After TSMC released its Q3 guidance at the earnings call last week, eyeing for at least a 7.5% revenue growth, it is now said that the foundry giant has got another major boost for the following quarters. According to a report from Technews, citing Chinese media outlet ijiwei, the company is said to receive an increase in orders for Super Hot Run (SHR) from Chinese clients, and they are willing to pay up to 40% extra.

Sources cited by the reports indicated these rush orders may come from Chinese tech heavyweights, including Bitmain, Alibaba’s T-Head, and Sanechips, which are urgently stockpiling chips due to escalating tensions between the U.S. and China.

In fact, according to information from TSMC’s previous earnings conference, sales generated from orders by TSMC’s Chinese clients in the second quarter of 2024 increased from 9% of total wafer revenue in the previous quarter to 16%.

The reports stated that Chinese chip manufacturers are accelerating their pace for placing orders in response to the uncertainties arising from the upcoming U.S. presidential election and its impact on U.S.-China relations. This move is expected to provide support for TSMC’s revenue and gross margins afterwards, which may help its performance in the third quarter and the full year to exceed forecasts.

TSMC raised its projected revenue growth for 2024 to over 25% last week, thanks to the robust demand for high-end smartphones and artificial intelligence (AI) devices, which is expected to boost the use of advanced 3nm and 5nm chips.

Previous reports have indicated that TSMC is facing overwhelming demand for its 3nm technology, with major clients like Apple and NVIDIA eagerly booking for more capacity, while orders are expected to be filled through 2026. Now it seems that the demand from China has also been heating up.

Reportedly, TSMC is planning to raise its 3nm prices by over 5%, and advanced packaging prices are anticipated to increase by approximately 10% to 20% next year.

To meet this robust demand, TSMC plans to increase monthly production capacity to 130,000 wafers for its 3nm process and 160,000 to 170,000 wafers for its 4/5nm processes.

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(Photo credit: TSMC)

According to a report from Nikkei on July 23rd, since 2021, the establishment of TSMC’s plants has potentially spurred over 100 semiconductor-related investment projects in Kyushu, known as Japan’s “Silicon Island.”

The disclosed investment amount by companies alone reaches JPY 4.74 trillion, and when including undisclosed investments, it is estimated to reach JPY 5 trillion. TSMC’s establishment in Kumamoto Prefecture has attracted investments from local material, logistics, and other companies.

Kyushu is a major hub for Japan’s semiconductor industry and is often referred to as “Silicon Island,” mirroring the name of Silicon Valley in the United States.

Reportedly, according to data compiled by the Kyushu Bureau of Economy, Trade, and Industry, there have been 100 semiconductor-related investment projects in Kyushu from April 2021 to June 2024, with 72 of these projects disclosing their investment amounts. Kumamoto Prefecture leads with 52 projects, followed by Fukuoka Prefecture with 15 projects. TSMC’s Kumamoto plants (Plant 1 and Plant 2) account for over 60% of the total investment amount.

The combined investment in TSMC’s Kumamoto Plant 1 and Plant 2 exceeds USD 20 billion, with the Japanese government providing up to JPY 1.2 trillion (roughly USD 7.7 billion) in subsidies for these two plants.

In addition, Sony began constructing a new image sensor plant in Koshi, Kumamoto Prefecture, in April. Rohm plans to invest JPY 300 billion in a new plant in Kunitomi, Miyazaki Prefecture, to produce power semiconductors and other products. SUMCO, a major silicon wafer manufacturer, will invest over JPY 400 billion in Kyushu to expand existing plant capacity and build a new factory in Yoshinogari, Saga Prefecture.

The report further highlights that future attention will be focused on whether Taiwanese companies with existing business relationships with TSMC will follow suit and invest in Kyushu.

TSMC’s plant in Kikuyo, Kumamoto Prefecture (Kumamoto Plant 1), is expected to begin mass production in Q4 (October-December) of this year, utilizing 28/22nm and 16/12nm process technologies with a monthly production capacity of 55,000 wafers. Kumamoto Plant 2 is scheduled to start construction at the end of 2024 and begin operations by the end of 2027, focusing on 6/7nm technology. The combined monthly production capacity of Kumamoto Plant 1 and Plant 2 is estimated to exceed 100,000 wafers.

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(Photo credit: TSMC)

As TSMC stands at the core of the global semiconductor industry, NVIDIA founder Jensen Huang stirred up an AI frenzy when he visited Taiwan in June. According to a report from Commercial Times, during his visit, he met with TSMC founder Morris Chang and then-President C.C. Wei, and personally visited TSMC’s headquarters.

According to a report by Mirror Media on July 23rd, sources revealed that Huang requested TSMC to set up a dedicated CoWoS production line for NVIDIA at an external facility. However, this request was met with skepticism from TSMC’s senior management, resulting in a tense situation.

Notably, TSMC Chairman C.C. Wei recently pointed out that despite strong AI demand, the company has yet to achieve a supply-demand balance and continues to increase production capacity. Many customers are eager for advanced process capacity, and TSMC is striving to balance pricing and capacity. Wei also revealed that the profit margins for advanced packaging CoWoS are being adjusted to align more closely with the company’s average profit levels.

C.C. Wei emphasized TSMC’s commitment to meeting customer demands with three “Whatever” statements. Regarding timelines, he revealed that supply will remain tight through 2025, with hopes for improvement by 2026.

Sources cited by the report further estimates that current utilization rates for 5nm and 3nm processes are at full capacity. To address demand, production for 3nm is set to increase gradually from 100,000 wafers per month to approximately 125,000 wafers per month by the second half of the year.

The 2nm process is expected to start mass production in the fourth quarter of 2025, with a target monthly output of 30,000 wafers. With future expansion at the Kaohsiung plant, the combined monthly capacity of the Hsinchu Science Park and Kaohsiung facilities is projected to reach 120,000 to 130,000 wafers.

Despite escalating geopolitical risks, Wei stated that there will be no changes to TSMC’s expansion strategy, with projects in Arizona, Japan’s Kumamoto, and future European facilities proceeding as planned.

Currently, TSMC’s investment in its U.S. facilities has reached USD 65 billion. The Arizona site is expected to have three plants, with the first two set to start production in 2025 and 2028, focusing on 4/3nm and 3/2nm nodes, respectively.

TSMC’s advanced packaging plans in Taiwan include facilities in Hsinchu Science Park, Miaoli Zhunan, Taichung Central Taiwan Science Park, Tainan Southern Taiwan Science Park (taking over Longtan InFO), and Taoyuan Longtan (significantly expanding CoWoS). Construction is also scheduled to begin in 2024 at Miaoli Tongluo and Chiayi Science Park.

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(Photo credit: TSMC)

Recent comments from former U.S. President Donald Trump on protection fees have hit semiconductor stocks hard and brought TSMC back into the spotlight for investors.

As per a report from Barron’s, it’s suggested that America’s stance towards Taiwan is not the best diplomatic strategy. The following key figures highlight TSMC’s importance to both the U.S. and the global economy.

• 700 Billion

After Bloomberg published an exclusive interview with Trump, the Nasdaq Composite Index plummeted 2.8% on July 17th. Large semiconductor stocks, including TSMC and the seven major U.S. tech giants, collectively lost about USD 700 billion in market value overnight.

The report from Barron’s suggested that this phenomenon indicates that the market views TSMC not just as a foundry but also as a crucial supplier of key components for America’s largest and most important enterprises.

• 92%

According to the Semiconductor Industry Association, TSMC manufactures 92% of the world’s advanced semiconductors, while South Korea produces the remaining 8%.

Barron’s noted that though the U.S. aims to increase domestic production of advanced chips, targeting 20% of advanced chips to be produced locally by 2030,. However this will take some time to achieve.

• 33%

TSMC taks pride in itself that it is the world’s first dedicated semiconductor foundry. Namely, all chips produced by TSMC are supplied to semiconductor companies that do not manufacture their own chips. For companies like NVIDIA, AMD, Broadcom, Qualcomm, and others, TSMC is a major supplier.

Barron’s noted that approximately one-third of their chip manufacturing expenses go to TSMC. This has further underscored the significance of the company.

• 45%

NVIDIA and other companies purchase chips from TSMC and then resell them to other companies. According to Barron’s, Microsoft, Meta, Alphabet, Amazon, and Tesla contribute about 45% of NVIDIA’s sales. Although Apple currently doesn’t purchase many chips from NVIDIA, about 27% of Qualcomm’s sales and 17% of Broadcom’s sales come from Apple.

In theory, without TSMC, there would be no iPhone, AI servers, or other electronic products people rely on. For this reason, Tae Kim, a technology journalist at Barron’s, refers to the true risk of disruptions in TSMC’s operations as a “Global Depression.”

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(Photo credit: TSMC)

As former U.S. President Trump has brought up the topic that Taiwan should pay for protection, raising concerns on cross-strait issues at the same time, Taiwan’s semiconductor industry and its foundry leader, TSMC, have once again draw market attention. Some scholars believe that the U.S. must realize that Taiwan is not a competitor but an important fabless partner, which could not only play a crucial role in advancing the development of next-gen technologies in the U.S., but help the nation to win the U.S.-China tech battle.

Citing Chien-Huei Wu, a research fellow of the Institute of European and American Studies at Academia Sinica, a report from Technews points out that while profits for foundries have significantly increased in the past five years, it is the IC design sector that gains the largest share of value in the entire supply chain. The benefits to foundries are not particularly significant.

Wu further notes that when NVIDIA, AMD, and Apple place orders, TSMC provides the best service, which indicates that the semiconductor industry in Taiwan is not the only major beneficiary, but U.S. IC companies and the American semiconductor industry as a whole.

U.S. Emerges as the Biggest Winner while Outsourcing Wafer Manufacturing to Taiwan

“The U.S. must recognize that without Taiwan providing better services and designing better processes to overcome limitations, its semiconductor industry would find it difficult to make progress continuously,” said Wu.

Wu believes that the relationship between Taiwan and the U.S. involves high-level cooperation in the supply chain, with each playing its respective role. This is why TSMC founder Morris Chang has repeatedly emphasized that TSMC is a service provider, a trustworthy and reliable partner.

Additionally, the outsourcing of the semiconductor industry is an inevitable trend. Look back in history: the industry had moved from Europe and the U.S. to Japan. Then the Reagan administration sought to suppress the Japanese semiconductor, leading to the signing of the U.S.-Japan Semiconductor Agreement in 1986, while TSMC was founded the following year (1987).

And the history seems to repeat itself. Even after more than forty years, the U.S. has struggled to prevent the industry’s relocation. Now, Taiwan and South Korea have taken the lead in the semiconductor manufacturing business, and there are reasons for this.

Wu further explains that the work cultures between the Europe, the U.S., and Asia are entirely different, and these differences in technology, personnel, and culture will all increase manufacturing costs. Furthermore, these hidden costs will have to be absorbed by American consumers, which will inadvertently increase U.S. inflation. The situation not only harms American consumers but also hinders the country in the competition of next-generation advanced technologies.

The U.S. May be More Concerned about TSMC’s Tech Reaching China than Whether the Wafers are “U.S.-made.”

Currently, the market is concerned that Trump might impose a 10% tariff on all imported products if he takes office. According to Wu, the purpose of the tariff is to protect American manufacturers, making consumers more inclined to choose American-made products at the same price level.

“But the premise is that the quality must be the same, and that there must be existing American manufacturers.” He believes that the U.S. currently lacks manufacturers of equivalent quality, as U.S. tech giants, including Intel, place orders with TSMC, which indicates that the tariff may not have the intended effect. If an additional 10% tariff is imposed, products from major companies like NVIDIA, AMD, and Intel will become more expensive, increasing U.S. inflation, which benefits no one.

If this happens, Wu suggests that TSMC could organize manufacturers into a lobbying group, including key players from both Taiwan and the U.S., to expand the impact of the tariffs to the American semiconductor industry.

Furthermore, he notes that the Taiwanese government must work more closely with the industry, acting as a mediator in times of conflict. With both sides maintaining a unified stance, the government should prioritize industry interests in its communications.

In addition to tariffs, the U.S. government is also very concerned about the share of TSMC’s high-end chips going to China, especially with the escalation of the U.S.-China trade war.

Regarding this, Wu comments that as Taiwan’s current technological controls on the flow of technology to China are still in early stages, it will be difficult to convince the U.S. that it is a reliable partner and service provider. Therefore, the Taiwanese government must enhance its efforts to control the flow of high-tech, talent, products, or intellectual property to China, as there is still significant room for improvement.

How Should Taiwan’s Semiconductor Industry Handle U.S.-China Geopolitical Tensions?

Regarding Trump’s views on cross-strait politics, Wu analyzes that he is different from typical Western politicians, as Trump is known for his transactionalism, unilateralism, and personal connections. Namely, he is more concerned with “What’s in it for me (Trump)?” or “What’s in it for the U.S.?”

From Trump’s perspective, maintaining order is no longer an U.S. obligation. Taiwan must protect its own country with its own efforts, including maintaining a certain defense budget.

Additionally, it is worth watching whether Trump’s chip policies aim to relocate the entire semiconductor supply chain from Taiwan to the U.S. Although this poses practical difficulties and is economically unfeasible, Taiwanese government and the semiconductor industry must prepare for the worst-case scenario, and starts policy planning in advance.

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(Photo credit: TSMC)