It’s getting more expensive for Taiwan Semiconductor Manufacturing Co. to stay at the top of its game.

The biggest contract maker of chips is preparing to spend more than $20 billion on its next state-of-the-art plant as it’s built over the next few years: the price for staying ahead of Intel Corp. and Samsung Electronics Co. in cutting-edge semiconductor production, founder Morris Chang says.

TSMC, the main assembler of mobile phone processors for Apple Inc., spends some $10 billion annually to keep abreast of Intel and Samsung and safeguard its perch as the predominant player in bespoke semiconductors. But the cost of wielding the most advanced processing technologies is soaring as chipmaking gets increasingly intricate: TSMC may have to bump its yearly outlay to as high as $11 billion a year, the 86-year-old Chang said in an interview Friday.

It’s now building a three-nanometer technology plant, its most sophisticated yet, in southern Taiwan. A nanometer is one billionth of a meter and measures the width of each transistor in a chip. Smaller transistors allow chipmakers to boost performance. The much-anticipated decision, announced last week, was made after debates about the island’s suitability given chronic power shortages over the summer. But the government, mindful of TSMC’s clout in the local economy, has offered strong assurances.

“By the time we’re through, by the time we’ve built all the necessary capacity, I think we would have spent upwards of $15 billion,” said Chang, who’s calling it quits in June and handing the reins of his $190 billion-plus company to lieutenants Mark Liu and C.C. Wei. “That’s a conservative estimate. Maybe it’s safer to say upwards of $20 billion."

Liu and Wei inherit a company that in three decades established itself as the world’s pre-eminent foundry or contract chipmaker, about 30 times larger than local rival United Microelectronics Corp. and commanding 59 percent of the $50 billion global market. Chang himself is credited with helping pioneer an industry where so-called “fabless” companies hand designs to TSMC, which then puts their chips together.

It’s a business that requires enormous upfront investments in technology and capacity. Now the Chinese, spurred on by official encouragement, may soon join this arms race. 

Chipmakers like Semiconductor Manufacturing International Corp. and Tsinghua Unigroup are now building capacity at a clip that Chang warns could surpass demand. The scale of that build-out has some industry players warning of price erosion. It’ll take years however for Chinese players to even begin to approach TSMC’s technical acumen, in part because no one’s willing to sell the requisite technology, says the man dubbed the father of the modern foundry.

“The money can help to build a lot of that kind of capacity. And that in itself, of course, poses a danger to the industry,” Chang said. But “technology, you can’t buy with just money... the Chinese strategy of expanding the semiconductor industry, I think it will have some success, but it will not have the success that perhaps the government was really looking for. It takes more time than they think.”

TSMC remains confident of at least sustaining healthy growth. At his retirement announcement Monday, Chang said TSMC’s sales growth should be close to 10 percent this year in U.S. dollar terms. That’s down from 12.4 percent in 2016 and 2015’s 11 percent. TSMC expects annual U.S. dollar revenue growth of 5 to 10 percent over the coming years, he added. On Friday, it reported a 1.3 percent dip in September sales to NT$88.58 billion ($2.9 billion).

TSMC’s shares have surged 24 percent this year thanks to projected demand for Apple’s new iPhones and other products. That helped make Chang a billionaire, according to the Bloomberg Billionaires Index. He owned 0.48 percent of the business directly as of the end of August, according to stock exchange filings.

Chang’s company is now racing to meet the future demand it anticipates from computers and connected devices in the so-called Internet of Things, from cars to home appliances and voice-activated speakers. And it’ll have to do so without its longtime leader, who’s finally stepping back to work on his autobiography, among other things.

As he heads toward retirement, Chang plans to focus on his private interests.

“I’d like to reserve my remaining years to myself now and do other things that I also like, like bridge and traveling.”

By: DocMemory
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