tsmc faces challenges with high us manufacturing costs

2024-12-26 tsmc

United States, Thursday, 26 December 2024.
Taiwan Semiconductor Manufacturing Company (TSMC) is under considerable pressure due to the high costs associated with its manufacturing operations in the United States. This financial strain is compounded by the less-than-expected outcomes of the US ‘Chip Act’, which was intended to bolster domestic chip production. The high operational expenses threaten TSMC’s competitive advantage and operational efficiency. Industry insiders are concerned about TSMC’s ability to maintain its market position against these economic hurdles. The situation reflects broader challenges faced by international tech companies trying to balance global expansion with local economic conditions. As TSMC navigates these complexities, its strategic decisions will be pivotal in determining its future in the highly competitive semiconductor industry.

Record high despite us challenges

Despite manufacturing cost concerns, TSMC’s stock has demonstrated remarkable resilience, reaching a record high on December 24, 2024, with an impressive 82% increase over the year [3]. The company’s success is largely driven by booming investments in AI technology and strong performance from key clients like Nvidia [3]. However, U.S. Commerce Secretary Gina Raimondo has acknowledged challenges in the broader semiconductor landscape, noting that previous attempts to restrict China’s semiconductor advancement have proven ineffective [1].

Divergent manufacturing strategies

TSMC is adapting its manufacturing approach amid cost pressures. The company is exploring innovative solutions, including the use of glass panels for advanced packaging, particularly for AI semiconductors [2]. This strategic pivot comes as TSMC pushes forward with its $65 billion investment in Arizona manufacturing facilities [6]. The company’s capital expenses reached $24.6 billion over the last four quarters, surpassing the combined investments of major tech giants like Apple, Tesla, and Nvidia [5].

Financial performance and market position

TSMC’s financial metrics remain strong, with Q3 2024 showing a 39% year-over-year revenue increase and a 54% rise in net income [5]. The company’s free cash flow nearly tripled, jumping 172% to approximately $5.7 billion USD [5]. However, with a price-to-sales ratio of 12.8, significantly above the industrial average of 2.5, some analysts question whether the stock’s valuation fully accounts for the operational challenges ahead [5].

Geopolitical implications

The company faces increased scrutiny amid evolving U.S.-China tensions. China recently launched an antitrust investigation into TSMC over suspected violations linked to a 2020 deal [4]. This development, coupled with new U.S. semiconductor restrictions announced on December 17, 2024, adds complexity to TSMC’s operational landscape [4]. The company’s strategic importance in the global semiconductor supply chain has made it a focal point in international technology policies [3].

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Chip Act Manufacturing costs