tsmc navigates subsidy hurdles and client cutbacks amid samsung's 3nm push
Hsinchu, Wednesday, 16 April 2025.
tsmc faces a complex situation in early 2025. The US CHIPS Act subsidy rules are stricter than anticipated. This could squeeze profits and raise expenses. Simultaneously, five major clients have reduced orders. A resurgent Samsung is challenging tsmc’s dominance. The subsidies for tsmc’s US plant may only reach $6 billion. This amount is viewed as insufficient to offset high operating costs. The company is also wary of increased scrutiny of its finances. There are also concerns about the security of its advanced technologies.
Subsidy constraints and financial visibility
The US CHIPS Act offers direct funding covering only 5% to 15% of projected expenses [1]. This translates to a potential $6 billion subsidy for tsmc [1]. The relatively small subsidy, coupled with high construction costs in the US, offers little financial relief [1]. Moreover, accepting subsidies exceeding $150 million mandates the submission of detailed financial plans, including cash flow statements [1]. This requirement raises concerns about financial transparency and potential government oversight into tsmc’s operations [1].
Order reductions and capacity utilization
Tsmc is experiencing order cuts from five major clients, including AMD, Nvidia, MediaTek, Qualcomm, and Intel [1]. These cuts are due to more aggressive inventory adjustments than initially anticipated [1]. Reduced orders are impacting tsmc’s capacity utilization rates. The utilization rate for the 5/4 nm process is expected to decline from 90% to 70% in the first quarter of 2025 due to decreased orders from Apple and AMD [1]. The overall fab utilization rate is estimated to be between 70% and 75% [1].
3nm technology competition and pricing pressure
Samsung is emerging as a strong competitor in the 3nm process technology [1]. Samsung is reportedly increasing its 3nm chip production with improved yields [1]. The company is employing more advanced MBCFET technology, potentially surpassing tsmc’s FinFET technology [1]. Furthermore, Apple, a major tsmc client, has shown a willingness to collaborate with Samsung [1]. This collaboration could intensify pricing pressure on tsmc [1]. Tsmc initially resisted lowering prices amid a broader industry trend of price cuts [1]. However, further inventory corrections may force tsmc to reconsider its pricing strategy [1].
Stock market reaction and geopolitical factors
Tsmc’s stock has shown limited upward movement due to market concerns about order cuts and subsidy challenges [1]. Geopolitical risks further complicate the situation [1]. Accepting US subsidies would restrict tsmc’s expansion in China, where it operates plants in Nanjing and Shanghai [1]. Bridgewater Fund founder Ray Dalio suggests that the broader impact behind the tariff war could lead to the collapse of the global monetary system, political order, and geopolitical landscape [6]. These factors create additional uncertainty for investors [6].
Analyst perspective and future outlook
An industry expert notes that the situation is fluid, and the impact on tsmc’s 2025 revenue is still being assessed [5]. Tsmc is expected to release an official statement by the end of April 2025 to clarify the subsidy situation and its implications [5]. The company’s long-term investments in platform development and process diversification should help mitigate some of the challenges [1]. However, the confluence of these factors suggests a difficult period for tsmc as it navigates subsidy constraints, client cutbacks, and increasing competition [1].