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AI is not a bubble and TSMC is not a monopolist, says Wei

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October 18, 2024

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TSMC chair CC Wei has said that AI demand is real and it is just the beginning of a growth engine that will last for years.

Wei said that concerns that AI spending is not producing a return on investment for customers are unfounded. At the same time Wei hinted that price rises will continue for leading-edge processes but also said that possible anti-trust action against TSMC is not in the company’s thinking.

Wei was answering questions in an analysts conference call to discuss TSMC”s 3Q24 financial results.

With regard to AI demand Wei said: “And why I say it’s real? Because we have our real experience. We have used the AI and machine learning in our fab, in R&D operations. By using AI, we are able to create more value by driving greater productivity, efficiency, speed, qualities.”

AI makes money

Wei said a 1 percent improvement in productivity through the use of AI would be worth about US$1 billion per year to TSMC. “And this is a tangible ROI benefit. And I

believe we cannot be the only company that have benefited from this AI application,” he said. He also said that the use of AI is only just beginning and so chip demand will grow for many years.

Meanwhile Wei said that other sectors that had shown low or no growth in recent quarters have stabilized and starting to show increased growth pointing to strong demand in 2025 and even the next couple of year.

On this basis Wendell Huang told an analyst that TSMC is likely to increase capital spending above the US$30 billion per year the company has been spending.

Another analyst asked whether TSMC – with its gross margin standing at 57 or 58 percent – would consider further price hikes to customers too aggressive.

Customers are partners

Wei did not answer the question directly but said that TSMC considers both its customers and suppliers as partners and that it is necessary to come up with pricing on both sides that allows everyone to succeed. He pointed out that TSMC’s gross margin is much lower than the leading supplier of AI technology, a thinly-veiled reference to customer Nvidia Corp. which as a gross margin of 75 to 80 percent.

Wei said: “They have a gross margin that I probably never be able to reach in my life. But anyway, we are very happy to see them be successful, and we are in a different kind of business. We are a capital-intensive business. So, we need a very high gross margin to survive and to have a sustainable and healthy growth.”

The same analyst asked how TSMC is going to manage its risk of anti-trust action, given its near-monopoly position. Across wafer foundry sector TSMC holds about 60 percent market share, according to market researcher TrendForce.

Wei pushed back on the analyst and referenced his definition of ‘Foundry 2.0’ given in July 2024, which includes packaging, test and mask-making as well as wafer processing.

Wei said that packaging, testing, mask-making account for a little more than 10 percent of TSMC’s total revenue but are gaining in significance. “So I think Foundry 2.0 is better reflects TSMC’s addressable market, and our share is probably around 30 percent. So, not dominant yet,” Wei said. He concluded he was not concerned over anti-trust and that it was not in TSMC’s “picture.”

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