000 wafer-per-month capacity, create over 1,600 jobs directly and thousands more indirect jobs.

TSMC is working closely with the U.S. federal government and the state of Arizona as well as its supply chain partners to build the new facility and overcome the cost gap compared with its chip facilities in Taiwan, Wei said. The plant will start production in 2024, he added.

Bills that were introduced in the U.S. Senate to revive the American semiconductor industry after TSMC and the U.S. government announced the Arizona fab plan are “well aligned” with TSMC’s plan, Chairman Liu said today.

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