TSMC's Edge Over Nvidia, Explained

Key Takeaways

So what were the headline numbers from TSMC's quarterly results? >> Well, TSMC delivered some except from no results today. Um December quarter revenue up net profit jump to a record high for the full uh for the fall last year revenue surpass $100 billion for the first time. Um the biggest revenue source for TSMC it's the it's the advanced chips of course which is the 7 nanometer and below uh which now account for over 70% of the revenue and and the driver behind this is pretty clear it's chip for AI it's not just um the processor like Nvidia's GPUs or Google's TBUS uh but also the supported chips like we can saw in a data center like those uh for the networks. So TSMC because of all of this TSMC now become more confident in um the sustained AI demand they are planning record capital spending of like 52 to 56 billions in 2026 this year projecting and projecting nearly 30% revenue growth for the year for this year. >> So 56 billion in capex what is all this money going towards? uh most of the car packs will be for buying advanced chip making tools for AI chips meaning that TSMC will use the money to expand um the the advanced chips production capacity but the capital spending announced now won't help I would say won't help uh meet today's demand it's for 2027 2028 and beyond in the near term uh TSMC has to get a little bit more created they are boosting the productivity of the at the existing fat treats and repurposing some of the factory space and equipment from older facility to support advanced chip production. >> So I want to pivot to talking to a story about you wrote this week which is actually it's on the same topic which is TSMC's dominance in the chip manufacturing ecosystem. you the the premise of your story was really looking at all the ways in which the world relies on TSMC and I wonder if you can explain to us why is TSMC so dominant? I mean what is secret sauce? How is it that they have become seemingly the only company in the world that can manufacture these chips uh as well or as efficiently as every company in the world might want them to? Um I would say first of all and maybe the most difficult one difficult reason to explain is the technology. We probably need a little bit more like one or two hour to explain why the technology is so good but I do have high respects to >> I mean look it's it we have the whole morning but it's late for you so so you go as long as as you want. >> Sure. I think like well technology wise uh I would say they have good technology that's why they can achieve higher yield which is means that um if you if you place your chipmaking order at TSMC the cost will be much more lower than you place your chip your chip uh your chip order to other places and besides technology TSMC's dominance also came from um their business model set by their founders Morris Chang they only manufacture chips they don't design or sell or sell their own chips it means that they would never compete with their customers like Apple and Nvidia so everyone can trust them with their most secretive and sensitive design. So for example like other advanced chip makers TSMZ's competitors such as Intel and South Korea Samsung electronics they design their own chips but also try to manufacturers for others. Now, you talk in the story though about how despite their dominance, the fact that they are not designing their own chips and they're relying on contracts from these chip designers, that actually is a little bit of a limitation for them in so far as how far in advance they can forecast the the facilities that they need to build. >> Yes, they are. Um, I think I remember CC Way, which is TM TSMC. Obviously, he's a he's he was in a very good mood today. Um but he did mention and admitted to the analysts that um they have been very conservative in terms of the capacity. Um obviously because of the business model and also because um they are the one they probably the the only few companies that literally need to pay like tens of billions of dollars to build the capacity and have to make sure they can sell all the capacity. Now, if I am Nvidia or Google, I'm looking to have a company make my chips. If I can't get capacity at TSMC, and I'm just using those two as an example, but where else could I go to to to get these chips made? >> I would have to say for those two big companies, >> maybe maybe bad example. [laughter] >> I I know, but it's fine. Like for for Nvidia, they probably said like, "Oh, I want like like 10 chip 10 chips." But TSMC probably said like, "Okay, you want 10 chips. I give you a like they can never they are never going to offer as much as they requested. So for any companies like this if they cannot secure enough capacity at TSMC they can totally send to other chip makers like Intel and Samsung like like the one we just meant we just mentioned but the transition can well the transition is rarely seamless you know while Samsung Intel are also have they also have uh advanced chips uh production capacity they are trying to catch up with TSMC they often struggle with lower yields um at the most advanced uh chip reductions. The yield here means the percentage of usable chips uh per wafer. So lower yields means higher cost to produce chips and also switching foundry. It's not like switching from different serial brands. It it required you know redesign uh redesigning the entire chips architecture and to fix different manufacturing technology which can take a year or two. So if TSMC really has a stronghold on the market you mentioned the 56 billion in capex are they building more factories? What is their expansion plan? >> Yes. The quick answer it's yes they are building more factory >> but >> well but not fast enough to solve the immediate crisis. Uh GSMC is building new facilities in Taiwan, Arizona and Japan's uh Kumamodo. Um but these all take years to come alive. It it and there's also a global shortage of the chip making experts that needed to operate those like complicated chipmaking machines in those factories. So and and it's not just about building the front end chip making facilities those are and also the the the advanced packaging is not enough. For example, there's uh there's a one Arizona factories by TSMC has started to produce Nvidia's most advanced black wild chips, but TSMC still has to ship them back to Taiwan for advanced packaging. >> So even if they're making them in the US, the bottleneck still remains with the facilities in Asia right now, which is that they have to package them there and then we're we're back to where we started. Really? >> Yeah. Exactly. >> Great. Well, it's a it's a company that I know that the world is watching and I want to thank you for coming on and sharing with us all that you know about uh about it. Um we will let you get some sleep because I know it's late where you are. Uh that is Channel Leu, our Asia reporter here at the information.