tsmc's strategic shift: facing geopolitical hurdles in semiconductor expansion
Hsinchu, Thursday, 19 December 2024.
Taiwan Semiconductor Manufacturing Company (TSMC) is contemplating a significant move of its advanced manufacturing processes to the United States due to escalating geopolitical tensions and trade uncertainties. This potential shift is influenced by concerns over supply chain security and the U.S. CHIPS Act, which aims to bolster domestic semiconductor production. TSMC’s decision could have a substantial impact on its operational costs and efficiency, potentially affecting its profitability and stock performance. The company’s plans include a $65 billion investment in three semiconductor fabs in Arizona, marking the largest greenfield foreign direct investment in U.S. history. While this move aligns with strategic priorities to reduce dependency on Taiwan, it also raises questions about the future landscape of the global semiconductor market and Taiwan’s role within it. TSMC’s expansion illustrates the intricate balance between technological leadership and geopolitical strategy.
Market dominance and expansion challenges
TSMC maintains its position as the world’s leading semiconductor foundry, controlling over 60% of the global market [2]. The company’s technological edge is evident in its Q3 2024 performance, where advanced 3-nanometer and 5-nanometer chips generated 52% of wafer revenue [2]. This dominance extends across diverse sectors, with high-performance computing contributing 51% and smartphones 34% of revenue [2]. However, TSMC faces mounting pressure to diversify its manufacturing locations, particularly as geopolitical tensions intensify [1].
Arizona investment and government support
TSMC’s commitment to U.S. expansion is demonstrated by its 25 billion increase in planned Arizona investment, announced in April 2024 [3]. The project includes three semiconductor fabs, supported by up to $6.6 billion in direct funding under the U.S. CHIPS Act and a potential $5 billion loan [3]. This represents a strategic response to U.S. efforts to strengthen domestic semiconductor production, though the company’s chairman has expressed concerns about operational challenges [1][3].
Supply chain dependencies
A critical vulnerability in TSMC’s operations lies in its equipment supply chain. Only 5-10% of TSMC’s manufacturing equipment comes from local Taiwanese suppliers [1]. The remaining 90% is controlled by five major equipment suppliers, four American and one Japanese [1]. This dependency on foreign equipment manufacturers adds another layer of complexity to TSMC’s geopolitical challenges and highlights the strategic importance of maintaining strong international relationships.
Financial performance and future outlook
Despite operational challenges, TSMC demonstrated robust financial performance in Q3 2024, with revenue reaching NT$759.7 billion ($23.5 billion), marking a 39% year-over-year increase [2]. The company projects Q4 2024 revenue between $26.1 billion and $26.9 billion, with an impressive gross profit margin of 57-59% [2]. Capital expenditure for 2024 is expected to exceed $30 billion, with 70-80% allocated to advanced technologies [2].