Recently, the United States has imposed a new ban on Huawei. According to the newly revised foreign direct product rules on May 15, the chip products manufactured by Huawei and all its subsidiaries using equipment that is listed in the US business control list, even if they are produced outside the United States, are subject to regulation. This also means that TSMC, the world's largest foundry, will not be able to manufacture for Huawei.
Foreign media analysis pointed out that because TSMC is unable to OEM for Huawei, it will face a huge income gap. The growing fiscal deficit has brought great uncertainty to TSMC's large capital expenditure plan.
As early as April, TSMC stated that it would commit to record capital expenditures in 2020, ranging from US$15 billion to US$16 billion. Although the new coronary pneumonia epidemic has exacerbated economic weakness, the demand for chips has not yet been determined, so TSMC's capital expenditure plan is still reasonable.
By May, the new US ban not only worsened Huawei's situation, but also had a profound impact on TSMC. Huawei is the second largest customer of TSMC, and it contributes about 14% of the latter's total revenue. Previously, Huawei and TSMC have agreed on production capacity and production details for 7nm, 5nm and even 3nm chip nodes. Now, the stranding of these plans may undermine TSMC's overall strategy for manufacturing nodes and expansion of production facilities.
Given the severity of the current situation, many analysts have expressed expectations that TSMC will reduce its capital expenditures by US$1.5 billion to US$2 billion in 2020 and reduce its capital expenditures to approximately US$12.5 billion in 2021. As supporting evidence, these analysts quoted supply chain sources as saying that TSMC allegedly has delayed the purchase of certain process equipment related to 3nm, 5nm and 7nm nodes.
However, during this uncertain period, many analysts also disagree with TSMC's reduction of capital expenditures. As Samsung Electronics and SMIC have implemented very aggressive expansion plans, these analysts believe that TSMC is concerned that it will lose its leading position in the competition and will not reduce planned capital expenditures.
According to wccftech reports, Samsung Electronics is preparing to compete for dominance in the semiconductor field from TSMC. Recently, the South Korean technology giant started construction of a second 5-nanometer manufacturing plant in Pyeongtaek, south of Seoul. The plant will be equipped with extreme ultraviolet lithography (EUV) process to produce chips, which is the key to competing with TSMC's custom casting business. It is reported that the plant will be put into operation around June 2020. The move is part of Samsung’s plan to invest 133 trillion won (US$108 billion) in system semiconductors by 2030.
The uncertainty caused by the U.S. ban on the industry is still unknown. At present, TSMC and its supply chain partners are still operating as usual. For example, ASML’s EUV production partner Marktech International currently has a contract value of $684.7 million. Thanks to TSMC's 6nm, 5nm and 3nm node technology, its net income in 2020 is expected to reach its highest level in ten years. In addition, United Integrated Services, a logistics partner for engineering and equipment installation at the TSMC plant, has received orders for NT$50-55 billion in 2020-2021.