[Chipformation] The World's No.1 Semiconductor Sales Company TSMC

Geopolitical Risks in Taiwan Are Closely Linked to TSMC

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Sun-mi] As of the third quarter of this year, the semiconductor company that earned the most money worldwide is the Taiwanese company TSMC. Long established as the world's number one foundry (semiconductor contract manufacturing) company, TSMC's third-quarter revenue this year increased by 48% compared to the same period last year, reaching 613.14 billion New Taiwan dollars (approximately 27.5 trillion Korean won), which is estimated to have surpassed Samsung Electronics' semiconductor sales.

TSMC began in 1987. It was the first in the semiconductor industry to start with a pure foundry business model. By choosing not to design, manufacture, or sell semiconductor products under the TSMC name, the company solidified its image of not competing with its customers. As of the end of last year, TSMC had over 535 customers, including Apple, Intel, and Qualcomm, and more than 65,000 employees.

TSMC still holds the vision of becoming the leading and largest foundry technology and service provider for its major customers, fabless (semiconductor design companies) and IDM (integrated device manufacturers). Instead of diversifying, TSMC has grown with the determination to lead in technology and manufacturing scale by focusing solely on foundry services. As a result, TSMC currently holds more than half of the global foundry market share.

TSMC is concentrating its capabilities on advanced fine processes in response to the changing semiconductor demand trends. High value-added 5nm and 7nm (nm = nanometer, 1 nanometer = one billionth of a meter) products account for 54% of total production, with the share of 5nm rapidly increasing from 18% in the third quarter of last year to 21% in the second quarter and 28% in the third quarter of this year. Following the start of mass production of 3nm at the end of the year, development of the 1.4nm process has also begun, so the revenue share from fine processes is expected to continue rising.

The revenue composition by sector is also shifting toward higher value-added areas. As of the third quarter this year, the breakdown is ▲smartphones 41%, ▲high-performance computing (HPC) 39%, ▲Internet of Things (IoT) 10%, ▲automotive 5%, and ▲home appliances 2%. Notably, the HPC segment, which is less sensitive to industry downturns, is steadily increasing its share. This also explains why the operating profit margin exceeded 50% at 50.6%, and the net profit margin rose about 8 percentage points from 37.7% a year ago to 45.8%.

Taiwan's geopolitical risks are closely linked to TSMC. TSMC's major customers are advanced IT companies in the United States, so if TSMC falls into China's hands, the biggest loser would be the U.S. Recently, TSMC founder Morris Chang warned that if a war breaks out between China and Taiwan, everything at TSMC would be destroyed. For this reason, some analysts believe that TSMC plays a significant role in the U.S. efforts to protect Taiwan.

Although the semiconductor industry is going through a harsh winter due to sharply reduced semiconductor demand, TSMC's outlook for the fourth quarter of this year remains bright. TSMC expects fourth-quarter revenue to be similar to or slightly higher than the third quarter, with a gross margin of 59.5?61.5% and an operating profit margin of 49?51%.