Delivery bottlenecks hit TSMC and the semiconductor industry

AThe semiconductor industry faces a new problem. With the planned expansion of capacity in Asia, America and Europe, the bottlenecks regarding the machines required for computer chips are increasing. “We have seen these tool delivery issues unexpectedly since the beginning of this year,” Taiwan Semiconductor Manufacturing Company (TSMC) chief CC Wei said Thursday during the quarterly earnings presentation.

Patrick Welter

Correspondent for Japan business and politics based in Tokyo.

For this year, TSMC has no problem with that, Wei said. Deliveries for 2023 and beyond are being worked on. He has been silent on the development’s impact on TSMC’s investment plans. According to him, the problem affects the production of chips of the latest, but also of older generations.

TSMC with record profit

Supported by continued strong demand, especially for high-performance and automotive industry chips, TSMC significantly improved its financial results in the January-March period and reached record highs. Sales increased by 36% to reach 491.1 billion new Taiwan dollars (15.6 billion euros). Profits hit a record 202.7 billion New Taiwan dollars, up 45% from a year ago. Gross margin reached a record 55.6%. The fact that TSMC significantly raised the prices of its chips last year helped boost profits. This is made possible by the surge in demand for chips in the wake of the pandemic.

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For a detailed view

TSMC is the world’s largest contract manufacturer of semiconductors, producing, among other things, the logic chips for the products of the American electronics company Apple. The company supplies many other electronics manufacturers, but also car manufacturers. Due to its size and extensive ties to the electronics industry, the company is seen as something of a leading indicator for the industry.

Wei said capacity will remain limited this year. So don’t expect an easing of the flea shortage. Demand for semiconductors from the auto industry remains strong, Wei said. He said sales could increase more this year than the 25-29% previously forecast. This is a sign that the war in Ukraine and the inflationary shock may not hit the industry as hard.

Investments in billions

According to TSMC’s analysis, customers continue to hold unusually high inventories of computer chips. Wei saw this not as an impending weakness in demand for finished goods, but rather as a structural change in response to supply difficulties during the pandemic.

TSMC and other major semiconductor makers like Intel or Samsung Electronics have announced new factories and multi-billion investments to meet demand. Investments are also motivated by the desire of many governments to become less dependent on Asian countries such as Taiwan or South Korea for semiconductors. During this development, TSMC abandoned its principle of concentrating production in Taiwan. Investments in new factories in Japan and the United States are underway. This year, TSMC wants to invest 40 to 44 billion dollars.

This investment trend is currently contributing to equipment manufacturers’ supply difficulties. Wei pointed out that TSMC suppliers must deal with the consequences of the pandemic for semiconductor sourcing in other precursors. TSMC sent teams of employees to suppliers to support them and identify critical chips affecting machine delivery. The shortage of chips means that overcoming the shortage is made more difficult by new investments.

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