Commentary on Political Economy

Thursday, 16 July 2020

ONE FOR TAIWAN

TSMC Shrugs off Huawei Ban and Shows Who's King

The contract chipmaker is still needed, even if its big client gets sanctioned and Covid-19 ravages the economy.
TSMC has barely flinched at the U.S. ban against its second-largest customer.
TSMC has barely flinched at the U.S. ban against its second-largest customer. Photographer: Igor Golovniov/SOPA Images/Light Rocket/Getty
Taiwan Semiconductor Manufacturing Co. was expected to be severely hurt by a U.S. ban on producing chips designed by Huawei Technologies Co., one of its largest clients.
The opposite seems true. The Taiwanese chip foundry posted earnings Thursday that far surpassed estimates, and went on to raise its revenue and spending guidance for this uniquely troubled year. 
Not only does Huawei make a large slice of the world’s telecommunications network equipment, it’s also a major international smartphone brand. To power a lot of that gear, it designs chips at its own HiSilicon unit that are manufactured by TSMC. 
But a May 15 edict from the U.S. Department of Commerce banning the use of American technology to make chips for Huawei has forced the Taiwanese company to stop taking orders from its Chinese client. Given that Huawei is the company’s second-largest customer behind Apple Inc., the move was widely expected to deliver a body blow to TSMC, especially in orders for its latest manufacturing technology.
TSMC has barely flinched.
The supply chain will adjust, Chief Executive Officer C.C. Wei told investors bluntly.
In other words, the broader trends toward 5G mobile networks and smartphones, coupled with high-performance computing products (such as artificial intelligence and graphics) means that if end-customers don’t buy from Huawei, they'll find someone else. And that alternative supplier is going to turn to TSMC for chips.
So far, it looks like Nokia Oyj and Ericsson AB will replace Huawei in networks. In smartphones, brands from Xiaomi Corp. to Apple Inc. may benefit, while Huawei itself can ship devices using semiconductors from third-party designers like Qualcomm Inc. and MediaTek Inc.
Asked how the Huawei ban would impact TSMC’s ability to fill up its multi-billion dollar factories, Chairman Mark Liu said that the company is progressing well in using any capacity left open. He’s putting his money where his mouth is. The company will now add another $1 billion for spending on new equipment in its 2020 plan, taking the budget as high as $17 billion.
As if to prove the naysayers wrong, TSMC went one step further by raising its revenue forecast. In April, it expected sales would climb a “mid to high single digit percentage” this year. Now, the company reckons it will top 20% growth.
It’s almost as if the Covid-19 pandemic and the Huawei ban had never happened. Companies are installing new servers, stay-at-home workers are buying computer monitors, and quarantined consumers are whiling away the hours on games consoles. 
What it comes down to is that in any scenario, electronics are being bought and semiconductors are running them.
Inevitably, that means the world still needs TSMC.

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