TSMC this week has announced plans to spend $100 billion on new production facilities as well as R&D over the next three years. The world's largest contract maker of chips says that its fabs are currently working at full load, so to meet demand for its services going forward it will need (much) more capacity. Among TSMC's facilities to go online in the next three to four years are the company's fab in Arizona as well as its first 2nm-capable fab in Taiwan.

"TSMC is entering a period of higher growth as the multiyear megatrends of 5G and HPC are expected to fuel strong demand for our semiconductor technologies in the next several years," a statement by TSMC with the Taiwan Stock Exchange reads. "In addition, the COVID-19 pandemic also accelerates digitalization in every aspect. In order to keep up with demand, TSMC expects to invest $100 billion over the next three years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies. TSMC is working closely with our customers to address their needs in a sustainable manner."

$100 Billion to Be Spent on Fabs

TSMC's capital expenditures (CapEx) budget last year was $17.2 billion, whereas its R&D budget was $3.72 billion, or approximately 8.2% of its revenue. This year the company intends to increase its CapEx to somewhere in the range of $25 to $28 billion, which would make for a 45% to 62% year-over-year increase in that spending. The company's R&D spending will also rise as its revenue is expected to grow. In total, TSMC plans to invest around $30 billion or more on CapEx and R&D this year. Taken altogether, if the company intends to spend around $100 billion from 2021 through 2023, its expenditures in the next two years will be roughly flat with 2021, something that should please its investors.

TSMC has a number of important fab projects ahead of it.

  • First up, the company needs to build and equip its N5-capable fab in Arizona. The facility will cost around $12 billion, will have a capacity of 20,000 wafer starts per month (WSPM), and will come online in 2024. A recent rumor indicates that TSMC might actually increase capacity of the facility and/or equip it for a more advanced fabrication process, which will increase its cost, but TSMC has never confirmed this information.
  • Secondly, TSMC will need to equip its N3-capable fab in Tainan, Taiwan, which is projected to start volume production in the second half of 2022.
  • TSMC's third capital-expensive project is the company's N2 (2nm) qualified GigaFab in Hsinchu, Taiwan. Furthermore, TSMC is mulling to build another N2-capable fab in Baoshan, Taiwan. Meanwhile, TSMC still has to complete development of its GAAFET-based N2 node.
  • Last but not least, TSMC is set to build two more advanced packaging facilities in Taiwan. The company already has four of such facilities, but it believes that demand for chip stacking and advanced packaging will rise in the future and it will need more capacities. Chip packaging factories are not as expensive as semiconductor production facilities, but they still cost quite a lot.

Recently TSMC wrote a letter to its customers where it explained that its fabs have been fully utilized for about a year now and it still cannot meet rising demand for chips. To that end, the company would have to 'suspend wafer price reductions for a year from the start of 2022,' according to a Bloomberg report.

Competition Intensifying

Right now, TSMC is the world's largest contract maker of chips with no rivals that can match its total production capacity. A some of TSMC's rivals, including GlobalFoundries and UMC, have pulled the plug on development of their leading-edge fabrication processes, so the number of companies that can offer leading-edge nodes has decreased. Yet paradoxically, the competition is also escalating in other respects.

Samsung Semiconductor, which has foundry, DRAM, storage, SoC, and a number of other operations, has been increasing its CapEx investments in the recent years. The company spent $93.2 billion on chip production from 2017 to 2020 and is on track spend another ~$28 billion in 2021, according to IC Insights. Samsung Foundry is still several times smaller than TSMC in terms of sales and capacity, but the gap is closing.

In addition to Samsung Foundry, Intel recently introduced its integrated device manufacturer 2.0 (IDM 2.0) plan that includes offering advanced foundry services and essentially compete against TSMC (while also using its services when needed). Intel has already announced plans to invest $20 billion in two new fabs in Arizona and said it would invest more in expansion of chip production in other parts of the USA as well as in Europe and other parts of the world.

To stay ahead of existing and emerging rivals, TSMC needs to keep investing in R&D and expand its production capacities, so a $100 billion investment plan will be instrumental for these purposes.

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  • Galcobar - Friday, April 2, 2021 - link

    Given TSMC's domestic fabs are grinding to a halt due to Taiwan's drought causing water shortages -- to the point the company must truck in drinking water to keep operating -- you have to wonder if Arizona is the best choice. Especially when they'll be competing with Intel for the desert's limited water when the increasingly frequent dry spells inevitably occur.

    Qualified staff can relocate (that's how Arizona's tech population came to be) but water supplies aren't so mobile.
    Reply
  • peevee - Friday, April 2, 2021 - link

    North Phoenix has Lake Pleasant nearby, and a canal supplying water from it. Reply
  • Galcobar - Friday, April 2, 2021 - link

    Lake Pleasant is an artificial reservoir fed primarily by a diversion from the Colorado River. Diverting more to feed additional demand isn't an option; every drop of water in the Colorado is claimed by somebody, such that the entire river disappears almost 200 km before it reaches the ocean. Lake Pleasant took ten years to fill after the dam was completed in 1994, courtesy of a multi-year drought. Actually, meteorologists consider the US West to be in a mega drought since 1999, where years with historically "normal" precipitation have become the oddities.

    As such, vicious political and legal fights over water use have become the norm in the Colorado watershed over the last century due to declining water ingress (glacial retreat and less precipitation) and rising demand (population growth and irrigation to replace decreased natural rainfall).

    There's no indication the trend will reverse itself, so placing long-term water-dependent investments in an area with a decreasing water supply seems economically foolish.
    Reply
  • Oxford Guy - Saturday, April 3, 2021 - link

    They’ll drain the Great Lakes to feed the desert. Reply
  • grant3 - Friday, April 2, 2021 - link

    Taiwan's economic minister said that chipmaking is not affected by water restrictions, and that they expect to maintain production under current drought restrictions until at least May.

    So even though TSMC is trucking in water, it doesn't mean chip production has halted. Apparently it's not even reduced yet.
    Reply
  • Galcobar - Friday, April 2, 2021 - link

    Chip makers, like other industrial water users in central Taiwan, had their water supplies cut by 15 per cent as of April 6.

    Moreover, Taiwan will cut off non-industrial water users two days a week to give chip makers even that reduced supply. It's a political decision to give one group water at the expense of another.

    Chip makers will cover that 15 per cent restriction by increasing trucking of water. Being able to keep operating normally rests on the assumption that Taiwan starts its monsoon season as usual in May, but there's no assurances 2021 will be any wetter than 2020 (which lacked even one of the typhoons which normally refill water supplies). And this is the second time in six years Taiwan's water supplies were this low, which doesn't bode well for the future.
    Reply
  • Samus - Sunday, April 4, 2021 - link

    I question why building in the desert is so desirable, too. At least Foxconn in Wisconsin made sense. The problem is Wisconsin is so politically dysfunctional they make Illinois look like a well oiled machine. Reply
  • peevee - Friday, April 2, 2021 - link

    Will they be able to open the Fab in Arizona before China occupies Taiwan?

    My bet is no.
    Reply
  • xol - Friday, April 2, 2021 - link

    Are we sure about this/

    Same publisher (Bloomberg), literally the day before :

    https://www.bloomberg.com/news/articles/2021-03-30...

    quote :

    Speaking to reporters at an industry event in Hsinchu in his role as chairman of the Taiwan Semiconductor Industry Association, Liu said uncertainty around the U.S.-China relationship led to a supply chain shift and pushed some companies to double up on orders to secure inventory. [..]
    “Uncertainties led to double booking, but actual capacity is larger than demand,” Liu said.
    Reply
  • xol - Friday, April 2, 2021 - link

    [more] This isn't an increase over previous numbers (unlike some sites are reporting).

    More than 2 months ago they (TSMC) quoted $28B capex for 2021. https://www.eetasia.com/tsmc-expects-capex-boost-f... (Jan 2021)

    Repeat that over 3 years and round up and you've got $100B

    Bloomberg is reporting old news, but because it's Bloomberg people are taking it seriously like it's new leather
    Reply

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