B01 TSMC global expansion to minimize risks, concerns

台積電全球擴張以盡量減少風險和擔憂
HOME TRUTHS: The move would help the firm better manage increasingly tight
supply of talent, water and green power in Taiwan, a Taiwan Ratings report said

By Lisa Wang / Staff reporter

Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) global capacity
expansion would help it minimize its asset concentration risk 資產集中風險
and assuage 緩和 major customers’ concerns about supply chain resilience 供
應鏈韌性 amid geopolitical tensions 地緣政治緊張 in the long term, Taiwan
Ratings Corp (中華信評) said in a report yesterday.

The ratings agency 評級機構 released the report on the heels of 緊接著
TSMC’s announcement on Tuesday that it planned to build a new wafer
manufacturing facility in Dresden, Germany 德國德勒斯登, through a joint
venture with its customers Robert Bosch 博世 GmbH, Infineon 英飛凌
Technologies AG and NXP 恩智浦 Semiconductors NV.

“We believe this [German] investment is in line with 符合 TSMC’s long-term

strategy to increase its global footprint 全球足跡, partly in response to major
client concerns over geopolitical tension,” Taiwan Ratings said.

The joint venture is likely to take advantage of the eurozone’s 43 billion euros
(US$47.4 billion) subsidy program 資助計劃, which aims to cultivate 培育 the
local semiconductor supply chain, it said.

As Taiwan would continue to be the major manufacturing hub for the

company’s most advanced technologies — 2-nanometer and 3-nanometer —
the company’s overseas expansions in the US, Japan, Europe and China are
“unlikely to materially lower its geographic concentration risk over the next two
years 未來兩年不太可能大幅降低其地域集中度風險,” the report said.

As of the end of last year, Taiwan generated 90 percent of TSMC’s overall

wafer capacity, and the company has said it intended to shift 20 percent of its
capacity using 28-nanometer and below technologies beyond Taiwan over the
next few years.
With those overseas investment expansions unfolding, TSMC would
encounter higher manufacturing costs and margin dilution 利潤稀釋, but the
company should be able to minimize such adverse impacts 不利影響 on its
profitability, thanks to customers’ strong demand and the governments’
support to build local semiconductor supply chains, the report said.

In addition, TSMC’s overseas expansion would help the company better

manage the increasingly tight supply of water, green power and talent in
Taiwan, it said.

Taiwan Ratings said the planned German fab would have a low financial
impact on TSMC’s debt leverage 債務槓桿 this year and next year, as the
major spending on equipment would come two to three years later.

The agency expects TSMC’s capital expenditure 資本支出 to be US$32 billion

to US$36 billion this year and next year, compared with last year’s US$36
billion, due to weakening demand 需求疲軟.

Lower capital spending should help strengthen the company’s financial buffer
緩衝, it said.

TSMC is forecast to generate NT$100 billion to NT$150 billion (US$3.15

billion to US$4.72 billion) in free cash flow 自由現金流 this year, despite
weaker profitability and a moderate increase in the company’s cash dividends
現金股利, it added.

1. What are the reasons for TSMC’s global expansion?

2. Can the geopolitical tension be greatly relieved soon? Why?