Customers of Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chip maker, are facing an extended semiconductor shortage because of short-term geopolitical tensions and escalating demand for chips in the long term.
TSMC chief executive C.C. Wei said in a conference call on Thursday that clients’ rush to stockpile chips was the product of geopolitical tensions, “creating short-term imbalance in the supply chain”. The company’s chief financial officer, Wendell Huang, agreed that tensions had contributed to higher-than-usual inventory build-up, as customers and other members of the supply chain “gradually prepare for higher levels of inventory as compared to historical seasonal levels”.
“We expect this to persist for a period of time given the industry’s need to ensure supply security,” Huang added.
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The comments from top executives at TSMC, which controlled over half of the world’s advanced chip manufacturing capacity in 2019, pointed to one primary reason for the underlying global chip shortage, which is disrupting product production from gadget makers like Apple to electric car companies. The view also echoed an argument from Eric Xu Zhijun, a Huawei Technologies Co vice-chairman, who said earlier this week that US sanctions against his company had undermined trust in the global semiconductor industry, with many players now ditching zero-inventory policies to stockpile chip inventories for six months or longer.
The chip shortage also prompted US President Joe Biden to boost support for the American semiconductor industry, including earmarking US$50 billion to fund domestic chip development and manufacturing. TSMC took part in a White House summit on Monday to address the ongoing global shortage.
Despite supply constraints, business is booming at TSMC, one of the few chip foundries worldwide with the capacity to meet the demand of the world’s largest electronics brands.
The company reported on Thursday US$12.9 billion in first-quarter revenue, up 25 per cent year-on-year, on the back of robust demand for high-performance computing (HPC). TSMC’s sales of chips for cars also saw strong growth in the first quarter, increasing 31 per cent over the previous quarter, amid an ongoing auto chip shortage that may have affected the production of as many as 1.3 million light vehicles in the first quarter, according to an estimate from IHS Markit.
However, the situation could potentially improve for TSMC’s customers.
“We saw productivity improvement, we expect the automotive component shortage from semiconductors to be significantly reduced for TSMC customers by the next quarter,” Wei said.
One strain on chip supply was a sudden recovery of the car industry in the last quarter of 2020, according to Wei. TSMC is helping clients address the problem by relocating wafer capacity to support them, he said.
Another potential challenge facing TSMC is rivals like Intel, which designs and produces its own chips as an integrated device manufacturer (IDM) and has plans to boost capacity to meet increased chip demand. But Wei brushed aside the idea that Intel might pose a threat.
“We expect outsourcing from IDMs to continue to increase, so we prepared the capacity for that also,” Wei said. “We don’t think that IDMs trying to expand their own capacity will result in an overcapacity situation.”
TSMC confirmed its plans to spend US$100 billion over the next three years to expand its chip fabrication capacity to capitalise on future growth opportunities driven by demand for 5G and HPC.
The chip maker previously said it would increase its 2021 capital expenditure to US$30 billion, with 80 per cent to be spent on advanced nodes that include 7-nanometre, 5-nm and 3-nm grades.
TSMC said it expected second-quarter revenue to be between US$12.9 billion and US$13.2 billion, factoring in the “minor impact” of a power outage that occurred at its Fab 14 facility in Tainan on Wednesday. The outage at the phase-7 plant was the result of an abnormality in a power line running to an extra high voltage substation at the South Taiwan Science Park, the company said in a statement, without elaborating.
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