Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) global capacity expansion would help it minimize its asset concentration risk and assuage major customers’ concerns about supply chain resilience amid geopolitical tensions in the long term, Taiwan Ratings Corp (中華信評) said in a report yesterday.
The ratings agency released the report on the heels of TSMC’s announcement on Tuesday that it planned to build a new wafer manufacturing facility in Dresden, Germany, through a joint venture with its customers Robert Bosch GmbH, Infineon Technologies AG and NXP Semiconductors NV.
“We believe this [German] investment is in line with TSMC’s long-term strategy to increase its global footprint, partly in response to major client concerns over geopolitical tension,” Taiwan Ratings said.
Photo: Sam Yeh, AFP
The joint venture is likely to take advantage of the eurozone’s 43 billion euros (US$47.4 billion) subsidy program, which aims to cultivate the local semiconductor supply chain, it said.
As Taiwan would continue to be the major manufacturing hub for the company’s most advanced technologies — 2-nanometer and 3-nanometer — the company’s overseas expansions in the US, Japan, Europe and China are “unlikely to materially lower its geographic concentration risk over the next two years,” the report said.
As of the end of last year, Taiwan generated 90 percent of TSMC’s overall wafer capacity, and the company has said it intended to shift 20 percent of its capacity using 28-nanometer and below technologies beyond Taiwan over the next few years.
With those overseas investment expansions unfolding, TSMC would encounter higher manufacturing costs and margin dilution, but the company should be able to minimize such adverse impacts on its profitability, thanks to customers’ strong demand and the governments’ support to build local semiconductor supply chains, the report said.
In addition, TSMC’s overseas expansion would help the company better manage the increasingly tight supply of water, green power and talent in Taiwan, it said.
Taiwan Ratings said the planned German fab would have a low financial impact on TSMC’s debt leverage this year and next year, as the major spending on equipment would come two to three years later.
The agency expects TSMC’s capital expenditure to be US$32 billion to US$36 billion this year and next year, compared with last year’s US$36 billion, due to weakening demand.
Lower capital spending should help strengthen the company’s financial buffer, it said.
TSMC is forecast to generate NT$100 billion to NT$150 billion (US$3.15 billion to US$4.72 billion) in free cash flow this year, despite weaker profitability and a moderate increase in the company’s cash dividends, it added.
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