High prices, rapidly increasing demand – the world’s largest contract manufacturer of semiconductors posted record results for 2021. But that is just the beginning of the hunt for records.
The market leader TSMC manufactures semiconductor wafers like the one in this picture.
There is no end in sight to the chip shortage this year. The world’s largest contract manufacturer of semiconductors, Taiwan Semiconductor Manufacturing (TSMC), announced this news to its customers on its annual balance sheet on Thursday. The demand for semiconductors is increasing for many devices, said TSMC boss C. C. Wei: “As a result, we expect that our capacities will be scarce by 2022.”
It is therefore foreseeable that the delivery problems in the auto and electronics industries will continue. Not only car buyers now often have to wait months for their dream car, but even the customers of Japan’s camera manufacturers receive corresponding products much later than usual. Sony, Canon and Nikon are already warning that the delivery of new, high-priced models that have been ordered could take months.
But at least for the semiconductor industry, the shortage economy pays off in a consumer society that is used to abundance. After a record result in 2021, TSMC expects the rapid growth in both sales and profits to continue in the medium term. In 2021 sales rose by 19 percent to 1,587 billion Taiwan dollars (NTD) (50 billion euros), and net profit rose by as much as 38 percent to 597 billion NTD (18.8 billion euros).
Long-term growth
For the future, the group is even more optimistic: TSMC expects an average of 15 to 20 percent higher income for the coming years. The group wants to grow faster than the market as a whole. Analysts expect an increase in the high 10 percent range. Chips for computers, graphics cards and artificial intelligence applications as well as the automotive sector will be the most powerful engines for TSMC.
The gross profit margin, which had fallen slightly in 2021, is then expected to rise again to over 53 percent, and this for the long term. “We are talking about a long-term development, not a cyclical one,” explained CFO Wendell Huang.
The reason for this is less lack of investment. TSMC has increased its since 2019 from $ 19 billion to $ 32 billion last year. For 2022, the group has announced that it will invest 40 to 44 billion dollars in new plants and plants.
The chip demand is increasing
In the opinion of TSMC, the short-term burden on the supply chain caused by the Corona crisis and, in the long term, the rapidly increasing demand are the main culprits for the shortage. One problem is that companies are currently buying far more chips in stock in order to secure their own production. TSMC expects this trend to continue.
But above all, the demand for chips is increasing rapidly due to a whole bundle of factors: The new 5G mobile networks, electric cars with more and more driver assistance, data centers, the networking of machines and the new applications of artificial intelligence are some of the megatrends that are crying out for more chips.
In the meantime, the US chip manufacturer Intel and Samsung, South Korea’s world market leader for memory chips, are also pushing into the foundry business. But TSMC believes that it will be able to benefit from demand more than its new rivals in the contract manufacturer’s realm. The Taiwanese see themselves as a technology leader in the development of ever smaller and therefore faster and more economical chips.
While the competition is celebrating production lines that produce chips with structures as small as five nanometers, TSMC is starting with 3-nanometer chips in the second half of this year. And the interest in these is higher than when 5-nanometer chips were launched a few years ago, said Chairman of the Board of Directors Wei.
Works abroad
But the rapid growth is also forcing TSMC to adopt new strategies. The days of producing mainly at home on the island of Taiwan are coming to an end. The chip manufacturer is now increasingly responding to the wishes of its customers and governments to invest more overseas.
The Taiwanese will not only expand their capacity in China, where chips with 28 nanometer structures are manufactured primarily for the automotive industry. For the first time, TSMC will set up plants in the USA and Japan.
TSMC is also negotiating the establishment of a chip factory in Europe. But the decision has apparently not yet been made. The possible involvement in Europe is “still at a very early stage of evaluation,” said Board Chairman Mark Liu. First you have to sound out the needs of the customers.
Investments with risks
With this he indicated that the decision for the customers as for TSMC is by no means easy. Because the desire for a shorter supply chain and greater security of supply is sometimes associated with higher costs, in which companies and often also states contribute through money and subsidies.
As early as 2021, according to TSMC, customers paid the chip manufacturer $ 6.7 billion in advance to cushion the growing investment risks. The group expects higher prepayments for 2022.
The states are also challenged. In Japan, the government is buttering around three billion euros for the construction of a factory for chips with 28 nanometer structures, which will primarily supply the camera manufacturer Sony and the automotive industry.
However, it seems unlikely that TSMC will look for other companies as joint venture partners in Europe as it is in Japan. In Japan, Sony is primarily involved in the plant. But that is a special case, said CFO Huang. As a chip manufacturer, Sony not only contributes money, but also technology and know-how. Usually TSMC strives for a 100 percent stake, Huang said.