[Taiwan Chip News] Despite Electricity Rate Hike, 'TSMC' Remains Unfazed

TSMC Electricity Rate Increase by 25%
Net Profit Margin Expected to Decrease by 0.7 Percentage Points
Performance Expectations Amid Semiconductor Market Recovery

As electricity rates rise in Taiwan, there is a forecast that the electricity costs for local foundry (semiconductor contract manufacturing) company TSMC could increase by 25%. In this case, net profit may slightly decrease, but it is expected to have little impact overall. The growing expectation of industry recovery is a positive factor.

TSMC Fab 6 in Taiwan / Photo by TSMC

Differences in Electricity Rate Impact by Foundry Scale

Global investment bank (IB) Morgan Stanley recently projected in its 'Semiconductor Industry' report that electricity rates for Taiwan's foundry industry could increase by 15-25%. Specifically, TSMC, which has high annual power consumption, is expected to face a 25% increase in electricity rates. Other companies such as Taiwan's UMC and PSMC are expected to see about a 15% rate increase.

The impact of this rate hike on Taiwan's foundry industry is expected to be limited. Morgan Stanley stated that the cost increase would have a minimal effect on the net profits of TSMC and UMC, maintaining both companies' ratings as 'Outperform the Market.' However, WSMC and PSMC may be relatively more affected, receiving a 'Underperform the Market' rating.

According to Morgan Stanley's analysis, the net profit margin of Taiwan's foundry industry is expected to decrease by approximately 0.6 to 1.2 percentage points due to the electricity rate increase. Among them, the larger-scale companies TSMC and UMC are expected to see net profit margins decline by 0.7 and 0.6 percentage points, respectively. WSMC and PSMC could experience decreases of 0.9 and 1.2 percentage points, respectively.

Because TSMC has higher sales, the impact of the electricity rate increase may be smaller compared to other companies, and UMC, which has many overseas factories, may be less affected by Taiwan's electricity rate increase, according to Morgan Stanley's assessment.

Morgan Stanley technology analyst Wu Yirui set target prices of 860 TWD and 60 TWD for TSMC and UMC, respectively, based on this analysis. Target prices for WSMC and PSMC were set at 58 TWD and 22 TWD, respectively.

Following the release of this investment report, UMC and PSMC refrained from commenting but stated that the internal impact of the electricity rate increase would remain unchanged from previous assessments. TSMC also expressed that even if electricity rates rise by 15%, resulting in a 12% to 15% increase in the company's electricity costs, there would be no change to the company's long-term financial goals.

Positive Outlook for Taiwan Foundries Amid Industry Recovery

Although the electricity rate increase has added operational burdens to factories, the outlook for Taiwan's foundry industry this year is more positive. As the semiconductor industry shows signs of recovery this year, positive forecasts for the foundry market continue to emerge. Major market research firms such as Omdia, Gartner, and IDC all predict growth in the foundry market compared to the previous year.

Another market research firm, TrendForce, predicted that "due to AI-based demand this year, the annual revenue of the top 10 foundry companies will increase by 12%, reaching $125.24 billion." This figure is 12.28% higher than last year's revenue of $111.54 billion.

TSMC is expected to record growth exceeding the industry average revenue increase. This is the result of expanding high-value-added business by increasing the proportion of advanced processes below 7 nanometers (nm; 1 nm = one billionth of a meter). TSMC forecasts that its net profit for the first quarter will reach between $18 billion and $18.8 billion, a 12.44% increase compared to the same period last year ($16.72 billion).

Meanwhile, in the foundry market share for the fourth quarter of last year announced by TrendForce, TSMC ranked first with a 61.2% share. UMC ranked fourth with a 5.4% share, and PSMC ranked eighth with a 1.0% share.