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Huawei crackdown

TSMC says other clients can 'fill gap' if US ban hits Huawei

Chairman confident Arizona chip plant will boost long-term growth

TSMC says it expects growth to continue this year despite geopolitical tensions and other headwinds. (Photo by Shinya Sawai)

HSINCHU, Taiwan -- Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, said on Tuesday that other customers are ready to step in and fill the gap if the U.S. sanctions force the chipmaker to cut ties with Huawei, its second-largest customer.

TSMC added, however, that is still clarifying the legal ramifications of Washington's latest restriction and stressed that other companies -- including American ones -- will likely be impacted as well.

"The new rule is not targeting TSMC only. It applies to all Huawei's foundry manufacturing partners, including Samsung and China's SMIC," TSMC Chairman Mark Liu said in the company's first official response to the tighter restrictions.

The U.S. announced on May 15 that non-U.S. companies will be required to obtain a license if they use American technology to fulfill orders for the Chinese company.

Liu said TSMC is "closely monitoring" the situation and will wait until the public comment period on the new rule ends on July 14 to decide whether the company will apply for an export control license to continue supplying Huawei. TSMC has already halted processing new orders from Huawei, as the Nikkei Asian Review first reported on May 18, although it is allowed to process existing orders, provided they are delivered before mid-September.

At the company's annual general meeting earlier on Tuesday, Liu said the chipmaker would be able to find other clients if it was no longer able to ship chips to Huawei. "Of course we hope other customers could soon make up the orders if we lose [business from Huawei chip unit] HiSilicon. We do see other customers and players hoping to fill any gap Hisilicon might leave -- whether that's in terms of our own production capacity, or the market share in the smartphone market."

Liu added, however, that he hopes "these assumptions do not happen."

TSMC supplies almost all of the world's biggest tech brands and chip developers -- some 500 in total -- including Apple, Google, Qualcomm, Nvidia, AMD, Huawei, NXP, MediaTek and many others.

Lately, however, the chip titan has become caught in the crossfire of Washington-Beijing tensions. Indeed, the new U.S. restriction came the same day that TSMC announced its intention to build a $12 billion chip facility in the U.S. state of Arizona, after much urging from Washington on security grounds.

Liu acknowledged the geopolitical headwinds facing his company.

"Not only TSMC but all companies on the planet are caught in between the geopolitical fight between the world's two biggest countries," he said. "What matters is how we navigate these geopolitical uncertainties and resist all these headwinds."

He added that TSMC relies heavily on chip production tools and materials from the U.S., and said this will not change anytime soon, as the company "will continue collaboration with American vendors because those leading tools are also the key for TSMC to maintain its lead in tech and manufacturing excellence."

As for the Arizona plant, Liu said the company is still in discussions to determine whether state and federal authorities will offer financials incentives to offset the relatively higher cost of operating a facility in the U.S.

"We are still discussing with U.S. federal and state governments, and we are asking them to make up for the running cost differences between our production in Taiwan and production in the U.S. The U.S. government is very aggressive in bringing back semiconductor manufacturers, and we think the incentives are not specially designed for TSMC but for the long term to help the U.S. to create a competitive chip ecosystem."

"Our current intention of investment is based on the presumption that all of these cost difference could be meet," Liu added.

However, the chairman also pointed out that building a chip facility in Arizona would help the company attract top global talent for long-term growth. "In Taiwan we only have 200 PhD students that we think are qualified every year. ... That's not enough," Liu said. "Arizona already has a good chip supply chain. Intel is there and many other big companies, too."

Looking forward to the second half, the chipmaker says it sees a lot of uncertainties but still expects its revenue and profit to continue to grow this year.

"We currently do not see a change in targets from our last investor's conference, and we are currently maintaining our capital spending budget despite the many uncertainties," Liu said.

In mid-April investor's conference, TSMC warned that the overall semiconductor market could stall, and the smartphone market will decline "in the high-single digits" due to the coronavirus outbreak.

Despite this, the chipmaker still predicted at that time that its revenue would grow 15% for all of 2020, while its capital spending budget was $15 billion to $16 billion. For the first four months for 2020, TSMC's revenue jumped 38.6% from a year ago.

Nikkei staff writer Lauly Li contributed to the report.

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