[News] Taiwan Power Rate Hikes Squeeze Semiconductor Margins

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Taiwan’s semiconductor factories operate around the clock, consuming significant amounts of electricity. Taiwan Power Company has raised industrial electricity rates twice this year, and the financial impact is now starting to appear in corporate earnings.

According to Economic Daily News, TSMC Chairman C.C. Wei highlighted in the recent earnings call that Taiwan’s electricity rates have become the highest among regions with wafer fabs. TSMC warned that rising power costs and inflation could reduce its. gross margin by one percentage point. GlobalWafers, a major supplier of semiconductor wafers, also reported lower-than-expected gross margins for Q3, acknowledging energy costs as a key factor.

Wei stated that Taiwan’s electricity rates increased by 14% in October, following hikes of 15% in 2022 and 17% in 2023, with a further 25% increase anticipated in 2024. While TSMC’s third-quarter gross margin surpassed expectations at 57.8%, driven by high capacity utilization, the company projects margins could edge toward 58% this quarter. However, Wei cautioned that surging electricity costs and the costly transition from 5nm to 3nm technology are likely to dampen these gains.

The Economic Daily News report noted that GlobalWafers posted a 30% Q3 gross margin, falling short of market forecasts. Chairman Doris Hsu attributed the shortfall to four main factors: rising electricity costs worldwide, increased depreciation due to investments in multiple plants, declining silicon carbide prices, and changes in product mix, which lowered revenue and margins.

Hsu pointed out that energy is the second-largest production cost for GlobalWafers, comprising 8–9% of total expenses. At the company’s Texas facility, the unit cost of electricity is roughly one-third of Taiwan’s rate. If energy costs remain low and exchange rates are favorable, the gross margin for U.S. plants could slightly exceed that of Asian plants, excluding depreciation differences due to the longer operational history of Asian facilities.

Taiwan Power recently raised industrial rates again in October and announced a carbon fee for 2026. Hsu estimated that a carbon fee of NT$300 per ton could impact Taiwan’s production costs, reducing gross margins by 0.5 to 0.7 percentage points on a consolidated basis.

Establishing production facilities in North America offers logistics advantages by bringing production closer to clients and reducing shipping costs. Hsu explained that transporting a 300mm (12-inch) wafer from Japan to Europe currently costs ¥300, set to rise to ¥550 in November. Shipping to the U.S. would cost even more, but distribution from Texas would significantly reduce these expenses. GlobalWafers’ Texas facility is expected to complete construction by the end of 2024, with mass production slated for late Q1 2025.

TSMC’s first North American wafer fab is expected to begin production in Q1 2025, with two additional fabs set to meet customer demand by 2028 and 2030. Focused on operational efficiency, TSMC aims to leverage AI tools to boost productivity, with each 1% improvement projected to add $1 billion to profits.

(Photo credit: TSMC)