The world’s biggest contract chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC) is asking clients to accept price hikes as the company ramps up investment to deal with a “structural and fundamental increase” in chip demand.

Dr. C.C. Wei, TSMC’s CEO, told clients in a letter that the Taiwanese company plans to invest $100 billion over the three years through 2023 in advanced semiconductor technologies, according to a letter by the CEO seen Nikkei Asia. TSMC announced a record-high capital expenditure of up to $28 billion for this year alone.

“We are seeing a structural and fundamental increase in underlying demand driven by key long-term growth megatrends including 5G and high-performance computing,” Wei said in the letter.

The Covid-19 pandemic has brought about changes to the global economy, altering how people work, learn and live. Wei told clients that this year for four quarters, TSMC will also “suspend wafer price reductions starting December 31”.

“We believe that this modest action is the least disruptive option to supply chains so that TSMC can deliver our mission of providing leading semiconductor technologies and manufacturing capability to you in a sustainable manner,” Wei said.

After their products go into mass production and run smoothly, TSMC usually lowers prices each quarter for its chip design clients, however, this year price cuts are being suspended.

TSMC is by far the leader of its industry as it supplies almost all of the world’s major chip developers worldwide including Apple, Qualcomm, and Nvidia. Taiwan is a hub for chipmakers as TSMC is joined by other companies here, including United Microelectronics and Powerchip Semiconductor Manufacturing Corp., who play a central role in the global semiconductor supply chain.

The chipmaking companies of Taiwan have agreed to back their government’s call to help accelerate production for automotive chips to help the global car industry. The global chip shortage is a fast-spreading issue as it has already hit consumer electronics as well as industrial computers and networking equipment.

TSMC’s three-year $100 billion investment plan will include expanding existing fabs and building “greenfield” chip manufacturing plants, according to the CEO’s letter, which also stated that TSMC has already commenced the process of hiring thousands of employees, acquired land and equipment, and started construction of facilities in multiple sites globally.

The U.S. state of Arizona is already witnessing a $12 billion TSMC chip facility on the rise while the company is also expanding in multiple cities in Taiwan, including building the world’s most advanced chip production technology, its 3nm chip facility, in Tainan, a southern Taiwanese city.

TSMC’s plants have been running at 100% utilization in the past 12 months and still it has not been able to fulfill the demand.

“The increased capacity will improve supply certainty and help protect complex global supply chains that rely on semiconductors,” he said. “We ask for your patience as we expedite the building of new fabs and capacity.”

Mark Liu, TSMC Chairman, explained that the U.S.-China trade dispute coupled with the acceleration of digital transformation brought about by COVID-19, have led to the semiconductor shortage.

“We see fundamental increase for chip demand brought by pandemic-driven digital transformation on top of the 5G and AI megatrend … on that part, TSMC will have time and will have the financial resources to build additional capacity to address the increasing need,” Liu told reporters on Tuesday.

However, Liu said that it is “economically unrealistic” for all countries to “onshore” additional chip production, warning that this could lead to more unprofitable capacity.

TSMC confirmed the investment plan in a statement to Nikkei Asia. “In order to keep up with demand, TSMC expects to invest $100 billion over the next three years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies. TSMC is working closely with our customers to address their needs in a sustainable manner.”

SOURCE