TSMC confirms it is in talks to build a chip factory in Japan

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TAIPEI – Taiwan Semiconductor Manufacturing Co. confirmed on Thursday that it is in talks to build its very first chip factory in Japan.

The world’s largest chipmaker has said it is conducting due diligence on the project, a wafer production plant to be built in western Japan.

The news comes as TSMC announced an almost 20% year-over-year increase in net income for the April-June quarter, slightly missing analysts’ forecasts for the world’s largest contract chipmaker.

Net profit reached 134.36 billion New Taiwan dollars ($ 4.81 billion), up 19.8% from a year ago, while revenue also increased by nearly 20% over the year to reach NT $ 372.146 billion. Gross margin stood at 50% for the period, also slightly below the consensus forecast of 51.1%, compared to 53% in the same period last year.

The profit surge comes amid an unprecedented global chip shortage pressing everyone from automakers to electronics makers, prompting TSMC to invest heavily in expanding its production capacity.

The company announced in April that it would spend $ 2.8 billion to expand its chip facility in the Chinese city of Nanjing, while in June, it began construction on an advanced semiconductor project of $ 12 billion in Arizona. TSMC has also pledged to spend $ 100 billion through 2023 to increase its production capacity.

The Taiwanese chip titan is also in the midst of a major shift in its long-standing strategy of concentrating its production in Taiwan. In addition to considering building its first chip factory in Japan, the company has pledged to continue expanding its chip production in the United States.

Washington pointed out in a recent supply chain review that the centralization of advanced chip production in Taiwan is a vulnerability in the semiconductor supply chain.

Some analysts fear TSMC may see its profitability deteriorate due to its heavy capital spending now and in the next few years, while others remain optimistic about the company’s outlook.

“We think the pressure on margins has gradually become a major concern… We don’t see the stock as attractive, even with its quality nature,” Charlie Chan, analyst at Morgan Stanley, said in a research note. Investing in TSMC shares is “potentially dead money over the next 12-18 months,” he added.

Mark Li, analyst at Bernstein Research, said TSMC will likely maintain its leadership in manufacturing over the next several years.

“In the medium to long term, we believe TSMC’s outlook remains strong. Despite the general correction risk for the sector next year, we believe TSMC is differentiated and will not be affected,” the analyst said. “TSMC’s engagement with Intel is growing steadily and will help TSMC’s revenue grow significantly in 2023.”

Several other institutional investors, including Citi, Credit Suisse and HSBC Bank ahead of the results, also shared relatively positive views, but all still feared a market correction at some point.

TSMC shares closed 0.16% higher at NT $ 614 on Thursday in Taipei. Shares of the chipmaking giant have risen more than 15% so far this year.

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