Pay More for Chips Made Outside Taiwan as AI Demand Soars and Global Expansion Continues: Taiwan Semiconductor

Zinger Key Points
  • TSMC to charge more for chips made outside Taiwan, citing global expansion and rising costs.
  • Despite challenges, TSMC projects AI chip demand to fuel revenue growth, with a $28-$32 billion capex plan.

Taiwan Semiconductor Manufacturing Co TSM is adjusting its pricing model to include a premium for chips manufactured outside of Taiwan. 

This move is driven by the need to expand its global production capabilities amid escalating tensions with China and rising production costs. 

The key Nvidia Corp NVDA supplier reported a robust first-quarter net profit and anticipates revenue growth driven by AI chip demand. 

It maintains a capital expenditure forecast of $28 billion – $32 billion for the year but expects a slight dip in gross margin in the upcoming quarter due to increased costs. 

Also Read: TSMC Cautions Red-Hot Chip Industry Growth Could Cool Amid Declining Automotive Chip Demand

CEO CC Wei highlighted during the earnings call that these geographical-specific price adjustments are necessary to cover the increased expenses associated with operating in diverse locations due to the globalized nature of the industry. 

The strategy aligns with global efforts to reduce reliance on Taiwan for semiconductor supplies, aiming to minimize geopolitical risks, especially considering China’s claims over Taiwan, First Post reports

TSMC’s investment in the U.S. is set to increase to $65 billion, reflecting a commitment to expanding its manufacturing footprint. This includes producing advanced 2-nanometer chips and establishing a new fabrication plant by 2030.

The company faces challenges such as higher power costs in Taiwan, impacts from an earthquake, and slower efficiency gains in its leading-edge 3-nanometer technology, affecting profitability. 

Despite these hurdles, TSMC is optimistic about its future. It plans to initiate 2-nanometer chip production by late 2025, achieving a gross margin above 53%.

Taiwan Semiconductor stock has gained 52% in the last 12 months. Investors can gain exposure to the stock via the First Trust NASDAQ Technology Dividend Index Fund TDIV and the SPDR NYSE Technology ETF XNTK.

Price Action: TSM shares traded lower by 1.26% at $130.61 at the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo by Jack Hong via Shutterstock

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