Paul van Gerven
24 January 2022

Announcing its 2022 capital budget, TSMC threw a bucket of cold water on its rivals’ ambitions to gain market share.

During a conference call discussing TSMC’s Q4 2021 results, investment analyst Sebastian Hou at Neuberger Bergman offered an interesting observation: if the world’s leading foundry doubles capital expenditure over three years, revenue and profits double over five years. Even though CFO Wendell Huang warned that “things aren’t that simple,” it makes you wonder what growth trajectory the foundry is on after announcing an estimated capex of 40-44 billion dollars in 2022, up from 30 billion dollars last year and roughly triple the number of 2019.

TSMC’s 2022 capital budget caught analysts off guard; they were counting on a capex of 30-35 billion dollars this year. That would spread the previously announced 100-billion-dollar R&D and capacity expansion investment spanning over three years fairly evenly over the period.

TSMC said the capex hike was necessary because semiconductor demand continues to grow. “We’re entering a period of higher structural growth. As technology becomes more pervasive and essential in people’s lives and the digital transformation accelerates, the semiconductor industry value in the supply chain is increasing. As we embark upon the 5G era, an intelligent and more connected world will fuel a massive requirement for computation power and propel a greater need for energy-efficient computing, which demands greater use of leading-edge technologies,” TSMC CEO CC Wei said during the investor call.

TSMC’s CEO CC Wei. Credit: TSMC

These remarks go against reports that the semiconductor market’s growth spurt has been running out of steam. While Wei acknowledged that end-market demand may indeed be slowing down, “we continue to observe the structural increase in long-term semiconductor demand underpinned by the industry megatrend of 5G and high-performance computing-related applications. We also observed the higher silicon content in many end devices, including automotive, PCs, servers, networking and smartphones. As a result, we expect our capacity to remain tight throughout 2022.”

Another league

TSMC’s spending spree serves another purpose: keeping the competition at bay. Having captured a market share of over 50 percent across nodes and over 90 percent at the leading edge, the company is dominating the foundry space and by outspending the competition, it’s making sure it stays that way. Even though Intel and Samsung have announced expansions of their own, TSMC “puts a ceiling on their ambitious plans. They’re going to have a hard time keeping up with the sheer scale that TSMC is planning for,” said Dylan Patel of Semianalysis.

Samsung has announced plans to invest 210 billion dollars over the next three years. This concerns the whole chaebol; Kiwoom Securities in Korea estimated that about 97 billion dollars will be reserved for semiconductor capex, covering both foundry operations and memory manufacturing. Separately, Samsung Electronics has announced its intention to triple foundry production capacity by 2026 and to invest about 116 billion dollars in logic manufacturing by 2030. The Koreans currently command a foundry market share of 17 percent.

The Korean ace up the sleeve is a transition to a gate-all-around design at the 3nm node, which will move into production later this year. TSMC is sticking with FinFETs at its 3nm process, also slated to get going in 2022. If Samsung’s process can hold its own, some of TSMC’s customers may switch to Samsung. Another reason for them to do so could be the fact that Apple already claims most, if not all, available capacity when TSMC starts a new node, and now reports from Taiwan suggest that Intel is going to get priority treatment as well. This may prompt companies such as AMD and Qualcomm to transfer at least part of their production to Samsung.

Despite holding the top sales spot for much of the past three decades, Intel has yet to make any meaningful inroads in the foundry sphere. Currently lagging in process technology, CEO Pat Gelsinger aims to regain top dog status by 2025 and leverage that position to join – or even surpass – the world’s leading foundries. His company has ambitious capacity expansion plans as well, though those seem to be conditional on government hand-outs.

According to the latest reports, Intel’s capex is expected to total 18-19 billion dollars this year and 25-28 billion dollars in 2022. With that kind of investment level, Intel is probably outspending Samsung in foundry and logic manufacturing, but TSMC is still in another league.

Main picture credit: TSMC