TSMC rakes in huge pre-payments from its chip manufacturing clients

The semiconductor industry is struggling with the supply chain constraint and shortage of semiconductor supply. And in the semiconductor industry has a long-term supply agreement isn’t something new, and both the fabless chip designers and contract makers of chips prefer stable supply and demand, respectively.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest foundry, has recently disclosed a filing which states that the company has received temporary receipts of around $3.825 billion (NT$106,33 billion) from customers as of September 30, 2021.

These temporary receipts from TSMC’s customers are payments received to retain its capacity and this means that TSMC has earned around some $14.926 billion (NT$414.67 billion) in Q3 2021, so $3.825 billion is a sizeable sum for the company.

The payments which the company has made under agreements with specific terms and conditions a however as a result, TSMC does not immediately recognize these payments as revenue. Meanwhile, “when the terms and conditions outlined in the agreements are subsequently satisfied, the treatment of temporary receipts will be determined by mutual consent.”

TSMC did not disclose its customers were willing to pay in advance, but big companies like AMD and Nvidia are likely suspects.

“We have placed non-cancellable inventory orders for certain products in advance of our normal lead times, paid premiums, and provided deposits to secure normal and incremental future supply and capacity and may need to continue to do so in the future,” a statement by Nvidia reads.

According to sources, as of August 1, 2021, Nvidia, the world’s largest graphics cards manufacturer, had $195 million in prepaid expenses, which is reportedly up from $142 million on January 31, 2021.

the graphics makers have not disclosed whether it has made any advance payments to TSMC or Samsung Foundry. However, all contract makers of semiconductors are likely accepting such payments these days.

Coming to AMD, the company has also reportedly made substantial pre-payments in its long-term supply agreements and as of September 25, 2021, the chipmaker pre-payments totaled $355 million, up from $299 million a year before.

Qualcomm did not disclose how much the company pays for its chips in advance, however, the company has confirmed that it has “entered into several” and expected “to enter into additional, multi-year capacity purchase commitments with certain suppliers of our [ICs]” in a bid to “secure commitments for future supply.”

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