Taiwan Semiconductor Manufacturing Co. Ltd (TSMC) reiterated its plan to spend more than $40 billion this year for capacity expansion despite concerns that overall demand for chips may wane.

At a quarterly results meeting today, TSMC maintained its expectation from three months ago that capital expenditures would rise to as much as $44 billion in 2022 to meet demand expected to grow by up to 20% during the next few years.

The world’s leading chipmaker revised its own sales growth outlook upward to the mid–to–high 20% range and for the overall chip industry, about 20%. The company’s stronger expectations are driven by two main factors: chip shortages that are raising prices and rising production costs that most customers are paying.

TSMC benefits from demand for high performance computing (HPC) chips. It’s a different story in consumer electronics, where demand is weak, the company said.

HPC became the largest chunk of TSMC’s sales during the first quarter this year, accounting for 41% of revenue. Sales of automotive chips, shortages of which emerged with the Covid pandemic more than two years ago, also soared for TSMC in the first quarter.

The company, which makes chips for companies such as Apple to Xilinx, said it’s not able to keep up with demand. “Capacity will remain tight throughout 2022,” said TSMC CEO C.C. Wei.

Continuing chip shortages and future reductions in the supply of production tools and materials could crimp the overall supply chain for most of this year at least, according to Mehdi Hosseini, who covers TSMC and toolmaker ASML for Susquehanna.

“Chip equipment vendors failed to plan adequately for a strong shipment and thus the chip shortages started to impact equipment vendors by the end of 2021,” he told EE Times. “This is expected to sustain through the first half of 2022 though to ease into the second half.”

The war in Ukraine has also introduced potential shortages in the supplies of key materials from the Eastern European region such as neon and xeon, according to TSMC.

TSMC said it has multiple rare gas suppliers and for the time being expects no impact on production. It’s less clear on how slowing tool deliveries will affect the production ramp of its next process node, according to TSMC.

N3 and beyond

The company is on track to ramp up its N3 node during the second half of this year. The N3 node is TSMC’s parlance for 3 nm process technology. TSMC’s largest initial N3 customers will be Apple and Intel, the latter of which aims in the next few years to overtake TSMC as a technology leader. TSMC will launch a derivative N3E process sometime in late 2023.

Wei said N3E progress is “ahead of schedule” and production may start earlier than expected.

For its next node, N2, TSMC said that development is on track for production in 2025. N2 is expected to be the first node where the company adopts gate-all-around technology, gradually replacing its workhorse FinFET process for 3D chips.

TSMC is still evaluating the use of high-NA EUV tools from ASML for its upcoming nodes. “I can’t say whether high NA will be adopted for N2,” Wei said.

Downturn?

Analysts joining the conference call expressed concerns about a global economic downturn and how that might impact TSMC; a bellwether for the electronics industry.

“We are seeing a consumer end–demand correction,” said Charlie Chen, analyst at Morgan Stanley.

TSMC said demand for smartphones and tablets has been decreasing. Even in the event of an overall slowdown in demand, TSMC expects its impact to be minor. “We will continue to invest,” Wei said.

By: DocMemory
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