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Dear Rivals, TSMC Can and Will Outspend You All

Signage for Taiwan Semiconductor Manufacturing Co. (TSMC) at the company’s headquarters in Hsinchu, on Tuesday, Jan. 11, 2022. TSMC reported a sixth straight quarter of record sales, buoyed by unrelenting demand by Apple Inc. and other customers for chips produced by the world’s largest foundry.
Signage for Taiwan Semiconductor Manufacturing Co. (TSMC) at the company’s headquarters in Hsinchu, on Tuesday, Jan. 11, 2022. TSMC reported a sixth straight quarter of record sales, buoyed by unrelenting demand by Apple Inc. and other customers for chips produced by the world’s largest foundry. (Bloomberg)
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Taiwan Semiconductor Manufacturing Co. spent a record $30 billion last year on factories that churn out the world’s most-advanced chips. It seems that wasn’t enough. This year, it’s decided to up the ante by forecasting a budget of as much as $44 billion. Rivals better watch out.

“Every year our capex is spent in anticipation of the growth that will follow,” Chief Financial Officer Wendell Huang told investors during an earnings call Thursday. That’s an understatement. After posting a 25% increase in revenue last year, the company announced it expects to top that figure by climbing somewhere in the high-20s-percent range in 2022. TSMC rarely misses its forecasts.

Sure, the spending last year weighed on profitability a little (operating margin was down 1.4 percentage points), yet TSMC still managed to churn out $40 billion in cash from operations. The only two firms that might be reasonably called competitors — Samsung Electronics Co. and Intel Corp. — need to keep this fact in mind if they plan to go toe-to-toe with the world’s ninth-largest company.

If they still intend to get into a chip war, they ought to take a close look at the Hsinchu giant’s balance sheet. TSMC has $38 billion in cash on hand, meaning it could almost fund this year’s spending without taking in a dime of revenue. 

Admittedly, it’s not as simple as that — the company needs to pay staff, materials costs, and power bills — but such numbers show it’s not only big, but solid, too.

From a technology perspective, Samsung is the nearest rival. Yet a comparison is skewed by the fact that the South Korean company also makes display screens and puts most of its semiconductor spending toward commodity memory chips that TSMC doesn’t even bother to make.

Then there’s Intel, the U.S. would-be challenger that’s decided to join the foundry fray. In addition to manufacturing chips under its own brand, Intel Chief Executive Officer Pat Gelsinger last year decided he wants to take on TSMC and Samsung — and a handful of others — by offering to make them for external clients. But Intel trails both of them in technology prowess, forcing the California company into the ironic position of relying on TSMC to produce its best chips. Gelsinger is confident that he can catch up. Maybe he will, but there’s no way the firm will be able to expand capacity and economies of scale to the point of being financially competitive. Put another way, Intel will need to sacrifice margins to gain the volume needed to fill the fabs he too wants to build. 

That’s why Gelsinger’s strategy over the past year has been to talk about geopolitics as much as manufacturing capability. In numerous speeches and interviews, the American CEO has spoken about the need to base more manufacturing in the West and the importance of the U.S. government to funding such efforts. 

TSMC isn’t fazed. It has already heeded the call to set up in the U.S., with a plant in Arizona currently being built and a good chance of new facilities being announced in Europe. It’s also preparing to open a new factory in Japan.

With a market capitalization of $620 billion, TSMC is the world’s largest non-U.S., non-state-owned enterprise (Saudi Aramco is larger, but government-controlled.) It’s also one of the biggest spenders, among non-oil companies, beaten by only Toyota Motor Corp., Samsung and Amazon.com Inc., according to data compiled by Bloomberg. This year’s figure will move it closer to the top.

With the global chip shortage set to continue, and greater demand fueled by the need for more powerful servers and faster 5G mobile phone connections, TSMC has the wind at its back and a huge checkbook in hand. Good luck to anyone who thinks they can keep up.

More From This Writer and Others at Bloomberg Opinion:

• Chipmakers Are Sending a Warning About the Economy: Tae Kim

• The Godfather, $700 Billion, and a Game of Chicken: Tim Culpan 

• How China’s Car Batteries Conquered the World: Anjani Trivedi

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

More stories like this are available on bloomberg.com/opinion

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