The World’s Chip Addiction Is Propping Up TSMC

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Although chip king Taiwan Semiconductor Manufacturing Co. is suffering from the global economic recession. But if you blink, you might miss it.

This quarter’s profit fell 2.7% from a year earlier, the company said Thursday, the first decline in four years and worse than analysts had expected. buy side. That measurement is in US dollars, the currency of the global chip industry. The weakness of the Taiwan dollar means that sales in the local currency will increase.

Yet the conflict in Ukraine, rising interest rates, and slowing global trade seem to have only slowed TSMC’s march forward, rather than derailing its global dominance. The semiconductor industry is highly volatile, with previous recessions bringing long-term and double-digit declines for the Hsinchu-based company. Not this time.

The entire chip industry, excluding memory, was down 4%, and the manufacturing segment was down 3%, but card growth was modest for the company, it said.

Supporting TSMC is the global chip addiction. Not only do electronic devices – from watches to beds – get bigger, but old-school devices, like computers, require more per unit. CEO CC Wei offered a simple example that explains why the change in economic climate will be more difficult: Shipments of PCs and smartphones will decrease this year, but will increase more light.

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“We are realizing the value of semiconductors in our daily lives,” Wei said during an investor conference on Thursday. A drop in the first half is followed by a V-shape in the second, he said. So, instead of declining in 2023, TSMC’s growth will continue to increase.

That should be good for investors. The company posted a record $36 billion in capital spending in 2022, and depreciation costs will increase by 30% in 2023. And while spending is falling to $32 billion to $36 billion for the next 12 months, the price increase. of research and development will add $1 billion a year.

Another layer of protection against the current state of the global economy is the proliferation of artificial intelligence. High-performance computing, which has been used for years to fuel advances in cryptocurrency, autonomous driving and AI, for example, has replaced smartphones as a major contributor to TSMC’s revenue. And that sector (with the exception of crypto) is not slowing down.

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The AI ​​race is heating up — and Microsoft Corp. is ready to bid $10 billion to get a stake in the owner of ChatGPT — and key players like Nvidia Corp. and Advanced Micro Devices Inc. on TSMC’s customer list. Wei said that this may be the part that the company is pulling in if 2023 is bad, and also suggested that the HPC vendor will release a new product in the second half.

But only TSMC is ahead. Although revenues and shipments fell in the fourth quarter from the previous period, it was able to increase the average price per wafer of silicon by 5.8%, in US-dollar terms. Because there are few other places that customers can turn to if they want good chips. Samsung Electronics Co. closest competitor, offering similar technology but without the scale to match the company’s wafer-thin.

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The wheels often fall off the TSMC cart one day because of the amount of money it spends, and how much of that is tied to its belief in the future. But that day hasn’t come yet, and it probably won’t be for a while, because the product that everyone really wants is still in the works.

More thoughts from Bloomberg:

• The Silicon Fence Around China Is Close: Tim Culpan

• Forget what you learned about investing: Merryn Somerset Webb

• In fact, it’s an amazing year for the future of technology: Tim Culpan

This post does not reflect the opinion of the editorial board or Bloomberg LP or its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.

More information is available at bloomberg.com/opinion

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