TSMC considering expansion in Japan and U.S. to meet sustained chip demand

Taipei – Taiwan Semiconductor Manufacturing Co. signaled on Thursday plans to build new factories in Japan and the United States, riding on a pandemic-led surge in demand for chips that power smartphones, laptops and cars.

TSMC, which posted record quarterly sales and forecast higher revenue for the current quarter, said it will expand production capacity in China and does not rule out the possibility of a “second phase” expansion at its $12 billion (about ¥1.3 trillion) factory in the U.S. state of Arizona.

The world’s largest contract chipmaker and a major Apple Inc. supplier also said it is currently reviewing a plan to set up a specialty technology wafer fabrication plant, or fab, in Japan.

“In Japan, we’re in the due diligence process to do a wafer fab,” Chief Executive Officer C.C. Wei said.

TSMC’s overseas expansion plans come amid concern over the concentration of chipmaking capability in Taiwan, which produces the majority of the world’s most advanced chips and is geographically close to political rival China, which does not rule out the use of force to bring the democratic island under its control.

Taiwan and TSMC have also become central in efforts to resolve a pandemic-induced global chip shortage that has forced automakers to cut production and hurt manufacturers of smartphones, laptops and even appliances.

“We are expanding our global manufacturing footprint to sustain and enhance our competitive advantages and to better serve our customers in the new geopolitical environment,” TSMC Chairman Mark Liu said during an analyst call.

“While our overseas fabs are not initially able to match the costs of our manufacturing operations in Taiwan, we will work with governments to minimize the cost gap,” Liu said.

He did not give details of its plans in America and Japan, adding the company was working to “firm up” wafer prices to reflect cost increases.

This year, as chip shortages disrupted the production of automobiles and other products, the U.S., China, Europe and Japan have all sought to expand their own domestic production capabilities. TSMC has been courted by politicians around the world because it has the most sophisticated technology for making cutting-edge chips.

In June, Akira Amari, a senior member of the ruling Liberal Democratic Party, called out the company specifically, saying its cooperation would be essential for Japan to build a stable semiconductor base of its own. The country must be prepared to spend trillions of yen to keep up with the U.S. and Europe, he said.

Automakers such as Toyota Motor Corp. and Nissan Motor Co. are a cornerstone of the Japanese economy and need steady chip supplies to keep production humming.

The Ministry of Economy, Trade and Industry put out a report earlier this year saying that the country would seek to drive growth in the nation’s chip industry as a “national project,” as important as securing food or energy.

Japan’s share of global semiconductor sales fell to just 10% in 2019, down from 50% in 1988, it said. The country still has 84 chip factories, the most in the world, but they’re not producing enough high-end products. As a result, Japan now has to import 64% of its semiconductors.

Liu said TSMC was also planning a capacity expansion in China’s Nanjing due to the “urgent need” of clients, using the mature 28 nanometer semiconductor manufacturing technology.

It is scheduled to enter production next year and will eventually reach a production of 40,000 wafers per month by mid-2023, he said.

Revenue for April-June at TSMC, Asia’s most valuable manufacturing company, climbed 28% to a record $13.29 billion.

For the quarter ending in September, TSMC forecast revenue of $14.6 billion to $14.9 billion, compared with $12.1 billion in the same period a year earlier.

TSMC said the auto chip shortage will gradually reduce for its customers from this quarter but expects overall semiconductor capacity tightness to extend possibly into next year.

The Taiwanese firm, which also makes chips for Qualcomm Inc., had previously flagged a $100 billion expansion plan over the next three years, as fifth-generation telecommunications (5G) technology and artificial intelligence applications drive global demand for advanced chips.

“Moving into the third quarter, we expect our business to be supported by strong demand for our industry-leading 5 nanometer and 7 nanometer technologies, driven by all four growth platforms, which are smartphone, HPC, (Internet of Things) and automotive-related applications,” Chief Financial Officer Wendell Huang said, using an acronym for high-performance computing.

Analysts are bullish about TSMC’s business in the coming quarters, citing strong demand for the company’s most advanced 5 nanometer node technology as well as its upcoming 3 nanometer node, which is scheduled to enter trial production later this year.

For the second quarter, TSMC said profit rose 11% to 134.4 billion New Taiwan dollars ($4.81 billion) from a year earlier, just short of an average estimate of TW$136.5 billion, drawn from 19 analysts by Refinitiv.

Shares of TSMC, the eleventh most valuable listed company in the world, have gained about 16% so far this year, giving it a market value of $567 billion, more than double that of chipmaker Intel Corp.