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TSMC hikes capex to record $28bn as chip race heats up

Taiwanese titan logs highest revenue in 2020 and says 5G will fuel further growth

TSMC will spend $25 billion to $28 billion on plants and equipment this year, around 80% of which will go to the company’s three most advanced chip production technologies. (Photo by Akira Kodaka)

TAIPEI -- Taiwan Semiconductor Manufacturing Co. said on Thursday that it will raise its capital spending to record levels as the world's biggest contract chipmaker looks to maintain its lead in semiconductor production technology.

The company, fresh off a record financial performance in 2020, is budgeting between $25 billion to $28 billion for capital spending this year, up from $17.2 billion in 2020, TSMC CFO Wendell Huang said Thursday. Around 80% of that amount will be allocated to the company's three most advanced chip production technologies, including one that is still under development, while 10% will go toward expanding its 3D chip-stacking and packaging tech.

TSMC separately confirmed to Nikkei on Thursday that it is looking into setting up a research and development center in Japan to jointly develop 3D chip-stacking technologies with local chip material suppliers. However, the company denied earlier media reports that it is planning to set up a joint-venture or build chip a production facility in Japan.

C.C. Wei, TSMC's chief executive, said the Taiwanese chip titan, which is the sole supplier of Apple iPhone and Mac processors, expects the smartphone market to return to growth in 2021, expanding 10% compared with last year. The penetration rate for 5G smartphones is expected to jump to more than 35% of the total market this year, up from 18% last year, he added.

Mass adoption of 5G smartphones, along with strong demand for high-performance computing, will help TSMC'S revenue grow 15% in dollar terms this year, Wei said.

Over the longer term, TSMC now forecasts its revenue to grow at a compound annual rate of 10% to 15% for the five years through 2025, higher than its previous estimate of 5% to 10%.

However, Wei also acknowledged a serious shortage of automotive-related chips, which has already forced carmakers such as Nissan, Toyota, Honda and Ford to scale back production. TSMC makes auto-related chips for clients including NXP, STMicroelectronics, Infineon and Renesas Electronics.

"The automotive market was soft from 2018 through 2020, and COVID-19 further impacted it," Wei said. Demand for auto-related chips recovered in the fourth quarter of last year, he said, but this came as TSMC was already dealing with a surge in orders from other clients. "We are working closely with our customers to mitigate the impacts" of the supply constraints.

The bulk of its capital spending this year will go toward 3-nanometer chip production technology, which the company hopes to deploy in the latter half of 2022, as well as the earlier 5-nm and 7-nm production tech, which are used to build the latest iPhone processors and notebook processors for Advanced Micro Devices. Wei said the early adopters of TSMC's 3-nanometer chips will mainly be high-performance computing, including computer processors and AI accelerators, and smartphone clients.

Nanometer size refers to linewidth between transistors on a chip, the smaller the number, the more advanced and powerful the chips -- and the more challenging they are to produce.

Currently, only Samsung is able to make chips as advanced as those of TSMC. Intel of the U.S. is still struggling to move ahead with its advanced chip production technologies, with outgoing CEO Bob Swan saying the company will need a "contingency plan" to overcome delays in its technology roadmap.

TSMC's profit for the last quarter of 2020 reached $142.76 billion New Taiwan dollars ($5.1 billion), up 23% on the year, on record revenue of NT$361.53 billion.

TSMC's forecast revenue for the first three months of this year could reach between $12.7 billion and $13 billion, growing about 25% at the midpoint from a year ago. This is above the market consensus in dollar terms, but falls slightly short in New Taiwan dollar terms due to an unfavorable exchange rate.

For all of 2020, TSMC generated record revenue of NT$1.33 trillion, up more than 25% from the year before. In U.S. dollar terms, revenue for the year jumped 31.4% to $45.51 billion. The Taiwanese currency rose 5.6% against the greenback last year.

TSMC's share price climbed more than 56% in 2020 and has risen more than 12% so far this year. The Taiwanese chipmaker is the world's most valuable chip company.

Randy Abrams, an analyst with Credit Suisse, said the near-term outlook will remain positive, citing strong demand for 5G smartphones and various Apple products, as well as the recovery in automotive and industrial markets. "The stay-at-home demand is expected to continue through the first half of 2021," Abrams said, referring to rising demand for devices such as PCs and gaming consoles amid the coronavirus pandemic.

"We expect TSMC won't see a slowing first half of the year in 2021. Normally the first quarter and the second quarter are slower, but this year the seasonality will not be that obvious and could be more balanced," said Mark Li, an analyst with Sanford C. Bernstein.

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