[Taiwan Chip News] US Regulations May Increase, Chinese Companies Flood Orders to TSMC

Possibility of Additional Regulations Increases Regardless of US President
TSMC Beats Q2 Earnings Estimates
Q3 Performance Expected to Expand on Chinese Orders

Ahead of the upcoming U.S. presidential election in November, geopolitical issues have intensified, leading to a sharp increase in orders from China to Taiwan's TSMC, a global foundry (semiconductor contract manufacturing) company. Both Republican and Democratic candidates in the U.S. have reached a consensus to expand semiconductor export regulations to China, prompting Chinese companies to stockpile semiconductors in preparation. Due to the surge in Chinese orders, TSMC's third-quarter revenue is expected to once again exceed forecasts.

[Image source=AP Yonhap News]

TSMC Stock Rises Amid Geopolitical Issues

It appears that Chinese customers are increasing orders due to potential export restrictions or tax issues, but TSMC did not provide specific explanations regarding this during its earnings announcement. The company only mentioned that the increase in Chinese customer share is due to "high-performance computing (HPC) applications." Regarding U.S. export regulations, TSMC stated, as it has multiple times in last year's earnings reports, that it complies with all rules and regulations and will continue to serve all customers.

According to TSMC's financial reports, the proportion of orders from China is rapidly increasing. As of the second quarter of this year, North America accounted for 65% of orders, still the largest share. The Chinese market has rapidly expanded to 16%, a significant increase from 9% in the first quarter and 12% in the second quarter of last year. China has become TSMC's second-largest market.

[Image source=Reuters Yonhap News]

Industry observers note that the sharp increase in the share of Chinese customers in TSMC's second-quarter revenue indicates that anxiety over geopolitical issues has begun to translate into a surge in orders.

With the U.S. presidential election approaching and both the Democratic and Republican parties agreeing to strengthen semiconductor export controls to China, Chinese companies not on the export control blacklist are proactively placing orders and stockpiling inventory. Advanced process products below 5 nm (nanometers, one-billionth of a meter) are particularly scarce.

The industry describes the current market atmosphere as similar to the situation when Huawei's semiconductor design subsidiary HiSilicon stockpiled excess inventory before export restrictions. It reflects that Chinese companies are actively developing artificial intelligence (AI) and, in addition to renting computing power from major U.S. corporations, are stockpiling large quantities of semiconductors and equipment.

TSMC's consolidated revenue for the second quarter reached a record high of 673.51 billion New Taiwan dollars (approximately 28.5 trillion Korean won). Dollar revenue was initially expected to be between 19.6 billion and 20.4 billion USD (approximately 27.1 trillion to 28.2 trillion KRW), but actual revenue was 20.82 billion USD, exceeding the forecast range. This represents a 32.8% increase year-over-year and a 10.3% increase quarter-over-quarter. Preventive stockpiling orders are expected to continue contributing significantly to revenue in the third quarter, making it likely that revenue will again exceed expectations.

TSMC Introduces New Definition of 'Wafer Manufacturing 2.0'

In its recent earnings announcement, TSMC presented a new definition called "Wafer Manufacturing 2.0." The industry expects this definition to accelerate the pace at which TSMC's quarterly revenue reaches 30 billion USD, as the company continues to expand its wafer manufacturing scale while experiencing a surge in orders related to geopolitical issues. Some forecasts suggest this milestone could be reached as early as next year, representing a 50% growth from the current stage.

[Image source=AFP Yonhap News]

TSMC's Wafer Manufacturing 2.0 includes packaging, testing, photomask production, and all IDM (Integrated Device Manufacturer) sectors except memory. The market interprets this as TSMC introducing a new method of calculating market share to avoid accusations of monopoly in the foundry sector. According to past research institution data, TSMC's market share as a pure wafer foundry has steadily increased and currently exceeds 60%.

Within the Taiwanese semiconductor industry, TSMC's definition is seen as integrating all semiconductor manufacturing excluding memory into a single market. Unlike past research institutions that separated design and manufacturing when calculating semiconductor industry value and counted packaging and testing separately, this new definition includes semiconductor chip manufacturing, packaging, and testing?all as part of the manufacturing sector, excluding memory.

Some view TSMC's Wafer Manufacturing 2.0 as reflecting the benefits brought by the company's advanced technological growth. At the same time, TSMC's advanced packaging revenue is rapidly growing, expected to account for about 10% of total revenue. As total revenue grows, the scale can steadily expand. TSMC has already included advanced packaging in its 3D Fabric System Integration platform. The company emphasized that it will focus on post-processing technologies such as packaging, which help customers produce leading-edge products.

TSMC estimated the semiconductor industry size, reflecting the Wafer Manufacturing 2.0 definition, at about 250 billion USD (approximately 348 trillion KRW) as of last year. According to TSMC's new definition, the wafer manufacturing industry is expected to grow nearly 10% annually this year.

Taiwan Economic Daily News = Reporter Yoon Hyejung / Translation = Asia Economy

※This article is reprinted based on a strategic partnership between this publication and Taiwan Economic Daily News.

This content was produced with the assistance of AI translation services.