How much capacity does Taiwan Semiconductor Manufacturing Company need? The world’s biggest contract chipmaker is, after all, already planning to spend $4.8bn this year alone on capacity expansion.
The answer, according to Morris Chang, chairman and chief executive, is a lot more still. Addressing an audience of TSMC clients yesterday, Mr Chang laid out for the first time his approach towards capacity-building. The chip making industry, he said, often oscillates between two states of imbalance – either demand outstrips supply, or vice versa.
“In the 50-odd years that I’ve been in this industry I’ve found that a perfect balance between supply and demand is something you can only happen upon, rather than strive for,” he said.
Between the two states of imbalance, TSMC “would rather choose to have too much capacity than the other way around,” he said, adding that he preferred “a 10 to 15 per cent reserve in capacity . . . to handle sudden jumps in demand”. This signifies a big increase, given that Mr Chang said just two months ago that demand was outstripping supply by 30 per cent.
TSMC can afford to have idle reserve capacity because it has the lowest break-even utilisation rates in the industry, thanks to its technology leadership and its command of over half the contract chip making market. This policy is also part of a broader strategy to try to secure its major customers – through always having available capacity, and through collaborating with them on a TSMC-only technology platform – ahead of increasing competition from Abu Dhabi-backed Globalfoundries.
As Mr Chang put it: “We have a commitment to our clients, but we also ask our clients to commit to us.”
