TSMC Expansion Augurs Well for Chip Industry

Demand for high-performance AI chips will fuel the overall semiconductor market. And TSMC could be the biggest winner, expecting to grow up to 20 percent in 2024.

While the company said 2023 was challenging, it forecasts solid growth for this year, adding that it expects inventories to return to a healthy level.

“We expect 2024 to be a healthy growth year for TSMC, supported by robust [artificial intelligence] demand,” said TSMC CEO CC Wei to investors on January 18. “There might be too much capacity being built right now for mature nodes. So, the concern on over-capacity is valid,” he said.

TSMC is the world’s largest contract chipmaker, counting Apple, Nvidia, and Qualcomm among its customers. The company is the unmatched leader in the industry, and the strong performance for 2024 is a positive sign for the overall semiconductor market.

TSMC Fab 18 Source: TSMC Media

“A glut in consumer electronics demand left supply chain leaders wondering where the future of semiconductor powerhouse TSMC and leading ODM electronics manufacturers such as Pegatron, Quanta, Compal and Inventec were headed,” said Richard Barnett, CMO of supply chain intelligence platform Supplyframe.  “[Last] week showed a turning point in the manufacturing sector, one defined by a surge in AI implementation set to shake up the industry as we know it.”

TSMC’s growth outlook is more than double its forecast for the overall sector, which Wei said was likely to see an increase of more than 10 percent. The company forecast revenues in the current quarter would decrease by 6.2 percent compared with the fourth quarter, to between $18 billion and $18.8 billion, in line with seasonal patterns.

However, they were likely to increase each quarter after that, the company said. In the three months ended December 31, revenues from high-performance computing applications — which include generative AI — increased by 17 percent quarter on quarter, while smartphone chip revenues jumped by 27 percent, and sales from automotive applications were up by 13 percent.

The company’s capital expenditure is plateauing following a massive expansion of cutting-edge capacity in Taiwan and the construction of fabrication plants, or fabs, in the U.S. and Japan.

Impact on the global semiconductor market

TSMC’s performance in 2024 has the potential to significantly impact other chip vendors, particularly those that rely on TSMC’s manufacturing capacity for high-end AI chips.

TSMC CEO CC Wei Source: TSMC Media

The company expansion plans could pressure other chip vendors to follow suit. If TSMC can capture a larger share of the high-end AI chip market, other vendors may need to invest in new manufacturing facilities to keep up. This could lead to increased competition and higher prices for high-end AI chips until capacity increases.

“New data shows that half of supply chain leaders plan to implement generative AI in the next 12 months, and TSMC’s success within the IT replacement cycle further points to a new era ushered in by emerging tech integration,” said Barnett. “2024 will prove to be pivotal in shaping future geopolitical pressures and the evolution of the electronics ecosystems to support increasing demand based on AI-driven transformation in multiple downstream markets.”

This boom will also increase demand for TSMC’s manufacturing capacity. It could make it more difficult for other fabless companies to manufacture their chips by TSMC, which could delay their products’ arrival on the market. This could be particularly problematic for new entrants to the AI chip market, who may have different relationships than established players.

Finally, other companies such as Intel, AMD, and Samsung will be forced to innovate to keep up. It could lead to developing new and more powerful AI chips that could benefit consumers and businesses alike.

New fabs could ease TSMC capacity limits

TSMC is expanding its global manufacturing footprint with several new fab projects. The company expects to begin construction on a fab plant in Germany after the summer and is also exploring building a second fab in Arizona.

Next month, it will open its first Japanese plant, with volume production later this year, and the company is also considering a second factory in the country. TSMC is also assessing the construction of a third fab in the southern Taiwanese city of Kaohsiung. All three fabs will be for advanced 2-nanometre chips, with companies such as Apple and Qualcomm being the first customers.

In addition to expanding its global footprint, TSMC is investing heavily in its existing facilities. The company expects to spend between $28 billion and $32 billion on capital expenditures in 2024, in line with 2023. The capital investment will serve to upgrade and expand existing facilities and build new ones.

These new fab projects are vital to TSMC’s strategy to meet the growing demand for high-end chips. The company is also investing in advanced packaging technologies such as CFET, which are becoming increasingly important as chips become smaller and more complex.

A much better year for the whole semiconductor industry

Overall, TSMC’s strong performance in 2024 will likely positively impact the overall chip industry. It could lead to increased competition, innovation, and consumer choice. However, it could also pressure other chip vendors and make it more difficult for new entrants to market. It is important to note that these are just potential effects, and the actual impact of TSMC’s performance will depend on several factors, including the overall health of the chip market and the strategies of other chip vendors.

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