TSMC’s US$15 billion splurge galvanises hope of a 5G-led rebound

A plan by Taiwan Semiconductor Manufacturing Co (TSMC) to spend as much as US$15 billion on technology and capacity in 2019 – roughly 50 per cent higher than originally envisioned – is spurring hopes that the dawn of next-generation 5G mobile networks will rev up global chip and smartphone demand.

TSMC, the primary chip supplier to Apple, told investors it is sharply increasing its estimate for 2019 capital expenditure to between US$14 billion to US$15 billion from as much as US$11 billion previously, and chief financial officer Wendell Huang said 2020 spending will be similar. The Taiwanese company also projected current-quarter revenue ahead of estimates, an affirmation that the latest iPhones have proven a hit with consumers.

Chief executive C C Wei sketched out hopes that the emergence of 5G – the foundation of future technologies from automated factories and smart homes to blazing-fast consumer electronics – will help underpin its business in coming years. TSMC, which is the world’s largest contract chip maker, and is seen as a barometer for the technology industry thanks to its heft and place in the supply chain, said the advent of 5G-enabled smartphones will result in more chips in devices than before.

“We are much more optimistic than six months ago,” Wei said, adding that the 5G momentum was larger than the company expected. TSMC has increased its forecast of the 5G smartphone penetration rate in 2020 to a percentage in the mid-teens from its previous single-digit estimate. Many countries, especially larger ones, were rapidly pushing ahead with 5G roll-out plans, Wei said.

Semiconductor manufacturing equipment suppliers including ASML Holding, Applied Materials and Tokyo Electron could stand to benefit from TSMC’s increase in capital spending.

In addition to 5G, TSMC’s push is driven by growing demand from tech giants such as Apple and Huawei Technologies, said Roger Sheng, a semiconductor analyst with Gartner.