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TSMC cancels chip price cuts and promises $100bn investment surge

Taiwan chipmaker outlines 3-year spending plan through 2023 to meet higher demand

TSMC, the world's biggest contract chipmaker, plans to invest $100 billion over the next three years to expand production capacity. (Source photos by TSMC and Reuters)

TAIPEI -- Taiwan Semiconductor Manufacturing Co. is asking clients to accept higher prices as it ramps up investment to deal with a "structural and fundamental increase" in chip demand.

C.C. Wei, TSMC's CEO, told clients in a letter seen by Nikkei Asia that the world's biggest contract chipmaker plans to invest $100 billion over the three years through 2023 in advanced semiconductor technologies, according to the letter. TSMC this year announced record high capital expenditure of up to $28 billion for this year alone.

"We are seeing a structural and fundamental increase in underlying demand driven by key long-term growth megatrends including 5G and high-performance computing," Wei said in the letter.

The Covid-19 pandemic has also transformed the global economy, changing how people work, learn and live, the CEO added.

Wei told clients that TSMC will also "suspend wafer price reductions starting December 31" this year, for four quarters.

"We believe that this modest action is the least disruptive option to supply chains so that TSMC can deliver our mission of providing leading semiconductor technologies and manufacturing capability to you in a sustainable manner," Wei said.

Suspending price cuts is a rare move by TSMC, which usually lowers prices each quarter for its chip design clients after their products go into mass production and run smoothly, sources with knowledge of the company told Nikkei Asia.

TSMC supplies almost all of the world's major chip developers worldwide including Apple, Qualcomm and Nvidia. It and other Taiwanese chipmakers including United Microelectronics and Powerchip Semiconductor Manufacturing Corp. play a central role in the global semiconductor supply chain.

Taiwan's chip suppliers have agreed to back the Taiwanese government's call to help fast-track production for automotive chips to help the global car industry. The global chip shortage has spread to consumer electronics as well as industrial computers and networking equipment.

TSMC's three-year $100 billion investment plan will include building "greenfield" chip manufacturing plants and expanding existing fabs, according to the CEO's letter.

Wei said his company has already started to hire thousands of employees, acquired land and equipment and started construction of facilities in multiple sites globally.

TSMC is already building a $12 billion chip facility in the U.S. state of Arizona. The company is also expanding in multiple cities in Taiwan, including building its 3-nanometer chip facility, the world's most advanced chip production technology, in the southern Taiwanese city of Tainan.

It also operates two chip plants in China in Nanjing and near Shanghai.

Wei said in the letter that his company's plants have been running at 100% utilization in the past 12 months and still it has not been able to catch up to the demand.

"The increased capacity will improve supply certainty and help protect complex global supply chains that rely on semiconductors," he said. "We ask for your patience as we expedite the building of new fabs and capacity."

TSMC's rival and customer Intel recently said it would re-enter the contract chipmaking business. It is to spend $20 billion between now and 2024 to build two new chip plants, also in Arizona.

TSMC Chairman Mark Liu on Tuesday said the U.S.-China trade dispute, as well as the acceleration of digital transformation brought about by COVID-19, have led to the semiconductor shortage.

"We see fundamental increase for chip demand brought by pandemic-driven digital transformation on top of the 5G and AI megatrend ... on that part, TSMC will have time and will have the financial resources to build additional capacity to address the increasing need," Liu told reporters.

However, Liu said that it is "economically unrealistic" for all countries to "onshore" additional chip production, warning that this could lead to more unprofitable capacity.

TSMC confirmed the investment plan in a statement to Nikkei Asia. "In order to keep up with demand, TSMC expects to invest $100 billion over the next three years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies. TSMC is working closely with our customers to address their needs in a sustainable manner."

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