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TSMC announces plans to build first chip plant in Japan

Taiwan titan warns of softening smartphone and PC demand amid supply chain chaos

TAIPEI -- Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker, on Thursday announced it will build its first-ever chip plant in Japan, answering Tokyo's call to strengthen the local semiconductor supply chain to cope with an unprecedented global crunch in key components.

TSMC CEO C.C. Wei told investors that the company has received support from both its customers and the Japanese government to proceed with the investment, which is subject to its board of directors' approval. Wei said the plant will focus on 22-nanometer and 28-nanometer specialty technology that can be applied to many chip types, from image sensors to microcontrollers.

Total investment will be up to 1 trillion yen ($8.8 billion), according to the Japanese government, though TSMC itself has not disclosed an amount for the project. Wei said the new plant is not included in the three-year, $100 billion investment plans the company has previously announced.

Construction of the factory is planned to start next year, with mass production slated to begin in 2024. Though TSMC normally owns 100% of its overseas plants, the company does not rule out having joint ventures with other companies or its customers, company CFO Wendell Huang said. He did not address a report by Nikkei last Friday that Sony will jointly invest in the new plant.

Japanese Prime Minister Fumio Kishida, speaking at a press conference later the same day, vowed to include support for large-scale private-sector investment "such as TSMC's 1 trillion yen investment" in his economic stimulus package. "Our country's semiconductor industry will become more indispensable and self-reliant, making a major contribution to our economic security," Kishida said.

Separately, Wei confirmed for the first time on Thursday that the chip industry is experiencing a "short term imbalance due to disruption in the supply chain, brought on by COVID-19."

The CEO said an industrywide "inventory correction" is possible in the near future. The imbalances have arisen as severe shortages of some components prevent device makers from assembling finished products, causing supplies of other components to pile up. A global chip shortage emerged late last year and has since affected everyone from automakers to smartphone brands.

Memory chipmakers such as Micron and Nanya Technology have already warned about price corrections and order adjustments due to the supply chain imbalances.

Wei also said that demand for some devices is softening, and that component shortages are affecting orders from some device makers.

"We are seeing demand go soft in the smartphone and PC markets ... but TSMC's capacity will remain tight in 2021 and throughout 2022," Wei said, citing the company's leading position in the industry and the diversity of its product portfolio.

On the persistent auto chip shortage, Wei said TSMC has done its part to support its customers in that field. "However, we cannot solve the entire industry's supply challenges, and recent factors such as a [surge] of the pandemic in Southeast Asia is also affecting the auto chip supply."

Building a plant in Japan marks a further departure for TSMC from its decadeslong strategy of concentrating production in Taiwan, where it conducts research and development and operates massive production sites. Sony's involvement would be another unexpected move, as it has been more than two decades since TSMC allowed partners or clients to take stakes in its chip factories.

The last instance was in 1996, when it jointly invested with clients Analog Devices and Altera, now an Intel company, for its first U.S. manufacturing plant. Just four years later, however, TSMC had acquired all the shares from its partners.

TSMC is already building its most advanced chip facility outside of Taiwan in the U.S. state of Arizona, and the company is also mulling the possibility of building a plant in Germany.

It is also expanding capacity in the Chinese city of Nanjing, even though the 28-nanometer chip production technology used there is generations behind the 5-nm tech that TSMC is set to bring to the U.S. factory.

Arisa Liu, a semiconductor analyst with the Taiwan Institute of Economic Research, told Nikkei Asia that geopolitical pressure is behind TSMC's move to expand production globally.

"To operate chip plants in foreign locations will definitely increase costs and we need to monitor closely if that could affect TSMC's profit margin for the longer-term," Liu said.

The push by major economies to bring more semiconductor production onshore will likely keep production costs -- and thus chip prices -- high in the mid to long term, Liu added.

TSMC on Thursday also reported its third-quarter earnings. Net profit for July-September rose nearly 14% as the company ramped up production of processors for the new iPhone 13 lineup.

Its net profit of 156.26 billion New Taiwan dollars ($5.6 billion) for the quarter beat the market consensus, while its revenue of NT$414.67 billion was above its guidance.

Its gross margin was 51.3% while its operating margin stood at 41.2%, both improved from the last quarter ended June.

TSMC forecast its revenue for the final quarter of 2021 will be between $15.4 billion and $15.7 billion at an exchange rate of NT$28 per U.S. dollar, a higher prediction than the market consensus.

CEO Wei said the company estimates its revenue for this year will grow by 24% in U.S. dollar terms from last year. TSMC's revenue last year was $45.51 billion.

Additional reporting by Eri Sugiura in Tokyo

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