Taiwan Semiconductor Manufacturing Co. (TSMC) Faces Profit Crisis as Costs Rise and Overseas Expansion Continues

Taiwan Semiconductor Manufacturing Company (TSMC) founder, Morris Chang, has repeatedly emphasized the high costs and talent shortage of local semiconductor chip manufacturing, questioning the feasibility of TSMC's plan to build a plant in the US. The cost of chip manufacturing in the US is 50% higher than in Taiwan, and Chang even stated that the 50% underestimate of the cost difference is too low.

With the increasing operating costs of TSMC's US plant, the company may resort to cost-cutting measures and price increases to maintain its long-term target of a 53% gross margin. However, the costs of expanding production overseas are much higher than in Taiwan.

Despite the difficulties, TSMC is expanding its operations to the US and Japan, and considering Germany and Singapore. However, overseas expansion will bring heavy costs and operating pressures to TSMC. Although TSMC currently holds a 60% market share in wafer foundry, the company faces intense competition from Samsung Electronics and Intel in advanced process technologies. Nevertheless, TSMC still holds the bargaining power in the supply chain and customer negotiations, especially as its clients increasingly rely on TSMC for chip production.

As the US tightens its grip on the semiconductor supply chain, TSMC's dependence on the semiconductor equipment and materials supply chain is higher. TSMC's customers also prefer its advanced process technology for chip production.

Facing the crisis of reduced profits, TSMC needs to work closely with its supply chain and customers to maintain its competitive advantage. Recent reports suggest that TSMC may raise prices by 1-2% in 2022 and 6% in 2023 to help meet its revenue growth target for the year.

TSMC has the capability to absorb the higher costs of overseas wafer foundry and will continue to be the most efficient and cost-effective manufacturing service provider regardless of its location.