TSMC will increase chip spending in 2022, predicts multi-year growth due to semiconductor demand

Deepak Gupta January 13, 2022
Updated 2022/01/13 at 11:17 AM

Taiwanese chip company TSMC expects strong growth to accelerate in the coming years due to rising demand for semiconductors, as the tech giant on Thursday reported a record quarterly profit and said it plans to spend at least a third more than last year.

Rising demand for semiconductors used in smartphones, laptops and other gadgets during the COVID-19 pandemic has led to an acute chip crisis, forcing automakers and electronics makers to cut production but keeping order books full at TSMC. and other chip manufacturers.

Taiwan Semiconductor Manufacturing (TSMC), a major supplier to Apple that also has customers such as Qualcomm, reported a 16.4% increase in fourth-quarter profit.

The company said it expects to raise capital spending to between US$40 billion (approximately Rs. 2,95,700 crore) and US$44 billion (approximately Rs. 3,25,210 crore) this year. Last year it spent US$30 billion (approximately Rs. 2,21,760 crore).

TSMC announced in 2021 a US$100 billion (approximately Rs. 7,390 crore) expansion plan in the coming years as new technologies such as fifth generation (5G) telecom technology and artificial intelligence applications also drive the chip demand.

The company is entering “a period of increased structural growth,” Chief Executive CC Wei said in an online earnings briefing.

TSMC, Asia’s most valuable listed company and the largest global contract chipmaker, expects capacity to remain tight this year and demand to be sustained over the long term, Wei said.

“With foundry capacity fully loaded, TSMC’s short-term order outlook remains healthy,” analysts at Taipei-based Fubon Research wrote in a note in early January.

With what it calls a “multi-year industry megatrend” of strong chip demand driven by new technologies, TSMC has raised its compound annual growth rate targets for revenue over the next few years to 15%-20% from 10%-15 %.

Wei played down market concerns about chip oversupply in the coming years and said a substantial increase in “silicon content” in tech gadgets such as electric cars would help TSMC’s climate market corrections.

“Even if a correction occurs, we believe it could be less volatile for TSMC due to our technology leadership position and structural megatrend,” said Wei.

The company has set a long-term target of “53% or more” for its gross margins, up from its previous target of “50% or more”.

TSMC forecasts that first quarter revenue will be in the range of US$16.6 billion (approximately INR 1,22,710 crore) to US$17.2 billion (approximately INR 1,27,140 crore), compared to US$12, 92 billion (approximately INR 95,500 crore) in the same period a year earlier. For the year, it expects to grow in the mid-high range of 20% in US dollar terms.

This was higher than the average of TWD 161.6 billion (approximately Rs. 43,270 crore) of 22 analyst estimates compiled by Refinitiv.

TSMC’s shares have gained around 7% so far this year, giving it a market cap of US$618 billion (approximately Rs. 45,67,760 crore). Shares closed up 0.15 percent on Thursday ahead of the earnings call, slightly underperforming the broader market, which ended up 0.33 percent.

© Thomson Reuters 2022

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