TSMC Posts Strongest Growth in a Decade on Big Bite of Apple’s Business

Taiwan Semiconductor Manufacturing Co. Ltd., the world’s largest contract chipmaker, has posted its strongest full-year profit growth in a decade despite U.S. sanctions against its high-profile client Huawei Technologies Co. Ltd., and plans a major boost in capital spending on cutting edge chipmaking technologies as demand soars.

As the global economic recovery started to pick up speed in the second half of 2020, the Taiwan chipmaker reported a stronger-than-expected annual net profit of NT$517.9 billion ($18.5 billion), representing a jump of 50% from a year earlier and a rate of growth not seen since the company’s rebound from the global financial crisis in 2010. Revenue was NT$1.34 trillion, a rise of 25.2%, according to a company filing Thursday.

It also said it plans to increase capital spending to between $25 billion and $28 billion this year, a rise of as much as 65% from $17 billion last year. TSMC said it plans on using 80% of this outlay toward its 3-nanometer (nm), 5 nm, and 7 nm manufacturing technologies, which are expected to pump out the latest processor designs for U.S. giants Apple Inc. and Advanced Micro Devices Inc.

“We also expect this higher level of capital investment to continue to drive our technology leadership, enable flexible and responsive manufacturing and earn customers’ trust,” TSMC’s Chief Financial Officer Wendell Huang said during an earnings call Thursday. The company plans to expand production capacity at its Nanjing manufacturing facility as demand from Chinese companies is expected to continue to rise, he said.

The semiconductor foundry has spent billions in past years ensuring it remains at the forefront of chipmaking technology — a costly exercise that paid off after Covid-19 sent millions to work remotely online and powered demand for smartphones and computers. As rivals like United Microelectronics Corp. fall behind and Semiconductor Manufacturing International Corp. struggles with American sanctions, TSMC’s investment will likely see its pivotal role expand in 2021.

“With this level of CapEx spending in 2021, we reiterate that TSMC remains committed to a sustainable cash dividend on both an annual and quarterly basis,” Huang said.

The company’s net income in the quarter that ended in December climbed 23% to NT$142.8 billion, helped mostly by the growing demand for smartphone chips. The company also posted the highest ever quarterly revenue for the three months ended December of $12.68 billion, surging 22% from the same period in 2019. More than half of the fourth quarter revenue was accounted for by orders from smartphone manufacturers, in particular the 5 nm chips used in Apple Inc’s iPhone 12 and iPad Air 4, which accounted for one fifth of the overall revenue.

The semiconductor foundry halted supplying chipsets to smartphone-maker Huawei in September last year after the U.S. government increased sanctions against the tech giant, prohibiting foreign manufacturers from supplying components with U.S. technologies to Huawei without approval.

Huawei’s rivals, including Chinese smartphone makers Oppo and Xiaomi Corp., took the opportunity of the smartphone giant’s setback to ramp up stockpiling of chipsets in a race to grab more market share from Huawei. TSMC was the biggest winner, seeing orders pilling up amid robust chip demand.

Already, TSMC’s preference for larger-volume electronics clients is exacerbating a severe shortage of automotive chips that’s forcing firms like Honda Motor Co. and Volkswagen AG to curtail production. Even Intel Corp. is now said to be considering outsourcing to the Asian firm after a series of inhouse technology slip-ups.

The sheer scale of TSMC’s planned capital expenditure — more than half its projected revenue for the year — underscores its determination to maintain its dominance and supply its biggest American clients from Apple to Qualcomm Inc.

Taiwan’s largest company by market capitalization expects to generate revenue of $12.7 billion to $13 billion in the first quarter this year with gross profit margins standing at 50.5% to 52.5%, a moderate projection compared with 54% in the fourth quarter in 2020. Revenue will maintain average 10% to 15% growth through to 2025, said Chief Executive Officer C.C. Wei.

Bloomberg contributed to this report.

Contact reporter Anniek Bao (yunxinbao@caixin.com)

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