TSMC’s Dilemma Will See It Spend Billions Simply To Stay Ahead Says Analyst

Ramish Zafar
TSMC Gas Contamination for iPhone 13 and MacBook Pro

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

The Taiwan Semiconductor Manufacturing Company (TSMC) will be forced to spend heavily on capital expenditure due to aggressive spending by its rival, the Korean chaebol Samsung's chipmaking division Samsung Foundry according to an analyst. These comments come as TSMC prepares for its third quarter earnings report earlier this week, with all eyes on the company as the personal computing industry suffers from macroeconomic shocks and takes down heavy hitters such as Advanced Micro Devices, Inc (AMD), NVIDIA Corporation, and Intel Corporation with it.

TSMC's To Defer Capital Expenditure To 2023 In Wake Of Supply Chain Constraints

According to the details, an analyst quoted by the United Daily News (UDN) believes that TSMC's capital expenditure in 2023 will touch another record high. This will come despite the firm grappling with cost increases and demand slowdown for its customers, which should instead prompt it to spend wisely in capacity in order to ensure that machines are not left idle.

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However, a key factor in TSMC's capital expenditure decision is Samsung's aggressive spending. The Korean firm, whose manufacturing technologies were caught in claims of fraudulent behavior earlier this year, was quick to announce 3-nanometer manufacturing earlier this year, and followed this up with announcing production for the newer 2-nanomter technology, which also meets TSMC's 2-nanometer production timeline.

These announcements will have to be backed up with heavy capital spending, and Samsung plans to spend a whopping $355 billion on its semiconductor and biotechnology business over the next five years. Reports have also indicated that the bulk of this spending will be in chip manufacturing, particularly due to the high costs of setting up expensive machines and facilities.

Capital spending estimates for the chip sector by IC Insights expect spending to touch a record high next year. Image; IC Insights

Therefore, according to today's report, TSMC will have to spend aggressively as well not only if it is to maintain its lead in Samsung in the global contract chip manufacturing industry, but also if it is to gain a strong foothold in the market for next generation technologies such as 2-nanometer. Both TSMC and Samsung plan to kick. off 2-nanometer manufacturing in 2025, and will have to use advanced chip manufacturing machines for it.

The analyst believes that these factors will compel TSMC to boost its spending next year, and some of this allocation will come from this year's spending. Higher costs and an industry downturn will push TSMC to allocate some of this year's spending to 2023, with this year's expenditures amounting close to $40 billion and next year's surpassing $41 billion, according to today's report. Investment bank JPMorgan had expected the capital expenditure to sit at $42 this year in a January note.

Capital spending in the semiconductor industry is slowing according to research firm IC Insights. This is mostly due to a slowing macroeconomic environment and oversupply in the industry, and in 2023, the research firm believes that the industry will spend $185 billion collectively. This will result in a slower growth rate of 35% over last year's 21%, but it still marks the third consecutive year of double digit growth in spending. Spending had dropped in 2019 but picked up afterwards as demand for chip products grew in the aftermath of the coronavirus pandemic due to record demand for personal computing, enterprise and automotive products.

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