2022 TSMC Update
Taiwan’s second most important company after 7-11 recently released their second quarter 2022 results.
It has been a year since my last update on TSMC, and a whole lot has happened. So I think it makes sense to do a video update.
Well, I would say that this is less of a financial earnings report and more of a compilation of things that I have learned about the company over that span of time.
I also recently made a trip down to Tainan and figured that it might be fun to scooter out to the Southern Taiwan Science Park - where some of TSMC’s biggest fabs are - and make a travel video about it. That’s further down.
From 2021 to 2022
For the second quarter of 2022, TSMC delivered $18 billion of revenue and $8 billion of net profit. Revenue grew some 40% year over year. Profit, 76%.
I said earlier in a podcast that TSMC revenues in 2022 might hit the $70 to $90 billion revenue range. Right now, it is looking like the $90 billion number is out of reach, but $70 billion or higher is definitely in play.
Regardless, it is ridiculous growth. To compare, TSMC's entire revenue for the entirety of 2012 - a mere ten years ago - was $17 billion. The company has now generated that entire amount in a single quarter.
Stunning. What kind of advanced manufacturer grows like this?
In the past four quarters, Intel produced about $76 billion USD. Depending on how the second half of the year plays out, TSMC is on track to catch up with the company this or next year.
Margins were also extremely high. Q2 margins nearly hit 60%, which seems to be a reflection of price increases and N5 revenues taking up additional share.
This is not a financial analysis. You can go to some other channels or newsletters for that. The point of the matter is that financially the company is making more revenue and profit than almost ever before.
Economic Concerns
There are a few concerns on the economic front. The world economy has been pretty rough recently. TSMC is too large not to be affected in some way, though their big premium clients give them some insulation.
First, consumer demand for smartphones is lightening up. Smartphone net revenue share declined from 40% to 38%. Some of that has to be because of High Performance Computing taking share. But the global consumer economy has been taking a real hit thanks to inflation, war in Europe, and Zero COVID in China.
The company also mentioned that customers are looking to correct their inventory levels. That is interesting to hear, since it is known that increases in semiconductor inventory levels are one of the leading indicators of future global declines in semiconductor industry-wide revenue.
Other chipmakers like STMicroelectronics and Infineon are also telling their shareholders about rising inventory levels in automotive, telecom, and consumer electronics.
Last year, TSMC forecast that they were going to spend $40-44 billion in 2022 capital expenditure. In this earnings call, they mentioned that some of that spend will be "pushed into 2023" due to supply chain issues interfering with tool deliveries and the overall number will be more like $40 billion than $44 billion.
Intel is doing the same thing as well. It is interesting to contrast perceptions of the same behavior between Intel and TSMC. Fabricated Knowledge seemed pretty negative on it - saying that they pulled the lever too early. Would that also be the case for TSMC?
Expansion
TSMC is in the midst of one of the greatest construction buildouts ever seen in Taiwanese history. The company is investing billions of dollars to build new fabs in Hsinchu, Tainan, and Kaohsiung.
Tainan's Fab 18 is where TSMC makes its N5 chips. It is also where it is producing its highly anticipated N3 process node. Fabs are subdivided into Phases, with each Phase being a discrete, separate building. And there are a lot of Phases being built out in Tainan.
The company is also producing an advanced packaging plant in Tainan. An underrated but increasingly important component of the semiconductor performance mix.
Out in the town of Baoshan in Hsinchu County, the company is also investing to convert what had once been a research plant into a full N3 production line. This had been in preparation for Intel to join TSMC's advanced node roster alongside Apple. But there have been rumblings of Intel delaying that rollout so who knows.
N2 is the next big process node after that, utilizing the now-legendary Gate-All-Around transistor. TSMC is building those out in two cities. Baoshan first, which looks to be the core production line, and maybe Taichung after that.
Most interestingly, TSMC is for the first time expanding out capacity in mature nodes. For instance, the new fab in Kaohsiung will produce N7 and N28 chips. They are also expanding the China fab in Nanjing, which makes N28 chips too.
I visited the site in Kaohsiung, and it is remarkably close to the rest of the city. You can get to it via MRT which is not the case for almost any other TSMC center.
Localization
All around the world, media is talking about how governments are trying to localize their semiconductor production - bringing things onshore in order to guarantee supply in case of weakening supply chain links.
TSMC happens to be doing the same thing too, sourcing more of their demand at home. Whether that be wafers, chemicals, or equipment, the company is actively working with potential Taiwanese suppliers to replace or augment their American, European, or Japanese suppliers.
The local magazine the Commonwealth notes one example of this trend in Taiwanese chemical supplier Allied Supreme Corp in Changhua, which entered the TSMC supply chain to replace Japanese Valqua.
A friend of mine who works in the tech industry received an email from an engineer at TSMC, looking for local supplies of a particular IT product. It was interesting to see.
Commonwealth adds that another reason why TSMC is doing this is competition. They don't want to closely work with a supplier - teaching them all their secrets - and then have that supplier turn around and start selling to Intel or worse - Samsung.
TSMC is trying to build out a supply chain that exists only on Taiwan. If successful, a localization drive like this will have massive consequences down the line.
Visiting Tainan
Alright, let’s talk about my trip. Field trip guys! Mini-travel video.
TSMC turned what had once been a sugarcane field into a sprawling tech ecosystem. The Science Park today hosts the company's flagship fab - Fab 18 - which alone provides some 4,000 permanent jobs for the area.
They also extended its supplier ecosystem to Tainan. The most prominent of which is ASML, which opened up one of their EUV training centers in the area - adding 500 R&D jobs.
Critically, new TSMC engineers no longer have to travel to the Netherlands to get trained on using the equipment. They can do it right in Taiwan.
Anyway, while they share the same name, the science park is very far away from Tainan city proper. We left the city in the early morning to beat the brutal heat, traveling up to and then along the massive Zengwun river.
There were cars and scooters all over. Tainan City is in general a rather easy-going town. Most tourist destinations and shops don't open until 10 am. But here, things were bustling. Traffic was already starting up at 6 am.
We crossed a crowded bridge at Yong'an road over the Zengwun river. The bridge connects the prosperous East Tainan area to the science park. Right then, construction crews were working to expand the bridge and the highway. Traffic was miserable.
From there, you turn a few more corners and pass through large empty fields of green. But far off in the distance, you can see the large fabs rise far above the rest of the surrounding land.
Then suddenly, the roads get better. There are a multitude of trees on the sidewalks. And you are surrounded by these massive structures that have to be 70-80 feet tall.
Fab 14
The first fab that we came across was TSMC's Fab 14. This is a 300 millimeter wafer GIGAFAB. At the time of its groundbreaking in 2012, the fab manufactured 20 nanometer process node chips. Fabs are built up in phases. You start with Phase 1, and then over time add additional phases.
Fab 14 is on their 7th phase and it seems like they are still adding more capacity, with another large building being constructed next to Phase 1. We saw a large group of construction workers parking their scooters and walking on site to continue their work.
As we passed the Fab and crossed the intersection towards a TSMC advanced packaging facility, you can look down the road and barely see Fab 18 in the far distance.
I find it difficult to convey just how massive these things are. Fab 14 alone is so large that it can take about 3-5 minutes to scooter around it. It may take the better part of thirty minutes to walk around.
And the area was bustling. The roads are modern and well-kept, but there are so many scooters, cars, and trucks here. Many of the light poles have TSMC flags, advertising new positions being opened.
Oh by the way, it was incredibly hot. Like 35 degrees Celsius and rampant humidity that made it feel so much worse.
Fab 18
I passed a TSMC water reclamation plant, and I stopped to take a photo of it. I have done a video about TSMC's work in water, so I was interested in it.
Then we turned and made towards Fab 18, perhaps the most intriguing of all of TSMC's GIGAFABs. I have mentioned this one many times in recent videos and I was excited to look at it myself. As we made that turn, we saw a large number of buses pass us, heading away from the Fab. I reckon that they are bringing workers to their dormitories.
First started in 2018, Fab 18 is where TSMC makes their N5 and N3 chips - the most advanced chips in the world. As it turns out, the area is hard to reach. There is a massive bustle of activity in the streets surrounding the fabs - with scooters and buses and traffic guards directing their flow.
And all the construction! I felt nervous stopping and getting off, taking photos while everyone is watching me. Would someone ask me what I was doing? Would someone tell me to stop it?
For this reason, I really only got one decent photo of the completed part of the fab that I have talked about so much in the videos. I wish that I can get a better look at what is going on inside these construction zones, but by now the sun and the heat was getting to be a bit too much. It was time to get back home.
We scootered back around, taking a few photos of two unfinished phases for Fab 18. We had to navigate around bunches of TSMC workers and construction people, people making their way to their work shifts.
You can tell that they are TSMC technicians if they are fiddling with clear plastic bags. I saw a team of TSMC people outside the Fab, getting swiped over with a metal detector before being allowed inside.
Conclusion
It is interesting to think about what might be going inside these fabs. Decades of ultra-optimized processes, unknown chemicals, and nanoscale physics.
All of it arrives here in a sugar cane field in a 400 year old city - and creates the most sophisticated chips in the world.
The chips in your MacBooks, iPhones, Nvidia GPUs, Qualcomm chips, MediaTek cellphones, and so on. Odds are they come from here. A single place, where humanity is pushing forward into the future.